Abstract: This paper aims to study the impact of fluctuations in rare earth element prices on China’s rare earth industry. By comparing and analyzing the price fluctuations of rare earth elements in 2011 and 2020, the specific mechanisms of their effects on the industrial chain and supply chain are explored, in order to provide strategic recommendations for the sustainable development of China’s rare earth industry. In terms of the industrial chain, analyze the impact of price increases on rare earth resource mining and terminal application enterprises; in terms of supply chain, study the mechanism of price fluctuations on the raw material costs, operational risks, and supply chain stability of rare earth enterprises. At the same time, combined with the changes in the international rare earth industry pattern, this paper explores the impact of price fluctuations on the reconstruction of rare earth supply chains in the West. The research has found significant differences in the upward trend, magnitude, and timing of rare earth element price fluctuations between 2011 and 2020. At the level of the industrial chain, the significant increase in prices has increased the mining intensity of rare earth resources at the front end of the industrial chain. However, end application enterprises have a strong ability to withstand continuous price increases, indicating differences in the sensitivity of different links in the industrial chain to price fluctuations. At the supply chain level, price fluctuations have led to a significant increase in raw material costs and operational risks for rare earth enterprises, ultimately affecting the stability of the entire supply chain. In addition, price fluctuations have accelerated the pace of restructuring the rare earth supply chain in the West, posing a potential threat to the international status and market share of China’s rare earth industry. To cope with the challenges brought by fluctuations in rare earth element prices, it is recommended to accelerate the research and development progress of high abundance rare earth permanent magnet materials, increase investment in environmental protection technologies for green mining and smelting of rare earths, and seize the commanding heights of industrial technology; implement element based control strategies, significantly increase the supply of key elements such as neodymium and dysprosium, and stabilize the prices of rare earth elements; at the same time, encourage enterprises to expand overseas and maintain trade relations with Western countries to enhance the competitiveness and risk resistance of China’s rare earth industry in the global market.