With Donald Trump poised to expand tech sanctions in the name of national security, Beijing has signalled it won’t shy away from retaliation
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On December 3, 2024, China imposed its most stringent set of critical mineral restrictions after the United States not only slapped export controls on 24 types of chipmaking equipment and three categories of software essential for semiconductor development, but also added 140 Chinese companies to the export control list.
While these measures and countermeasures have been going on for a while, this is arguably the first time Beijing has reacted so strongly, targeting the US specifically and signalling to the incoming Donald Trump administration that it has a major source of leverage – critical minerals. Compared to restrictions in 2023 on critical minerals like gallium and germanium, last month’s controls are more targeted. The objective is to stop the export of dual-use materials critical for defence and technological development.
Both countries are levelling up the game. Since 2022, the US has ramped up restrictions on China’s access to critical and emerging technologies, such as advanced chips. In retaliation, China has banned chips from US companies like Micron in its sensitive sectors.
On November 15, China released an export control list of dual-use items aimed at creating a consolidated list. This was followed by an announcement last week on a ban on such products to 28 US defence contractors, with 10 of them placed on an unreliable entities list over Washington’s arms sales to Taiwan. These events must be placed in the context of intensifying trade restrictions between the US and China.
China could arguably strike a serious blow with the use of export controls. For instance, consumer goods giant Henkel has been affected by delayed deliveries of critical minerals, prompting the German firm to declare a force majeure.
China and the US have both invoked national security to justify enforcing export controls and other trade restrictions.
A dispassionate study of escalating tit-for-tat trade restrictions clearly shows a widespread misuse of national security as a tool of economic statecraft. While China has called out the US for “overstretching the concept of national security, abusing export controls, and wantonly imposing illegal unilateral sanctions”, it has also done the same in retaliation. When justifying its latest move, a Chinese commerce ministry spokesperson said the export bans are aimed at protecting national security and fulfil non-proliferation and other international obligations.
China and the US have both invoked national security to justify enforcing export controls and other trade restrictions. For both sides, the strategic goal is to prevent the other from developing superior capabilities.
Export controls have become a method of foreign policy messaging. For the US, it is critical to hamper China’s capability in domains such as artificial intelligence and advanced chips. China has also targeted critical minerals which are essential ingredients for making advanced technological tools.
As Trump returns to the White House, trade restrictions and export controls are likely to be used more frequently. However, unlike the last time Trump was in office, the game will be played quite differently. By specifically targeting the US, China has made it clear the next phase of the tech war will be played from both ends.
China already dominates the critical mineral supply chain with almost 60 per cent of the production and around 85 per cent of the refining. Ignoring this may prove to be detrimental to US interests.
Linking critical minerals to national security has made exporting such resources very difficult. Many exporters, particularly those based out of the US, may find it hard to secure licences if they can’t provide specific end-use cases.
The fate of US President Joe Biden’s critical mineral initiatives under the Inflation Reduction Act remains uncertain. Some of them might remain in place alongside new policies.
Once Trump takes office, we are likely to see a critical mineral strategy focusing on three areas: increasing tariffs on mineral imports, making sustainable investments in domestic mining projects and streamlining regulations. The fate of US President Joe Biden’s critical mineral initiatives under the Inflation Reduction Act remains uncertain. Some of them might remain in place alongside new policies.
Under his first administration, Trump signed an executive order focused on curbing dependence on imports “from foreign adversaries for the critical minerals that are increasingly necessary to maintain [the US’] economic and military strength in the 21st century”. Hence, we are likely to see Trump pushing towards sourcing more minerals domestically and increasing investment in the mining sector. His administration is likely to continue the Biden’s focus on de-risking the critical mineral supply chain from China.
While he was still on the 2024 campaign trail, Trump said, “We are going to be a major producer of rare earth minerals. We’re going to create jobs making … us truly self-reliant”. The next Trump administration is likely to further securitise the critical mineral supply chain by expanding the definition of foreign entities of concern, negatively impacting the US-China relationship.
China’s response to the outgoing Biden administration’s measures suggests Beijing is ready for tit-for-tat trade restrictions and will not shy from targeting US companies, as in the case of Nvidia. As China hardens its position, it will become difficult for the US to source critical minerals.
Besides, Trump’s tariff rhetoric is also expected to affect ties with friendly countries like Canada, a key exporter of critical minerals to the US. Canada has already explored retaliatory measures in the face of potential US tariffs.
Additionally, Trump’s proposed tariff and attempts to restrict China’s access to critical minerals will pose a greater economic risk to close partners such as South Korea and Japan. Hence, we are likely to see expanded definitions of national security and increased securitisation of the critical mineral sector under Trump.
However, this approach is unlikely to work, considering the realities of the critical mineral supply chain.
This commentary originally appeared in South China Morning Post.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Abhishek Sharma is a Research Assistant with ORF’s Strategic Studies Programme. His research focuses on the Indo-Pacific regional security and geopolitical developments with a special ...
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