China Squeezes Japan on Rare Earths as the European Union Sets a Trade Deadline

China is using economic tools to apply pressure in two directions. Against Japan, Beijing has flown bombers near Japanese territory, detained business executives, and restricted exports of rare earths, the minerals essential to semiconductors, precision weapons, and electric motors. The ban on these dual-use exports dates to January, after the two governments came into conflict over Taiwan, and China detained two more Japanese nationals in Dalian on June 24. The Nomura Research Institute has estimated that a full year of rare-earth restrictions alone could cost Japan about 2.6 trillion yen, roughly 16 billion dollars, in lost production.

At the same time, the European Union set an October deadline for China to deliver tangible results on a goods trade deficit that reached about 360 billion euros in 2025. The European Union's trade commissioner, Maroš Šefčovič, and China's commerce minister, Wang Wentao, agreed in Brussels to four areas of work covering trade balancing, export controls, intellectual property, and reform of the World Trade Organization. A follow-up visit to Beijing is planned for the autumn.

The pressure does not run only in Beijing's favor. A study by an Indian research institute, reported by the South China Morning Post, found that China's arms exporters face their own difficulty in retaining existing customers as Russian competition returns. Taken together, these events show economic interdependence being turned into political leverage by every major bloc at the same time.