○ Around Deng Xiaoping’s famous 1992 statement, "The Middle East has oil; China has rare earths," China has relentlessly cultivated rare earth elements as a strategic national leverage.

• Phase 1 (Late 1980s–1990s): Low-cost dumping and elimination of competitors; Phase 2 (2000s): Consolidation of market disorder and strengthening state control; and Phase 3 (2010s–Present): Establishment of a mega state-owned "Big 2" enterprise system.

• Leveraging this absolute dominance, China actively utilizes rare earths as a "choke point" to strangle adversaries during diplomatic or economic disputes.

○ The U.S. Trump administration has expressed a firm determination to de-risk over the medium to long term, even at the expense of braving Chinese retaliation.

• Despite rare earths being a critical Achilles' heel for manufacturing advanced U.S. defense systems like the F-35 fighter jet, the stance remains clear: "We must break long-term dependency even if it entails short-term pain."

• The U.S. is deploying a strategy to construct a "China-free supply chain" through legal frameworks, massive financial infusions, and breakthrough "game-changer" technologies.

○ Following China's "rare earth retaliation" during the 2010 Senkaku Islands dispute, Japan has waged a persistent effort to overcome its rare earth trauma.

• Framing rare earth self-reliance as a national survival strategy, the Japanese government and private sector jointly executed three major technological strategies: reduction, substitution, and recycling.

• As a result, Japan successfully reduced its dependence on Chinese rare earths from nearly 90% in 2010 to below 60% as of 2026.

○ The rare earth hegemony war resembles a multidimensional equation interwoven with geopolitics, tech supremacy, and supply chain dynamics. Through a Game Theory approach, three potential scenarios emerge.

• Realistically, scenarios involving co-opetition (coexistence) or fragmented self-reliance (decoupling) are deemed more likely than a mutually destructive scenario (risk explosion) where both China and the West suffer catastrophic damage.

○ For South Korea—a world-class manufacturing power yet resource-scarce nation—the most pragmatic solution is a balancing strategy: maintaining the stability of Chinese supply chains as much as possible in the short term, while gradually integrating into Western-led independent supply chains.

• [Short-term, Upstream] Supply Chain Resilience: Diversifying and acquiring supply chain assets.

• [Mid-term, Midstream] Technological Sovereignty: Internalizing separation and refining technologies.

• [Long-term, Downstream] Alternative & Circular: Achieving technological substitution and a circular economy.