Rare Earths, Rare Options : An analysis of welfare losses among European Union-based firms resulting from a Chinese export restriction

Sammanfattning

This master’s thesis examines the economic effects EU firms would experience in the event of a quantity restriction in rare earth elements (REE) from China, a dominant exporter and refiner of the elements. It’s assumed that the quantity restriction is directed not only at the EU, but also at several Western countries, as well as Japan and South Korea. The thesis is ex-ante, meaning it’s examining an event that hasn’t yet occurred, and does so with the help of a partial equilibrium model measuring the world price and world quantity of REE at different trade restrictions, ranging from 10% to 100% decreases. The preliminary results suggest that the world price of REE increases by as much as 39% in the event of a full restriction, and that the consumer surplus of EU industries (reliant on REE) decreases by 21%. It should, however, be noted that the existing research in the subject is relatively limited, with the data available therefore being scarce but still adequate to perform such a thesis. The results as of now are also preliminary and are open to change and suggestion. With more data likely to exist in the future, this thesis may be able to be extended and further evaluated.