Japan on Wednesday condemned China’s ban on dual-use exports to its military as “absolutely unacceptable,” warning that the move could be followed by broader restrictions on rare earth exports, escalating tensions between Asia’s two largest economies.
Dual-use items include goods, software, and technologies with both civilian and military applications, such as critical minerals used in drones and semiconductor manufacturing. Tokyo’s criticism came after Beijing announced a ban on exports to Japanese military users or for any purposes that could enhance Japan’s military capabilities.
Japan’s top government spokesman, Chief Cabinet Secretary Minoru Kihara, said the measure deviates sharply from international norms and unfairly targets Japan. He declined to specify which industries might be affected, noting that the scope of the restrictions remains unclear.
The dispute traces back to comments made late last year by Japanese Prime Minister Sanae Takaichi, who said a Chinese attack on democratically governed Taiwan could pose an existential threat to Japan. China considers Taiwan part of its territory, a claim Taiwan rejects. Beijing has demanded Takaichi retract the remarks, which she has refused to do, prompting a series of retaliatory measures.
Japanese markets reacted negatively, with the Nikkei 225 falling about 1% on Wednesday. Shares of major defense contractors Kawasaki Heavy Industries and Mitsubishi Heavy Industries were among the biggest decliners, each dropping around 2%.
RARE EARTH CURBS IN FOCUS
Chinese state-backed newspaper China Daily reported on Tuesday that Beijing is considering tighter restrictions on rare earth exports to Japan, a move that could have far-reaching consequences for Japan’s manufacturing sector, particularly automobiles. Despite efforts to diversify supply since China curtailed rare earth exports in 2010, Japan still sources about 60% of its rare earth imports from China. For certain heavy rare earths used in electric and hybrid vehicle motors, dependence on China is nearly total, analysts say.
Japanese automaker Subaru said it is closely monitoring the situation, while Toyota Motor and Nissan Motor did not immediately comment.
According to Takahide Kiuchi, an economist at Nomura Research Institute, a three-month halt in Chinese rare earth exports could cost Japanese businesses 660 billion yen ($4.2 billion) and reduce annual GDP by 0.11%. A year-long ban could shave 0.43% off economic output.
Supply chain consultancy Tidalwave Solutions said Japan is unlikely to remain passive if the curbs expand. “If Japanese civilian or commercial entities are targeted, you could see retaliation,” said Cameron Johnson, a senior partner at the firm, adding that Tokyo could respond by restricting materials China needs for its own high-end manufacturing.
Adding to the strain, China on Wednesday launched an anti-dumping investigation into Japanese imports of dichlorosilane, a key chemical used in semiconductor production, according to China’s commerce ministry.
The standoff has already led Beijing to discourage travel to Japan, halt imports of Japanese seafood, and cancel bilateral meetings and cultural exchanges. Analysts say the dispute could drag on, drawing parallels to the 2012 row over disputed islands that froze high-level talks for more than two years.
China’s foreign ministry reiterated its demand that Japan retract the Taiwan-related remarks. “We urge the Japanese side to confront the root cause of the issue, reflect on its mistakes, and retract the erroneous remarks,” spokesperson Mao Ning said.