An Economic Nuclear Bomb: What China Has Learned from the United States
In 2019, Washington discovered that a bureaucrat was more effective than a missile in bringing down an empire. That year, the Trump administration unearthed an Entity List that had been created in 1997 to combat the production of weapons of mass destruction, and began adding Chinese technology companies like Huawei. Almost no one had heard of this Entity List. Its impact was brutal. Getting on this blacklist meant... de facto, that American companies were prohibited from selling their products and technologies to you. Not only that: non-American companies were also prohibited from selling you products with even a minimal amount of American components, under threat of sanctions. For most Chinese technology companies, which relied heavily on American components, being added to the Entity List was the equivalent of an economic nuclear bomb.
By the time Biden came to power, they had taken note of this weaponization of economics. However, the Democrats didn't just want to sink specific Chinese companies: they wanted to destroy the possibility of China technologically surpassing the United States. In 2022, Washington activated a mechanism created in 1979 and imposed export controls that prohibited the sale of the most advanced chips in China, necessary to train the most advanced AI models. Again, not only American companies, but also foreign ones, were forced to comply with these sanctions under threat.
During those years, China suffered a severe economic and technological impact. Beijing largely resisted. But Chinese bureaucrats also began to closely study the enemy's tactics. If Washington could use the economy as a weapon, why couldn't China do so as well?
The student surpasses the teacher
A few days ago, the world discovered that Beijing has learned from the Americans and deployed its own megaweapon of coercion and economic control. The stakes are higher than those of Washington: China has imposed controls on the export of rare earths, raw materials essential for most high technologies, military equipment and economic sectors of the future.China currently controls more than 60% of extraction and more than 90% of processing. Beijing has also imposed export controls on key battery components, critical for sectors such as electric vehicles. Like the Americans, China also requires foreign companies to comply with its restrictions—or run out of supplies—on products that contain 0.1% rare earth elements of Chinese origin. Companies exporting these products will require a Chinese license; in sectors such as the military, their export is largely prohibited.
This mechanism gives the Chinese government enormous leverage over foreign companies and governments. It has also created widespread fear of the control China seeks to exert over the global economy. Trump has already responded with even more tariffs. Many countries will try to become even less dependent on China. Using an economic nuclear bomb is a brutal power grab. But it also has associated risks. Meanwhile, Europe finds itself in the middle of this bipolar battle of economic coercion.
