Geoeconomic Instrument Choice and Domestic Political Economy: Explaining Variation in Strategic Rare Earth Investment Among Liberal Democracies

This thesis examines the variation in geoeconomic instrument choice among liberal democracies by comparing U.S. and Japanese strategic investments in the Rare Earth Element (REE) supply chain. Despite facing near-identical systemic vulnerabilities following the 2010 Senkaku Islands incident, these states utilized divergent economic tools to mitigate risk. While Japan rapidly mobilized coordinated state-firm mechanisms, the United States relied on "market rational" solutions for nearly a decade. Synthesizing the "Varieties of Capitalism" (VoC) framework with geoeconomic theory, I argue that domestic political economy acts as a filter that strongly influences the "menu of options" available to policymakers. Japan's Coordinated Market Economy (CME) facilitated direct equity investments and "sovereign umbrellas" through state organization likes METI and JOGMEC. Conversely, the U.S. Liberal Market Economy (LME) experienced significant institutional friction due to statutory limitations, acceptable corporate governance norms, and arms-length state-firm relationships. Through a comparative process-tracing analysis of investments each state took in the wake of the 2010 supply shock, including the Lynas Rare Earths transactions, this research demonstrates that while the U.S. is undergoing an institutional transition toward coordinated state-firm dynamics, exemplified by the recent implementation of industrial policy laws, the persistence of long-standing LME norms continues to hinder geoeconomic agility. I conclude that in Great Power Competition, states can experience increased strategic vulnerability due to the rigidity of their domestic economic model as opposed to their resource endowment.