For the past three years, Washington has aggressively asserted its authority, imposing global regulations that prevent companies worldwide from exporting cutting-edge computer chips and the essential tools for their production to China. American officials contend this strategy is crucial to maintain their lead in the artificial intelligence race and prevent China from gaining a decisive advantage.
However, a comprehensive new set of restrictions unveiled by Beijing last week clearly demonstrates that this is a game two nations can play.
Leveraging its significant power over global supply chains, the Chinese government announced strict new regulations designed to curtail the export of vital minerals. These minerals are indispensable components in a wide array of products, from computer chips to automobiles and even advanced missiles. The impending rules, scheduled for implementation later this year, have sent shockwaves through international governments and industries, potentially forcing them to secure licenses from Beijing for trade, even in markets beyond China’s borders.
With its dominance over the production of these rare earth minerals and its control of other strategic industries, China may wield even greater power than the United States when it comes to weaponizing global supply chains, according to analysts.
“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,” stated Henry Farrell, a political scientist at the Johns Hopkins School of Advanced International Studies. He added that the United States and China are now navigating a much more delicate stage of mutual interdependence.
Mr. Farrell observed, “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.”
China’s latest move has reignited tensions between the world’s two largest economies. In response, Mr. Trump has threatened to impose an additional 100 percent tax on Chinese imports, a significant increase to existing tariffs, effective November 1, unless Beijing reverses its new restrictions.
The strategy of supply chain restriction now adopted by China was first seen in 2020. Washington revived an obscure provision known as the foreign direct product rule to target the Chinese tech giant Huawei, which the U.S. government deemed a national security threat. This rule extended beyond merely restricting American technology exports to Huawei; it dictated that no company globally could ship a product to Huawei if it contained U.S. components or was manufactured with U.S. equipment or software.
Given the United States’ pivotal role in the global chipmaking industry, these regulations effectively covered all advanced technology. This marked a significant assertion of U.S. economic power and became the foundation for a series of global technology controls implemented during the Biden administration. Despite discomfort among foreign governments at these mandates, many complied, fearing exclusion from essential U.S. technology.
The critical question now is: Will China’s new restrictions compel the Trump administration to roll back its tariffs or long-standing technology bans, or will China’s government yield under pressure first?
The Trump administration appeared caught off guard by China’s restrictions, which pose a significant threat to American industries. On Friday, Mr. Trump threatened to cancel a scheduled meeting with Chinese leader Xi Jinping and impose a 100 percent tariff. Following a plunge in stock markets, the president reassured on social media Sunday, “Don’t worry about China, it will all be fine!”
On Tuesday, Mr. Trump intensified his criticism, telling reporters alongside 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 afternoon, Mr. Trump announced on social media that the United States was considering halting cooking oil imports from China, among other potential business actions.
On Wednesday morning, Treasury Secretary Scott Bessent and Jamieson Greer, the U.S. trade representative, publicly denounced the Chinese licensing system as a global power grab. They affirmed that the United States was prepared to enact its tariffs if China proceeded with its proposed measures.
“Our expectation is that this never goes into effect,” Mr. Greer stated.
Chinese officials have consistently voiced criticism of America’s extraterritorial enforcement of economic measures, maintaining that Beijing has acted with unwavering resolve 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,” Lin Jian, a spokesman for the Chinese Ministry of Foreign Affairs, said on Wednesday. “This is not the right way to engage with China.”
Jiang Tianjiao, an associate professor at Fudan University, noted that Chinese officials were aware of recent U.S. efforts to revitalize its domestic rare earth industry. She suggested that China intended to assert its leverage before a potential meeting between Mr. Trump and Mr. Xi.
U.S. officials and analysts have indicated that the ramifications of China’s licensing system could be far more extensive than those of U.S. technology controls, which primarily targeted more advanced computer chips.
China’s strategies to weaponize supply chains, some analysts argue, predate American chip controls. For decades, the Chinese government has meticulously developed plans to bolster strategic industries, driven by concerns over reliance on adversarial nations for essential resources like oil and technology. A notable instance occurred in 2010 when China halted rare earth exports to Japan amidst a maritime dispute.
The precise timeline for when Chinese officials began developing the rare earths licensing system remains unclear. However, Mr. Trump’s aggressive stance, including new fees levied on Chinese-owned ships docking at U.S. ports, presented Beijing with an opportune moment to implement these measures.
In April, after Mr. Trump imposed additional tariffs of 34 percent on China, Beijing initiated an initial rare earth licensing system specifically for exports to the automotive and defense sectors. U.S. businesses reacted with alarm as mineral supplies dwindled, leading to production halts at companies like Ford Motor and others. Mr. Trump retaliated by further escalating his tariffs to a minimum of 145 percent, effectively bringing a large portion of trade between the two countries to a standstill.
During meetings throughout the spring and summer, a fragile truce was established, where the United States reduced its tariffs, and China eased its mineral export restrictions. Nevertheless, the United States persisted with its technology controls, provoking China to implement painful countermeasures.
China’s substantially expanded minerals licensing system was introduced following a September 29 decision by the United States to extend trade restrictions to include subsidiaries of any company on the so-called “entity list,” which limits their access to U.S. technology.
Analysts suggest that Chinese officials perceived this expansion as undermining a tentative de-escalation that had begun less than two weeks earlier. At that time, Mr. Trump had reportedly spoken with Mr. Xi by phone and announced a preliminary agreement for TikTok’s U.S. operations to be divested from its Chinese parent company.
Beijing responded with a suite of other restrictive measures, including controls on electric car battery manufacturing equipment, an antimonopoly investigation into the U.S. chipmaker Qualcomm, increased port fees for U.S. ships, and the addition of several American businesses to a restricted trade list.
Yet, it is the mineral restrictions that stand out, granting Beijing immense authority over the global supply of the minuscule chips essential for virtually all electronic devices.
“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 organization.
Chris Miller, a professor at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology,” emphasized that China’s new licensing system could have “extraordinarily broad” implications, potentially impacting nearly all semiconductors produced worldwide.
Companies and governments across the United States, Europe, Japan, India, South Korea, and other regions are deeply concerned about the extensive corporate data the Chinese government is demanding as part of the licensing process.
Dr. Miller anticipates “a lot of resistance” to providing such sensitive information, suggesting it could accelerate global efforts to establish non-Chinese supply chains for rare earths. This mirrors an argument long made by critics of U.S. technology controls: that such measures could inadvertently drive the world toward non-U.S. chip technology.
Both the United States and China are now leveraging elements of supply chains that the other has historically struggled to cultivate domestically. While China has invested billions in its chip industry, fostering the growth of its own chip manufacturers, the United States could require years to re-establish robust rare earth production.
“If China is able to circumvent 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 developments have positioned China in a stronger negotiating stance compared to its standing during the first Trump administration. However, she cautioned 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.”
Xinyun Wu and Amy Chang Chien contributed reporting from Taipei, Taiwan.