For the past three years, Washington has asserted its authority to dictate global rules, preventing companies worldwide from supplying advanced computer chips or the necessary manufacturing tools to China. This strategy, according to American officials, is crucial to maintain a competitive edge in the rapidly evolving field of artificial intelligence.
However, Beijing’s recent announcement of sweeping restrictions demonstrates a clear intent to engage in the same geopolitical game.
Last week, the Chinese government showcased its considerable influence over global supply chains by implementing new controls on the export of critical rare earth minerals. These minerals are indispensable components in a vast array of products, from computer chips to automobiles and even missiles. These impending rules, set to take effect later this year, have sent shockwaves through foreign governments and businesses, who may now require licenses from Beijing to trade these products, even outside of China’s borders.
Analysts suggest that China’s unparalleled control over rare earth production and its strategic industries might grant it an even greater capacity to weaponize supply chains than the United States currently possesses.
“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 United States and China are undeniably in a much more delicate stage of mutual interdependence. Mr. Farrell further commented, “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.”
This aggressive move by China has reignited tensions between the world’s two largest economies. President Trump has responded by threatening to impose an additional 100 percent tax on Chinese imports by November 1st, unless Beijing retracts its new restrictions.
China’s current approach to supply chain restrictions dates back to 2020, when Washington revived an obscure regulation known as the foreign direct product rule. This rule was initially used to target the Chinese tech giant Huawei, deemed a national security risk by the U.S. government. Crucially, the United States didn’t just limit American technology exports to Huawei; it extended the restriction globally, prohibiting any company from shipping products to Huawei if they contained U.S. components or were manufactured using U.S. equipment or software.
Given the United States’ pivotal role in the global chipmaking industry, these regulations effectively covered all advanced technology. This broad assertion of U.S. economic power formed the foundation for a series of global tech rules under the Biden administration. While many foreign governments resented being dictated to, most complied, fearing isolation from crucial U.S. technology.
The critical question now is whether China’s new restrictions will compel the Trump administration to ease its tariffs or long-standing technology controls, or if China’s government will yield under pressure first.
The administration appeared caught off guard by China’s new rules, which have the potential to severely impact American industries. On Friday, Mr. Trump threatened to cancel a planned meeting with Chinese leader Xi Jinping and impose a 100 percent tariff. Following a plunge in stock markets, the president reassured the public on Sunday via social media, stating, “Don’t worry about China, it will all be fine!”
By Tuesday, Mr. Trump intensified his rhetoric, telling reporters and the Argentinian president 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 disruptions.
On Wednesday morning, Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer condemned the Chinese licensing system as a brazen global power grab. They reiterated that the United States was prepared to enact tariffs if China proceeded with its plans.
“Our expectation is that this never goes into effect,” Mr. Greer asserted.
For years, Chinese officials have openly criticized America’s extraterritorial application of economic measures. They now insist that Beijing’s actions are a consistent response to renewed threats from Washington. Lin Jian, a spokesman for the Chinese Ministry of Foreign Affairs, remarked on Wednesday, “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. This is not the right way to engage with China.”
Jiang Tianjiao, an associate professor at Fudan University, noted that Chinese officials observed recent U.S. efforts to revitalize its own rare earth industry. He believes Beijing’s current actions aim to demonstrate its leverage ahead of a potential meeting between Mr. Trump and Mr. Xi.
U.S. officials and analysts suggest that the implications of China’s new licensing system will be far-reaching, extending beyond the more targeted U.S. technology controls on advanced computer chips.
Some analysts highlight that China’s attempts to weaponize supply chains predate U.S. chip restrictions. For decades, the Chinese government, concerned about reliance on potentially adversarial nations for essential resources like oil and technology, has strategically invested in developing its own key industries. A notable instance occurred in 2010 when China temporarily halted rare earth exports to Japan amidst a maritime dispute.
The precise timeline for China’s development of the rare earths licensing system remains unclear. However, aggressive actions by Mr. Trump, including new fees levied on Chinese-owned ships docking at U.S. ports, have provided Beijing with an opportune moment to deploy these countermeasures.
In April, after Mr. Trump imposed additional 34 percent tariffs on China, Beijing initiated an earlier rare earth licensing system for exports vital to automakers and defense industries. This led to panic among U.S. businesses and a scarcity of mineral supplies, forcing companies like Ford Motor to halt some production. Mr. Trump retaliated by escalating tariffs to a minimum of 145 percent, effectively freezing much of the trade between the two nations.
Over the spring and summer, a fragile truce was established, with the United States reducing its tariffs and China easing mineral export restrictions. Nevertheless, the United States continued to implement technology controls, which in turn prompted further retaliatory measures from China.
China’s significantly broader minerals licensing system was introduced after the United States’ September 29th decision to extend trade restrictions. These expanded restrictions now apply to subsidiaries of any company on the so-called entity list, limiting their access to U.S. technology.
Analysts believe Chinese officials perceived this move as undermining a fragile détente, especially after Mr. Trump’s phone conversation with Mr. Xi less than two weeks prior, where a preliminary agreement was reached for TikTok’s U.S. operations to divest from its Chinese parent company.
Beijing responded with a cascade of other restrictive measures, including controls on electric car battery manufacturing equipment, an antimonopoly investigation into U.S. chipmaker Qualcomm, increased port fees for U.S. ships, and the addition of several American businesses to a restricted trade list.
However, the mineral restrictions are particularly noteworthy, as they grant Beijing extensive authority over the global supply of the minuscule chips that power nearly all electronic devices.
“It scares the rest of the world how far China is willing to go in upending the global supply chain,” stated Xiaomeng Lu, a director at Eurasia Group, a Washington-based political consultancy.
Chris Miller, a professor at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology,” highlighted that China’s new licensing system could have “extraordinarily broad” implications, potentially impacting almost all semiconductors produced globally.
Governments and companies across the United States, Europe, Japan, India, South Korea, and other nations are also expressing significant concern over the extensive corporate information that the Chinese government is demanding as part of the licensing process.
Anticipating “a lot of resistance” to providing such detailed information, Dr. Miller suggests that this could accelerate efforts to develop non-Chinese supply chains for rare earths. This argument echoes a long-standing concern among critics of U.S. technology controls: that such measures could inadvertently push the world to adopt non-U.S. chip technology.
Both the United States and China are now leveraging aspects of their respective supply chains that the other has long striven to bolster domestically. While China has invested billions in its chip industry, fostering the growth of indigenous chipmakers, the United States could face a years-long challenge to re-establish 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, an Oxford University professor, observed that recent events have significantly strengthened China’s negotiating stance compared to the first Trump administration. However, she cautions that these 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.”
Additional reporting was contributed by Xinyun Wu and Amy Chang Chien from Taipei, Taiwan.