Japan’s highest government official condemned China’s export ban of dual-use products as “absolutely inacceptable and deeply regrettetable” on Tuesday, marking an important escalation between Asia’s largest economies.
Dual-use products are goods, software or technologies that have both civil and military utility.
Rare earth elements are a prime example. They’re essential components for advanced technology like microchips and drones.
These dual-use products are subjected to international and strict regulations due to the potential military applications.
Tensions between diplomats are rising
After stating that an attack by China on Taiwan would be an “existential danger” for Japan, the Japanese prime minister Sanae Takaichi caused a diplomatic row with Beijing.
This comment re-ignited tensions about the sovereignty of Taiwan. Taiwan is a self governed island which China claims to be its territory.
Takaichi’s statement implied that Japan could be forced to intervene militarily in order to protect itself if China invaded, possibly bringing Tokyo into conflict.
Beijing is vehemently opposed to any foreign intervention in what it views as a strictly domestic issue, increasing the geopolitical risks in the area.
Beijing demanded that certain comments be withdrawn, but the Japanese Prime Minister refused.
China has responded by launching a series of counter-measures in response to this non-compliance.
The most recent and significant of these countermeasures, announced on Tuesday, is a prohibition on the export of dual-use items–goods with both civilian and military applications–specifically when intended for military use.
The use of economic instruments to apply pressure is an obvious escalation after the refusal to retract controversial statements.
According to a Reuters article, Japan’s chief cabinet secretary Minoru Kihara said at a press conference held on Wednesday that a measure like this targeting our country is “absolutely unacceptable” and “deeply regrettable”.
He refused, however, to talk about the possible effects of the trade war on the Japanese economy, saying that it was still unclear which specific products would be targeted.
The market’s reaction in Japan to this news was subdued, despite a rally around the world that saw US benchmarks and European benchmarks reaching record highs.
Japanese stocks, on the other hand, fell Wednesday. Mining shares, which fell 3.2%, were the most affected by this decline.
What is the ban on rare earth minerals?
China Daily, a newspaper owned by the Chinese Communist Party, reported Tuesday that Beijing was considering imposing broader restrictions on exports of rare earths to Japan through a tighter review process for licenses.
Analysts have suggested that a similar development would be a major blow to the city’s manufacturing industry, especially its vital automotive sector.
Japan has made efforts to diversify the supply of rare earths since China limited exports in 2010. However, approximately 60% its total imports are still sourced from China.
Similar to 2010, a three-month Chinese ban on exporting rare earths could cause a loss of 660 billion yen (about $4.21 billion) for Japanese companies and reduce Japan’s gross domestic product annually by 0.1%.
Takahide K. Kiuchi, economist at Nomura Research Institute in Tokyo, made this assessment on Wednesday.
China’s economy is expected to be reduced by 0.43 percent if the ban lasts a year.
China Customs’ data hasn’t yet shown a decline in exports of rare earths to Japan, despite some delays.
Exports in November, the most recent month available, increased by 35 percent to 305 tons. This is the largest volume of the last year.
As new information becomes available, this post Japan denounces Chinese ban on rare Earths as “unacceptable”, it may be updated.
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