China’s Export Restrictions on Rare Earths and Other Critical Minerals May Reduce Japan’s Real GDP by 1.3–3.2%

◆If imports of rare earths from China were cut off, with supply constraints on components continuing for one year, and domestic production were curbed, Japan’s real GDP would likely decline by about 1.3% (around 7 tril yen) and the number of employed persons would be reduced by about 1.3% (approximately 0.9 mil people). If, in addition, other critical minerals could no longer be imported from China, the decline could widen to around 3.2% (roughly 18 tril yen) for real GDP and about 3.2% (approximately 2.16 mil people) for employment.

◆Manufacturing would be particularly hard hit. Our industry-level estimates of the impact on real GDP from a suspension of imports of rare earths and other critical minerals from China suggest that many manufacturing industries would see declines of more than 5%. Among them, Transportation Machinery, including the automobile industry, would see a contraction of as much as 17.6%.