For the past three years, Washington has asserted extensive authority, enforcing global regulations that prevent companies worldwide from supplying advanced computer chips or their manufacturing tools to China. American officials have consistently argued this approach is crucial to maintain a technological edge and prevent China from dominating artificial intelligence development.
However, a recent series of sweeping restrictions from Beijing demonstrates that the tables can turn.
Last week, the Chinese government flexed its own formidable influence over global supply chains. It unveiled new rules designed to control the flow of critical minerals—elements essential for everything from computer chips and cars to advanced missiles. These upcoming regulations, set to begin later this year, have sent shockwaves through international governments and businesses, many of whom may now require special licenses from Beijing to trade these products, even outside of China.
Analysts suggest that given its unrivaled control over rare earth mineral production and other key strategic sectors, China might possess an even greater capacity than the United States to transform supply chains into powerful economic weapons.
“The U.S. now has to face up to the fact it has an adversary which can threaten substantial parts of the U.S. economy,” noted Henry Farrell, a political scientist at the Johns Hopkins School of Advanced International Studies. He added that the relationship between the United States and China has entered a “much more delicate stage of mutual interdependence.”
“China has really begun to figure out how to take a leaf from the U.S. playbook and in a certain sense play that game better than the U.S. is currently playing it,” Mr. Farrell elaborated.
This bold move by China has reignited tensions between the world’s two largest economies. Former President Trump has already threatened to amplify existing tariffs on Chinese imports by an additional 100 percent, effective November 1, unless Beijing reverses its new restrictions.
The current approach to supply chain control, now being adopted by China, first emerged in 2020. Washington resurrected an obscure measure known as the foreign direct product rule to target the Chinese tech behemoth, Huawei, which the U.S. government deemed a national security threat. This rule dictated that any company, anywhere globally, was prohibited from shipping products to Huawei if they contained U.S. components or were produced using U.S. equipment or software.
Due to the United States’ pivotal role in the global chipmaking industry, these regulations effectively encompassed all advanced technology. This marked a significant assertion of U.S. economic power and formed the basis for subsequent global tech restrictions under the Biden administration. Despite the resentment from foreign governments, many complied to avoid being cut off from American technology.
The critical question now is whether China’s restrictions will compel the Trump administration to roll back its tariffs or long-standing technology controls, or if Beijing will yield under pressure first.
The U.S. administration appeared blindsided by China’s new regulations, which could severely impact American industries. On Friday, Mr. Trump threatened to cancel a planned meeting with Chinese leader Xi Jinping and announced a potential 100 percent tariff. After a sharp decline in stock markets, the president reassured the public on Sunday via social media, stating, “Don’t worry about China, it will all be fine!”
On Tuesday, Mr. Trump reiterated his strong stance, telling reporters and the president of Argentina that Mr. Xi “gets testy because China likes to take advantage of people and they can’t take advantage of us.” Later that day, he suggested on social media that the U.S. was considering halting cooking oil imports from China, among other potential business actions.
Wednesday morning saw Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer characterize China’s licensing system as a global power grab. They affirmed that the United States was prepared to impose tariffs if China proceeded with the new rules.
“Our expectation is that this never goes into effect,” Mr. Greer asserted.
Chinese officials have consistently voiced criticism against America’s extraterritorial enforcement of economic measures. They maintain that Beijing’s actions are consistent, especially in the face of renewed threats from Washington.
“The United States talks about engagement on one hand while resorting to threats and intimidation on the other, imposing steep tariffs and introducing new restrictive measures,” stated Lin Jian, a spokesman for the Chinese Ministry of Foreign Affairs, on Wednesday. “This is not the right way to engage with China.”
Jiang Tianjiao, an associate professor at Fudan University, observed that Chinese officials had been monitoring U.S. efforts to revitalize its own rare earth industry. He suggested that Beijing’s timing was aimed at demonstrating its leverage ahead of a potential meeting between Mr. Trump and Mr. Xi.
U.S. officials and analysts have warned that the ramifications of China’s licensing system for rare earths would be far broader than previous U.S. technology controls, which primarily targeted advanced computer chips.
Some analysts highlight that China’s attempts to weaponize supply chains predate U.S. chip restrictions. For decades, the Chinese government, mindful of its reliance on rival nations for vital resources like oil and technology, has pursued strategies to bolster its strategic industries. Notably, in 2010, during a maritime dispute, China abruptly cut off rare earth exports to Japan.
It remains unclear when Chinese officials initiated the development of this extensive rare earths licensing system. However, Mr. Trump’s recent aggressive measures, including new fees imposed on Chinese-owned ships docking at U.S. ports, have provided Beijing with an opportune moment to test these new policies.
In April, following Mr. Trump’s imposition of an additional 34 percent tariff on China, Beijing unveiled an initial rare earth licensing system specifically for exports to the automotive and defense sectors. This led to panic among U.S. businesses as mineral supplies dwindled, causing Ford Motor and other auto manufacturers to halt some production. Mr. Trump retaliated by escalating his tariffs to a minimum of 145 percent, effectively bringing much of the trade between the two nations to a standstill.
Through a series of meetings this spring and summer, both countries established a fragile truce, with the United States reducing its tariffs and China easing mineral export restrictions. However, the United States has continued to implement technology controls, provoking further retaliatory measures from China.
China’s significantly expanded mineral licensing system was introduced after a September 29 move by the United States to extend trade restrictions to the subsidiaries of any company listed on its ‘entity list’, which limits their access to U.S. technology.
Analysts believe Chinese officials perceived this U.S. action as undermining a recent tentative détente, especially after Mr. Trump’s phone call with Mr. Xi less than two weeks prior, where they reportedly agreed on a preliminary deal for TikTok’s U.S. operations to divest from its Chinese parent company.
Beijing responded with a cascade of other restrictive actions. It announced controls on equipment vital for electric vehicle battery production, initiated an antimonopoly investigation into the U.S. chipmaker Qualcomm, imposed additional port fees on U.S. ships, and added several American businesses to a restricted trade list.
However, the mineral restrictions stand out for the sheer authority they grant Beijing over the global supply of the minuscule chips that power virtually all modern electronics.
“It scares the rest of the world how far China is willing to go in upending the global supply chain,” commented Xiaomeng Lu, a director at Eurasia Group, a Washington-based political consultancy and research firm.
Chris Miller, a professor at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology,” stated that the implications of China’s new licensing system could be “extraordinarily broad,” potentially impacting nearly all semiconductors produced globally.
Companies and governments across the United States, Europe, Japan, India, South Korea, and other regions are also concerned about the extensive corporate information the Chinese government demands through this new licensing process.
Dr. Miller anticipates “a lot of resistance” to providing such detailed information, suggesting it could accelerate efforts to establish non-Chinese supply chains for rare earths. This argument parallels a long-standing criticism of U.S. technology controls: that they might inadvertently push the world towards adopting non-U.S. chip technology.
Both the United States and China are now leveraging different aspects of supply chains that the other has struggled to develop domestically for years. While China has invested billions in its chip industry, fostering the growth of its own chipmakers, the United States may require years to restart its rare earth production.
“If China is able to get around the chip restrictions but it takes the U.S. longer to get around the rare earths controls, that’s going to be a big problem for the United States,” warned Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics.
Yeling Tan, a professor at Oxford University, suggested that recent events have placed China in a stronger negotiating position than it held during the first Trump administration. However, she cautioned that the controls “might end up being costly for China, in terms of how the extraterritorial requirements might alarm other trading partners.”
“This threatens to undermine China’s credibility as a reliable trading nation,” she concluded. “It is an incredibly delicate balance to strike.”