Only one year after the WTO ruled against China on the raw material dispute, the United States, the European Union and Japan sued China in respect of China’s restrictions on rare earth export. According to the non-discrimination principle of WTO, if China continues those export restrictions, it has to carry out restrictions on domestic rare earth users as well. The objective of this paper is to examine the justifiability of resource taxation as a way for the Chinese government to control domestic production and consumption of rare earth. The first part provides a general idea of the demand and supply sides in the world’s rare earth market. Secondly, reasons to utilize resource taxation are given and western countries’ resource taxation systems are analyzed. The third part is a closer look at current China’s resource taxation system, problems with this system are viewed, and suggestions for the upcoming resource taxation reform could be made in the fourth part.