China puts Japan's technology industry against the ropes

TokyoChina's decision to restrict the export of rare earths, permanent magnets, and other critical minerals to Japan has turned an industrial dependency known for years into a top-tier problem for the Japanese economy. These materials are indispensable for manufacturing semiconductors, electronic components, batteries, electric motors, or defense systems, so any interruption in their supply threatens some of the most competitive sectors of Japanese industry.

The restrictions come at a time of deteriorating relations between Beijing and Tokyo. The Chinese government justifies the new controls by appealing to the risk that certain exports may have military or dual-use applications, an argument that broadens the scope of action for Chinese authorities over foreign companies. Beyond the specific episode, the decision confirms the extent to which control over strategic raw materials has become a tool of geopolitical pressure amid the technological competition between major powers.

Beijing's room for maneuver is based on a position of almost unrivaled dominance. China accounts for approximately 70% of global rare earth extraction and nearly 90% of its processing capacity. Although Australia, the United States, or Vietnam also have significant reserves, most of these minerals continue to be refined in Chinese plants before being incorporated into the manufacturing of high value-added components. This control over refining explains why, despite efforts in recent years to diversify suppliers, a large part of Japanese industry continues to depend directly or indirectly on the Chinese supply chain.

The consequences of these restrictions go far beyond manufacturers of household appliances or computer equipment. Japanese companies such as Mitsubishi Electric, Fujitsu, or Mitsubishi Heavy Industries hold strategic positions in sectors such as semiconductors, precision electronics, radar, satellites, drones, or digital infrastructure. Limiting access to critical minerals not only complicates the production of these companies but also puts substantial pressure on a significant part of the value chain of the Japanese technology industry, one of the main drivers of the country's economy.

The concept of "dual-use goods", precisely what Beijing has invoked to justify the restrictions, explains a large part of the strategic dimension of the conflict. Many of the technologies developed by these companies have both civilian and military applications. The same electronic components that today are incorporated into industrial automation systems, data centers, or telecommunications networks can end up integrated into radars, satellites, navigation systems, or defense equipment. In this scenario, controlling access to critical minerals also means having a tool to exert pressure on the technological and industrial capacity of geopolitical rivals.

This pressure from Beijing is also a response to the controls that Japan itself (along with the US) imposes on the export of advanced chip machinery to China. Tokyo's response has been underway for some time, but the current crisis has accelerated its pace. The Japanese government and the country's major corporations have intensified investments to diversify suppliers, expand strategic reserves, and develop new supply chains with partners such as Australia, Canada, Vietnam, or India.

Despite these efforts, specialists warn that reducing dependence on China will be a long process. The main obstacle is not finding new deposits, but having a refining capacity comparable to what Beijing has built over decades and which it continues to overwhelmingly dominate.

Paradigm shift

The episode reflects a fundamental shift in international economic relations. What for years was considered a guarantee of efficiency – highly specialized global supply chains – has also become a source of strategic vulnerability. For Japan, securing access to rare earths and other critical resources is no longer just an industrial issue, but a central element of its economic security. The technological competition with China is fought today as much in laboratories and factories as in the control of the materials that make this technology possible.

The conflict highlights that the competition between China and Japan is no longer limited to tariffs or trade balances, but extends to the control of resources indispensable for sustaining the technological revolution. In a world increasingly conditioned by artificial intelligence, semiconductors, and the defense industry, guaranteeing access to rare earths has become a matter of economic sovereignty. For Tokyo, reducing this dependence is no longer just an industrial objective, but a strategic priority that will shape a large part of its economic and foreign policy over the next decade. The battle for rare earths has ceased to be a commercial issue to become a dispute for technological leadership in the 21st century.