Modeling rare-earth and energy materials supply chains under theoretical China-outer-Mongolia political reunification scenarios

Abstract

Critical rare earth elements, lithium, copper, and coal underpin global clean energy transitions and advanced manufacturing, yet China faces persistent supply volatility and resource security risks amid fragmented cross-border mineral trade with Outer Mongolia. This paper constructs a dynamic partial equilibrium Stackelberg supply chain model spanning ten years, integrating three geographic nodes: Outer Mongolia's mineral extraction sector, Baotou's rare earth processing hub in Inner Mongolia, and residual demand from the Rest of the World (RoW). The model endogenizes core mechanisms including mineral supply curves constrained by infrastructure stock, lagged capital accumulation, Leontief processing production functions, profit-driven investment, and optimal export tax policy maximizing China's discounted social welfare. Three comparative scenarios are calibrated and simulated: a baseline status-quo trade framework, deep Sino-Mongolian resource integration, and a delayed cross-border infrastructure counterfactual.