China's Export Controls on Strategic Materials: Formal Modeling of Costly Signaling

Abstract Why do states impose export controls that harm their own economies? We reinterpret such measures as costly signals of technological autonomy rather than coercive sanctions. A Bayesian signaling model with dynamic cost structures and bounded monotonicity shows that credible signaling functions only within limited regimes. Once perceived threat crosses a critical threshold, information revelation triggers defensive counter-investment and welfare loss—a tragedy of signaling in which credibility becomes self-defeating. Methodologically, the framework infers information from regime identification rather than parameter estimation: observed escalation locates the system within a bounded equilibrium region, while theory predicts when qualitative regime shifts occur. Empirically, China’s 2023–2025 export controls on gallium, graphite, and rare earths exhibit perfect rank-ordering, consistent with operation inside the credible-signaling regime even as Western counter-investments approach its boundary. The model offers testable predictions about regime transitions, illustrating how formal theory can anticipate structural breaks in technologically interdependent rivalries.