Hall of Mirrors: How U.S.–China Export Controls Feed Each Other

On October 9, the Chinese Ministry of Commerce sent shockwaves through global supply chains by announcing sweeping export control measures on rare earth elements (REEs), adding five new categories to the existing seven.

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Hall of Mirrors: How U.S.–China Export Controls Feed Each Other

On October 9, the Chinese Ministry of Commerce sent shockwaves through global supply chains by announcing sweeping export control measures on rare earth elements (REEs), adding five new categories to the existing seven. Rare earth elements (REEs) are a group of 17 metallic elements essential to the production of semiconductors, electric vehicles, wind turbines, and advanced military systems. China holds a dominant market share in the processing and mining of virtually all of them. By requiring export licences for an expanding list of REEs, China is weaponising its role in global supply chains as a tool of geoeconomic statecraft. This escalation is not isolated measure but part of a wider pattern – the codification of geoeconomic statecraft on both sides of the Pacific. Beijing and Washington are gradually institutionalising tit-for-tat controls, transforming once-exceptional trade measures into a permanent feature of global economics and high-stakes diplomacy.

 Why Now?

The timing was no accident. Following a September 14 meeting in Madrid between U.S. officials Scott Bessent and Jamieson Greer and their Chinese counterparts He Lifeng and Li Chenggang, both sides appeared to agree on avoiding further escalation in the U.S.–China trade war. The tentative TikTok deal – allowing U.S. investors to obtain a controlling stake in the platform’s American branch – offered a rare glimpse of de-escalation.

Yet less than two weeks later, on September 29, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) expanded its export controls through the new “Affiliate Rule.” This measure automatically extends restrictions to any entity that is 50% or more owned – directly or indirectly – by one or more parties already on the Entity List. It may sound technical and bureaucratic, but its implications are profound: a firm in a third country that is half-owned by an entity ultimately controlled by a listed Chinese company such as Huawei is now treated as if it were Huawei itself.

With hundreds of Chinese entities and companies already on the Entity List – many of them leading technology firms – Beijing views this as a de facto expansion that could soon ensnare thousands across its tech ecosystem. Combined with new Section 301 tariffs targeting China’s maritime, logistics, and shipbuilding sectors, Washington’s move was perceived in Beijing as a direct escalation. China’s Ministry of Commerce accused Washington of “double standards” and “overstretching the concept of national security”, despite previous promises to keep tensions low.

This tit-for-tat approach is not novel. Since 2023, Beijing has weaponised its dominance in REEs – first imposing export controls on germanium, gallium, and later graphite – in response to U.S. semiconductor restrictions under the Biden administration. Earlier this year, China doubled down by adding seven medium and heavy REEs and magnets to its control list following Trump’s “Liberation Day” tariffs.

The newly proposed rules are novel in that they go even further: they extend licensing requirements to technologies used in REE mining, smelting, magnet manufacture, and recycling, and even restrict exports of foreign-made goods whose value exceeds a threshold of Chinese-origin REE content of as low as 0.1%. The irony is striking – Beijing is now mirroring Washington’s own semiconductor export control regime almost to the letter, complete with references to sub-14 nm logic chips, sub-256-layer memory chips, and a 50% ownership rule with extraterritorial reach. Only the commodity has changed: REEs instead of semiconductors.

Over the past years Washington has drawn renewed attention to China’s resource dominance. The Pentagon recently backed rhetoric with capital, mirroring China’s state-led approach by  investing USD 400 million in MP Materials to boost U.S. REE output. China’s grip is not immutable. If major economies diversify away from Chinese supplies, increasing partnerships and investing a handful billions in refining capacity, Beijing’s window to weaponise this particular chokepoint could close faster than it expects. In other words, if China wanted to weaponise its dominance with an eye on triggering American concessions on trade and technology restrictions: now was the time.

What Does China Want to Achieve?

Two explanations stand out.

First, negotiation leverage. With a Trump–Xi meeting expected at the APEC Summit in Seoul this November, Beijing may be raising the stakes to strengthen its bargaining position. Trump, unlike Biden, has no ideological red lines on technology or national security – only a transactional instinct for leverage and deals. China knows this. The recent case of Nvidia – allowed to sell its downgraded H20 chip to China in exchange for 15% of its revenues flowing to the U.S. Treasury – shows how U.S. tech policy has turned explicitly transactional. Monetising national security by trading it for mere cash concessions is no longer taboo in the White House.

Second, domestic discipline. REEs are critical to every sector China seeks to dominate – robotics, wind turbines, defense technologies, and semiconductors. By tightening export rules, Beijing can curb capital flight and discourage firms from offshoring production, forcing them instead to expand capacity within China. Xi has been unequivocal in his ambition to turn China into a high-tech superpower. While there may be some room for manoeuvre in how these rules are implemented in a meeting with his American counterpart next month, a full reversal is highly unlikely.

Impact on the EU

Beijing insists its measures are not export bans – technically true, but semantically hollow. The experience of the previous round of REE export control expansion in late spring showed that European firms were far from spared. With even broader restrictions set to take effect in December, Europe’s manufacturing base in dire need for industrial inputs – particularly its defence industry – faces yet another obstacle to scaling up production capacity.

Despite their name, rare earths aren’t rare; they’re just painfully uneconomical to refine. That’s one of the reasons why Western countries outsourced the dirty work to China in the first place.

Europe likes to tout its Critical Raw Materials Act as the solution. Reality bites: opening a mine or refinery takes close to a decade and demands heavy subsidies to sustain what remains an unprofitable business. It’s the economic equivalent of pumping water uphill. Investors in mining and refining already face a perfect storm of cheap Chinese competition, restrictive permitting, and razor-thin – or outright negative – margins. They need more than a pat on the back and a “strategic” label. The United States has accepted this reality, with the Pentagon directly bankrolling domestic capacity. Europe, by contrast, remains stuck in rhetoric – rebranding old projects instead of committing real capital commitments to new ones.

Despite all the talk of “strategic autonomy,” Europe’s commitment – financial, political, and industrial – to securing its REE supply remains half-hearted. Beijing’s new rare earth restrictions show how U.S. and Chinese trade measures are no longer opposites – but reflections of the same geoeconomic logic. A logic that Europe neither grasps nor masters. Unless that changes, Europe will remain a collateral casualty in a trade war it neither started nor controls.

(Photo credit: Wikimedia Commons)