The Chinese Ministry of Commerce recently announced punitive trade measures against 28 American companies. Additionally, they will expand export restrictions on components for manufacturing batteries and processing key minerals such as lithium and gallium. Experts believe that the sanctions against arms dealers by China are merely a show of authority, while the impact from rare earth restrictions has decreased significantly, accelerating the decoupling of the US-China supply chain and potentially escalating the trade war between the two countries.
At the beginning of the new year in 2025, China escalated its sanctions against American defense contractors. The Chinese Ministry of Commerce issued a notice on the 2nd identifying 28 American entities, including General Dynamics, Lockheed Martin, and Raytheon, to be placed on the export control list, prohibiting the export of dual-use items to them. These entities listed are mostly major defense industry giants.
On the same day, another notice from the Chinese Ministry of Commerce proposed export restrictions on some technologies used in manufacturing battery components and processing key minerals like lithium and gallium. These metals are commonly used in rechargeable batteries and semiconductor industries.
Multiple media outlets, including Agence France-Presse, suggested that Beijing’s actions were in response to the Biden administration’s recent increase in arms sales to Taiwan, sending a signal to the incoming President Biden (Trump) that any escalation in American policy towards China will be met with a response. This move by China could further intensify tensions between the US and China.
Why did Beijing launch a strong counterattack against President Biden’s arms sales to Taiwan at the beginning of 2025? How will this impact the United States, especially with the new government led by Trump 2.0? Hu Zhendong, a former Pentagon official and former general manager of Raytheon Taiwan, told Dajiyuan that China’s retaliation against these American arms companies selling weapons to Taiwan is actually quite limited in its effectiveness, mainly serving as a face-saving measure to express displeasure over the US armament sales to Taiwan.
Raymond Kuo, a senior political analyst at the Rand Corporation, stated that even if there are any effects, they will not significantly impact these enterprises, as they were already not conducting business with China.
Despite strong opposition from China, American defense companies faced sanctions eight times in 2024 alone. However, the companies on the list continued military technology cooperation and weapon sales with Taiwan.
According to reports by financial information agency, by the end of June 2024, the Beijing government announced the “Rare Earth Management Regulations” to better control the national rare earth supply chain from mining to sales. Rare earth consists of 17 metals, some of which are crucial in industries like automotive, defense, wind energy, and electronics, with China dominating 90% of global supply.
Hu Zhendong commented that China’s export restrictions on rare earths were expected, causing some initial disruptions to certain American industries. The U.S. has strategic reserves of rare earths, offering time to seek alternative sources, including intermediaries purchasing from China for resale to the US.
Su Zi Yun, Director of Taiwan’s National Defense Strategy and Resources Bureau, noted that in 2012, during the sovereignty dispute over the Diaoyu Islands between China and Japan, China artificially raised the price of rare earth exports, resulting in significant impact on global technology industries. This event led many countries to understand that rare earths were used as bargaining chips by China, prompting them to develop contingency plans.
Su Zi Yun outlined three general contingency plans: restarting domestic rare earth mining, utilizing technology for equipment refinement and recycling, and reducing product demand for rare earths through technological advancements. While China does hold some influence with rare earths, its impact has diminished over time.
Taiwanese senior political and economic commentator Wu Jialong suggested that China’s export restrictions actually reduce America’s reliance on rare metals from China, expediting the decoupling of the US-China supply chain.
Wu Jialong explained that China’s restrictions signal a proactive decoupling initiative, hoping to diminish Western countries’ access to critical rare metals essential for technological advancements, thereby aiding the US in its goal to reduce dependency on China.
Hu Zhendong pointed out that China’s export restrictions could benefit the US by accelerating the research and development of alternative rare earth minerals.
A 2022 report by the US Geological Survey indicated that China is the largest producer and holder of rare earths globally. In contrast, the US, with the sixth-largest reserves of rare earth minerals, saw its reserves increase from 1.8 million tons in 2021 to 2.3 million tons in 2022, producing 43,000 tons, ranking second globally.
Wu Jialong noted that while the US possesses abundant rare earth minerals, environmental concerns led to their decision to import. By playing the rare earth export restriction card, China may temporarily trouble the US, but the risk is manageable and unlikely to cause significant impact.
Citing data released by Chinese customs in December 2024, the Nikkei Asian Review reported that from January to November 2024, the US’s share of China’s total import and export volume in US dollars stood at 11.2%, a decrease of 4.6 percentage points compared to 2001, covering goods trade. This data highlights the reduced dependency of the US market on China.
Regarding the possibility of an escalation in US-China trade war 2.0, Hu Zhendong commented that the US would leverage this opportunity to address the severe trade imbalance caused by China’s predatory trade practices over the decades. The European Union has also recognized China’s unfair trade behavior and has begun taking action.
“With the ongoing decoupling of the US-China supply chain, an escalation in the trade war is inevitable,” noted Wu Jialong. US leaders frequently stress the need to defend the rules-based international order jointly. China has persistently failed to abide by commitments and rules, leading to retaliatory actions from other countries.
“China also desires decoupling, aiming to lessen reliance on markets and technology to avoid being stifled by the US,” Wu Jialong added.
The US’s intent to decouple, reduce reliance on the Chinese supply chain, pursue supply chain security, and thereby enhance economic and national security remains a priority.
The bipartisan US-China Economic and Security Review Commission recently proposed to the US Congress the termination of China’s Permanent Normal Trade Relations (PNTR) status since its entry into the World Trade Organization (WTO) in 2001. Cancelling China’s PNTR would further expedite the decoupling of the US-China economic relationship.
As concerns arise about a potential full-scale war resulting from the US-China trade war, Wu Jialong emphasized the need for geopolitical considerations, domestic stability factors, and calculations regarding the costs of military ventures. A full-scale war operates on a different spectrum from a trade war, involving a distinct set of challenges and implications.