Does geopolitical risk matter for the scale of bilateral trade in rare earth?

Abstract

Geopolitical risks increasingly threaten global supply chain and trade stability. As a strategically vital resource, rare earths hold substantial economic value in bilateral trade and have become a key arena for international competition and negotiation. Amid geopolitical tensions, rare earth trade is especially susceptible to becoming a focal point of conflict. Therefore, this paper examines how geopolitical risk affects the volume of bilateral rare earth trade, with a focus on the underlying mechanisms and its varied impact across different segments of the rare earth industry chain. We collect bilateral trade data for the complete rare earth industry chain, encompassing upstream ores, midstream smelted products, and downstream functional materials, from key trading entities such as China, the United States, Australia, the Netherlands, Germany, Malaysia, Vietnam, Japan, South Korea, and Thailand between 2000 and 2021. Subsequently, a panel regression model is used to evaluate the extent. The findings indicate that geopolitical risk has a negative effect on the scale of bilateral trade in rare earth. Specifically, it inhibits the scale of bilateral trade in rare earth by increasing trade costs and altering bilateral political relations between countries. However, a favorable institutional environment of trading partner countries can mitigate this negative effect. The heterogeneous results show that geopolitical risk has a negative effect on the scale of bilateral trade in upstream and midstream rare earth products. In contrast, it has a promotive effect on the scale of bilateral trade in downstream rare earth products. This is attributed to the greater competitiveness and irreplaceability of downstream products compared to other rare earth products. This research helps countries address the shock of geopolitical risk and establish a more stable rare earth trade system in a complex and constantly changing world.

Keywords

Geopolitical risk / Bilateral trade in rare earth / Trade costs / Bilateral political relations / Rare earth industry chain

RIGHTS & PERMISSIONS

Higher Education Press 2026

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