China placed wide-ranging restrictions on critical exports to Japan this week, escalating a standoff between Beijing and Tokyo that is echoing throughout the region and beyond.
China’s Ministry of Commerce on Tuesday announced it would strengthen controls on the export of dual-use items, which have both military and civilian applications. While the announcement was vague on details, Chinese state media outlet China Daily reported Tuesday that Beijing is also considering tightening export licenses for rare earths being sent to Japan — which, like many countries, depends on those materials for key products such as cars, electronics and defense equipment.
The move is the latest salvo in China’s retaliatory actions against Japan following Prime Minister Sanae Takaichi’s remarks late last year suggesting Japan could intervene militarily if Beijing invades Taiwan, a self-governing island that the Chinese Communist Party claims as its territory. Analysts say China may also be taking advantage of the United States being focused on its interests in Venezuela and testing whether Washington would come to the defense of Japan, its ally.
“China is testing it quite aggressively,” said Kenji Minemura, senior research fellow and East Asia expert at the Canon Institute for Global Studies in Tokyo. “When it comes to a Taiwan contingency, China would find it extremely troublesome … if Japan and the United States were to act in unity.”
Why is Japan worried?
China has a near monopoly on the global mining and processing of rare earths, which are raw materials necessary for manufacturing technology and defense products. Beijing has wielded this dominance as a powerful tool of economic leverage over other countries, including in its trade war with the U.S.
China announced measures this week that intensified tensions between Beijing and Tokyo, including the ban on exports that “could enhance Japan’s military capabilities” — a nod to Japan’s ramp-up of its defense spending, which it made with an eye on China’s military buildup. This came on top of earlier retaliatory moves such as advising Chinese citizens against visiting Japan for tourism and banning Japanese seafood imports.
On Wednesday, the Commerce Ministry followed up with an antidumping investigation into Japanese imports of dichlorosilane, a material used in semiconductor manufacturing. A spokesperson for the ministry said Wednesday that the dumping “damaged the production and operation of domestic industries.”
Commerce Ministry spokesman He Yadong said at a Thursday briefing that China’s export controls on dual-use items to Japan are aimed at “preempting [Japan’s] remilitarization and nuclear weapon ambitions” and are “completely justified, reasonable and legitimate.”
It’s unclear whether the dual-use ban extends to rare earths. But Wang Guangtao, deputy director of Fudan University’s Center for Japanese Studies in Shanghai, said the dual-use export restriction “will likely extend to rare earths in practice” and “risks affecting civilian users, too.”
Such a move could have sweeping implications for Japan’s key industries, especially its automotive sector. Some materials necessary for electronic vehicles, for example, are sourced almost entirely from China.
One year of Chinese restrictions on rare earths exports could cost Japanese industries $16.5 billion and reduce its gross domestic product by 0.43 percent, according to economist Takahide Kiuchi of Nomura Research Institute.
Why is this happening now?
After months of brewing tensions, Beijing may be retaliating now due to a lack of conciliatory gestures from Japan and a more favorable international environment, analysts said.
Takaichi’s refusal to retract her remarks — in fact, her approval ratings rose after she refused — convinced China that harsher retaliation was needed, Fudan University’s Wang said. He added that President Donald Trump’s surprise capture of Venezuelan leader Nicolás Maduro this past weekend effectively invalidated the same norms around international law that Japan cites around cross-strait issues.
“What the U.S. did in Venezuela trampled on the principles of international law that Japan endorses — I think Takachi sees that too,” Wang said. “If China now decided to follow the law of the jungle like Trump did, then Japan would probably feel less confident and self-righteous in making similar arguments” against China.
Richard McGregor, senior fellow for East Asia at the Lowy Institute in Australia, agreed that Trump’s bold moves in Latin America are likely making Chinese leader Xi Jinping feel he “has more room to move now” in his own backyard.
“I think they look at what the U.S. is doing in their own hemisphere and they have a whole set of options that they would like to use, and now seems like a good time,” he said, not only because Beijing may feel emboldened, but also because Trump is distracted.
China also wants to drive a wedge between Japan and its allies, said Minemura of the Canon Institute: “Breaking up that triangle — pulling the U.S. away from Japan, Japan away from South Korea — is its ideal outcome.”
Has this happened before?
For Japan, China’s imposition of restrictions on rare earths is a déjà vu of sorts.
In 2010, China took a similar step in response to a territorial clash with Japan when a Chinese fishing vessel near the disputed Senkaku Islands, which the Chinese call Diaoyu, collided with Japanese coast guard patrol ships.
China imposed de facto restrictions on export quotas of rare earths, which pushed many Japanese manufacturers to the brink of suspending their operations. China had accounted for 90 percent of Japan’s imports of rare earths in 2010.
Since then, Japan took steps to wean itself off of China’s dominance by developing its own substitutes for rare earths through public- and private-sector efforts and diversifying its sources of the materials.
Still, it relies on China for some 60 percent of its rare earths and has not been able to break away, especially because China has 100 percent dominance over certain elements.
A ban would be crushing for Japan’s manufacturing sector, if production for certain components becomes more difficult and prices rise as a result, said Mariko Mabuchi, chief executive of the Japan Research Institute of Finance and Economy in Tokyo.
Why are other countries watching Japan so closely?
Japan has proved a model for how countries — including the U.S. — can reduce their dependence on China for rare earths. Yet it remains vulnerable.
“Even though Japan has made the biggest strides to reduce their reliance on China for rare earths owing to what happened in 2010, it’s not decoupled,” said Gracelin Baskaran, a critical minerals expert at the Center for Strategic and International Studies in Washington. “So there will be consequences.”
As global demand for rare earths rises, there is competition for non-Chinese supplies — making it even more difficult to find alternatives, said Yoshikiyo Shimamine, senior fellow at the Dai-ichi Life Research Institute in Tokyo.
In the meantime, many experts are pessimistic about a near-term resolution to the geopolitical spat between Japan and China.
“It’s going to persist throughout the whole year until something has to give,” said Collin Koh, senior fellow at the S. Rajaratnam School of International Studies in Singapore.
Chie Tanaka in Tokyo and Lyric Li in Seoul contributed to this report.
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