Geopolitical Shocks and the Restructuring of the Rare Earth Supply Chain: Case of US–China Decoupling

Amid intensifying geopolitical tensions, the security of critical mineral supply chains has drawn growing global concern. Rare earth elements have become a strategic battleground in U.S.–China competition over technology and trade. Using product-level trade data (2017–2023), this study employs a counterfactual approach to identify the impact of trade shocks on U.S. import patterns and further evaluates macroeconomic consequences through a multi-regional input–output (MRIO) model. Empirical findings indicate the following: First, the trade conflict has significantly reshaped the U.S. rare earth supply chain, with notable heterogeneity across product types. Second, our evidence suggests that geopolitical proximity is not the decisive factor in the selection of new rare earth suppliers. Instead, the technological capabilities of substitute countries and their existing integration within the China-centered global rare earth supply chain play a more critical role. Third, the input–output simulation quantifies the macroeconomic consequences of supply chain restructuring. The results show that reducing reliance on China leads to a systematic increase in U.S. domestic production costs, welfare losses, and negative spillovers to global trade partners through price shocks and efficiency declines. These findings reveal the inherent tension between market logic and geopolitical objectives in supply chain governance. They underscore the central importance of supply-side capacity building and technological self-sufficiency in securing critical minerals, while highlighting the sustainability implications of geopolitically driven supply chain restructuring, especially the need to balance resource security, economic efficiency, and long-term resilience.