For the last three years, Washington has asserted its authority to dictate global trade, preventing companies worldwide from supplying China with advanced computer chips and the essential tools to produce them. US officials maintain that this strategy is crucial to prevent China from dominating the advanced artificial intelligence sector.
However, Beijing recently unveiled a comprehensive set of restrictions, demonstrating that it, too, can wield significant influence in this high-stakes economic battle.
The Chinese government has now leveraged its own power over global supply chains. It unveiled new regulations to control the export of vital rare earth minerals, which are indispensable components in various industries, from electronics to automotive and defense. These upcoming rules have taken foreign governments and businesses by surprise, as they may soon require Beijing’s permission to trade these products, even when transactions occur entirely outside China.
Analysts suggest that China’s strong position in rare earth mineral production and its control over other key strategic industries could give it an even stronger hand than the United States when it comes to weaponizing global supply chains.
“The US must now confront the reality that it faces an adversary capable of threatening significant segments of the American economy,” noted Henry Farrell, a political scientist at the Johns Hopkins School of Advanced International Studies. He emphasized that the relationship between the two nations has entered a much more precarious phase of mutual reliance.
Farrell added, “China has truly learned how to adopt tactics from the US strategy and, in some ways, is executing that game more effectively than the US is right now.”
This bold step by China has reignited tensions between the world’s leading economies. Former President Trump has responded with a threat to escalate existing tariffs on Chinese imports, proposing an additional 100 percent tax starting November 1st, should Beijing refuse to retract its new restrictions.
China’s current approach to supply chain restrictions mirrors a strategy first employed by Washington in 2020. At that time, the US invoked a little-known provision, the foreign direct product rule, against Chinese tech giant Huawei, which was deemed a national security risk. This rule didn’t just limit direct American tech exports to Huawei; it effectively prevented any company globally from shipping products to Huawei if those products contained US components or were manufactured using US equipment or software.
Given the United States’ pivotal role in the global chip manufacturing sector, these regulations broadly impacted nearly all advanced technology. This marked a significant demonstration of US economic power, serving as the blueprint for subsequent global tech policies under the Biden administration. Despite initial resistance from foreign governments, many ultimately complied to avoid being cut off from vital American technology.
The critical question now is whether China’s new restrictions will compel the Trump administration to reconsider its tariffs or existing tech controls, or if Beijing’s government will be the first to yield to international pressure.
The American administration appeared unprepared for China’s restrictions, which pose a serious threat to US industries. On Friday, Mr. Trump threatened to cancel an upcoming meeting with Chinese leader Xi Jinping and impose an additional 100 percent tariff. Following a sharp drop in stock markets, the former president attempted to reassure the public on social media, stating, “Don’t worry about China, it will all be fine!”
By Tuesday, Mr. Trump resumed his sharp criticism, telling reporters and the Argentine president that Mr. Xi becomes irritable because “China likes to take advantage of people and they can’t take advantage of us.” Later that day, he announced via social media that the US was contemplating an end to cooking oil imports from China, along with other potential business disengagements.
The following Wednesday morning, Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer characterized China’s new licensing system as an aggressive global power play. They affirmed that the United States was prepared to enact its proposed tariffs if China proceeded with its restrictions.
Mr. Greer stated, “Our expectation is that these measures will never actually be implemented.”
For years, Chinese officials have openly criticized America’s practice of enforcing economic regulations beyond its borders. They maintain that Beijing’s actions are consistent and proportional in response to Washington’s escalating threats.
“The United States speaks of engagement while simultaneously employing threats and intimidation, imposing high tariffs, and introducing new restrictive measures,” commented Lin Jian, a spokesperson for the Chinese Ministry of Foreign Affairs, on Wednesday. “This is not the appropriate method for interacting with China.”
Jiang Tianjiao, an associate professor at Fudan University, explained that Chinese officials observed recent US efforts to revive its domestic rare earth industry. He suggested that China’s latest moves are a strategic demonstration of leverage ahead of a potential meeting between Mr. Trump and Mr. Xi.
US officials and analysts have indicated that the Chinese licensing system could have far-reaching implications, extending beyond the scope of US technology controls that have primarily focused on advanced computer chips.
Notably, China’s history of weaponizing supply chains predates the current US chip controls. For decades, the Chinese government has been strategically developing key industries, driven by concerns over reliance on rival nations for vital resources like oil and technology. A notable instance occurred in 2010 when China halted rare earth exports to Japan amidst a maritime dispute.
The exact timeline for the development of China’s rare earth licensing system remains unclear. However, Mr. Trump’s assertive policies, such as imposing new fees on Chinese-owned ships docking at US ports, have certainly provided Beijing with a timely opportunity to implement these retaliatory measures.
Following Mr. Trump’s imposition of an additional 34 percent tariff on China in April, Beijing introduced an initial rare earth licensing system specifically for exports to the automotive and defense sectors. This led to widespread panic among US businesses as crucial mineral supplies became scarce. Companies like Ford Motor were forced to halt some production. In response, Mr. Trump further escalated tariffs to a minimum of 145 percent, effectively bringing a large portion of trade between the two nations to a standstill.
Through a series of meetings during the spring and summer, a delicate truce was established: the United States lowered its tariffs, and China eased its mineral export restrictions. Nevertheless, the US continued to implement technology controls, which in turn provoked significant countermeasures from China.
China’s broader mineral licensing system was introduced in the wake of a US action on September 29th to extend trade restrictions. This expansion meant that subsidiaries of any company on the US “entity list”—which limits access to American technology—would also face restrictions on what they could purchase.
According to analysts, Chinese officials saw this move as a disruption to a recent, fragile thaw in relations. This was particularly notable as Mr. Trump and Mr. Xi had spoken by phone less than two weeks prior, reportedly reaching a preliminary agreement to separate TikTok’s US operations from its Chinese parent company.
Beijing retaliated with a series of other restrictive measures. These included controls on essential equipment for electric car batteries, initiating an antitrust investigation into US chipmaker Qualcomm, levying extra port fees on US ships, and placing several American businesses on a restricted trade list.
However, the mineral restrictions are particularly significant as they grant Beijing extensive control over the global supply of the crucial tiny chips that power almost every electronic device today.
Xiaomeng Lu, a director at Eurasia Group, a Washington-based political consultancy, remarked, “The extent to which China is willing to disrupt the global supply chain is truly alarming to the international community.”
Chris Miller, a professor at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology,” stated that China’s new licensing system could have “exceptionally broad” consequences, impacting nearly all semiconductors produced worldwide.
Governments and corporations across the United States, Europe, Japan, India, South Korea, and other regions are equally apprehensive about the vast amount of sensitive corporate data the Chinese government demands through its licensing procedures.
Dr. Miller predicted “a great deal of resistance” to these data requests, suggesting it would likely hasten the development of non-Chinese supply chains for rare earths. This echoes a long-standing concern among critics of US technology controls: that such measures could inadvertently drive the world towards adopting non-American chip technologies.
Both the United States and China are now weaponizing different aspects of supply chains that the opposing nation has struggled to strengthen domestically for years. While China has invested billions to grow its semiconductor industry, fostering numerous local chipmakers, the US faces a much longer road to revive its own rare earth production capabilities.
Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, warned, “If China successfully navigates chip restrictions while the US takes longer to circumvent rare earth controls, this will create a significant disadvantage for the United States.”
Yeling Tan, an Oxford University professor, observed that recent events have placed China in a more advantageous negotiating position compared to its standing during the initial Trump administration. However, she cautioned that these controls “could ultimately be detrimental to China, especially if their extraterritorial nature alienates other global trading partners.”
She concluded, “This threatens to erode China’s reputation as a dependable trading partner. It’s an exceptionally precarious balance to maintain.”