The News
China threatened a severe economic retaliation against Japan if Tokyo persisted in restricting the sale of chipmaking equipment to Chinese firms.
For months the US has pressured Japan to curb the ability of firms to sell advanced chip tools to China in a bid to blunt Beijing’s progress in key industries, including artificial intelligence.
Faced with potential sanctions, Tokyo fears its car industry — which generates almost 3% of GDP — could be targeted, with Toyota in particular facing a restriction on minerals critical to car production, Bloomberg reported.
SIGNALS
China dominates the supply chain for minerals critical to the green transition
China has a “near monopoly” on the production of minerals critical for the green transition, Fortune reported in June citing a JPMorgan report. As of 2022, not only did China produce the vast majority of rare earth minerals — which are used to produce magnets and batteries — and graphite — for lubricants and electric motors — but the country also had a critical advantage in the processing of these minerals, so the majority of the world relied on Beijing to access them. Other countries fear that their high dependence on China could create security risks, the Brookings Institute think tank noted, so their governments, particularly in the US and Europe, are working to build up their own critical minerals supply chains.
The ‘cat and mouse’ game between the US and China could have global impact
Japan’s restrictions against China are largely a result of US pressure, Bloomberg reported. The US and China have been playing a “cat and mouse” game that could lead to “real shortages of… semiconductor materials, and therefore it would start impacting global supply chains,” the Financial Times reported. Not everyone in Japan agrees Tokyo should align its strategy with the US, Bloomberg added: “Japan should have its own philosophy, decide what’s best for the country and stand firm,” an analyst told the outlet. But US officials are working with Japan to devise a strategy to ensure continued access to critical minerals, and the US government is confident it’ll reach an agreement with Tokyo by the end of 2024.
China threat is pushing Japan to increase defense spend
Growing threats from China and general tension in the region, like in the East and South China seas, have pushed Japan to enhance its security strategy and seek an unprecedented defense budget, The Associated Press reported. A record $59 billion budget was approved at the end of August, as part of a five-year plan that will make Japan the third-highest spending country in the world for military spending following the US and China. Tokyo, which has also faced difficulty with military enrolment, is focusing its efforts toward unmanned drones for surveillance and attack, the outlet added.