This study investigates China's use of rare earth element (REE) export controls as instruments of coercive resource diplomacy and evaluates Western deterrence options through a mixed-methods research design integrating event study analysis, process-tracing case studies, and game-theoretic modeling. China's dominance over the rare earth supply chain—controlling approximately 60% of global mining and 90% of processing capacity—has created strategic vulnerabilities for Western nations dependent on these critical minerals for defense systems, clean energy technologies, and advanced manufacturing. Drawing on economic statecraft theory (Baldwin, 1985; Drezner, 2003), deterrence frameworks (Schelling, 1966; Morgan, 2003), and weaponized interdependence literature (Farrell & Newman, 2019), this research examines four empirical cases: the 2010 Japan embargo, the 2012-2014 WTO dispute period, the 2023-2025 graduated export control escalation, and the November 2025 diplomatic pause. Quantitative analysis of 25 policy events reveals significant cumulative abnormal returns for Western rare earth producers, including +29.36% for MP Materials following October 2025 MOFCOM controls and -39.11% for Lynas Rare Earths following diplomatic resolution announcements. Trade flow analysis documents $9.9 billion in Chinese rare earth exports to the United States, Japan, and European Union between 2010 and 2024, with Japan representing the largest import partner. Price volatility analysis indicates highest market disruption during the 2011-2014 WTO dispute period, with strong correlation (r = 0.85) between trade values and strategic rare earth prices. All four research hypotheses receive empirical support, demonstrating that export controls generate significant market reactions, escalation follows predictable patterns, Western resilience moderates coercion effectiveness, and diplomatic resolutions impact market expectations. The findings contribute to economic statecraft theory by documenting the "coercion paradox" whereby restrictions accelerate Western diversification efforts, ultimately undermining long-term Chinese leverage. Policy implications address optimal deterrence configurations for policymakers, industry stakeholders, and alliance coordination mechanisms.