Rare Earth, Raw Power: How China Plays the Carrot and Stick Game of the Century

Xinyue Hu and Meng Kit Tang

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Just as oil drove geopolitical tensions in the 20th century, rare earth elements could shape the rivalries of the 21st. These 17 metals – including the 15 lanthanides, plus scandium and yttrium – are essential to modern technologies, from smartphones and electric vehicles to wind turbines, radar systems, and fighter jets. They are the key enablers of the advanced technologies and military capabilities that underpin modern global power.

China accounts for approximately 60 percent of global rare earth raw material production, processes about 85 percent of the world’s output, and manufactures nearly 90 percent of the world’s rare earth magnets. It controls nearly all the refining capacity for heavy rare earth elements such as dysprosium and terbium, which are essential for high-performance magnets.

China dominates this sector not by chance, but thanks to a strategic effort spanning decades. Despite being a latecomer, China steadily overtook the United States. In the 1980s, the U.S. led rare earth production, primarily through the Mountain Pass mine in California. However, strict environmental regulations increased costs, leading to mine closures by the early 2000s. China capitalized on this opportunity by leveraging its relatively lax environmental regulations and extensive state subsidies, reducing its production costs and eventually surpassed the U.S.

By 2025, Beijing is more openly leveraging its control over rare earths, using them both as a stick to pressure geostrategic rivals like the U.S. and as a carrot to incentivize cooperation with states such as Malaysia.

China’s Geopolitical Playbook: Carrots and Sticks

China uses a two-pronged strategy to influence power politics, combining rewards and pressure in what is often called a “carrot and stick” approach. It offers technology transfers and access to resources to countries with relatively stable ties to Beijing, while enforcing export controls and other restrictions on its geostrategic competitors. Using rare earths to advance its geostrategic interests has proven to be relatively effective for China.