Xi Jinping swings his “assassin’s mace” of economic warfare – The Economist – 06.02.25
Michael Julien- Feb 10
- 6 min read
China is weaponising its supply chains, but risks blowback if it goes too far.
The ink had barely dried on Donald Trump’s order to impose a 10% tariff on imports from China before its leader, Xi Jinping, was reaching for his “assassin’s mace” to strike back. On February 4th, in addition to new tariffs, the Chinese government listed several rare metals as controlled exports, giving Mr Xi the power to ban shipments to America at a moment’s notice.
The riposte underscores an essential difference between American and Chinese power: Mr Trump’s ability to coerce comes largely from what America buys and its dominance of international finance, while Mr Xi’s far more nascent coercive strength is based on what China sells.
The weapon he is wielding is newly forged and based on tough export-control rules enacted just over two months ago, on December 1st, which expanded on far more tentative restrictions imposed since 2023. The new regime had its first real test two days later, when China banned shipments to America of gallium, germanium and antimony—rare metals needed to make advanced chips, weapons and munitions—as well as some “superhard” materials with defence applications. Prices of some key minerals jumped after the bans.
In its most recent move this month, China imposed controls on five additional metals, including tungsten, used in armour-piercing bullets, and molybdenum powder, used to make missiles. This salvo appears to have been a warning shot rather than the start of a full-scale trade war: China gave itself the ability to ban exports of the five metals, but has not done so yet.
Nevertheless, China’s growing embrace of export restrictions and bans signals its intent to use its economic power to weaponise supply chains and punish foreign firms and countries. As such, the move has alarmed policymakers and analysts in America, who worry it could harm their strategic industries.
“In terms of strengthening military preparedness, China is operating in a wartime posture while the United States is operating in a peacetime posture,” noted Gracelin Baskaran and Meredith Schwartz of the Centre for Strategic and International Studies (CSIS), a think-tank in Washington. “Bans on vital mineral inputs will only further allow China to outpace the United States.”
It is also causing consternation among governments from Europe to East Asia, who fret that the same economic weapons may be turned on them. Some have been running war games to see how they might fare if a critical input were to be choked off, and unlikely constellations of countries are clubbing together in new trade pacts to shield themselves.
China’s new export-control regime ostensibly tracks items that are “dual-use”, meaning they have both civilian and military applications. Chinese exporters of listed products must now tell the state who their customers are and what they are likely to use the goods for. But Mr Xi’s sanctions go far beyond non-proliferation, and seem to be aimed at entrenching China’s economic domination of key technologies, materials and industries.
In doing so he is deepening other countries’ dependence on China in areas such as solar panels and the batteries used in electric cars. He has called the world’s reliance on China for these advanced technologies his “assassin’s mace”, or trump card, that will give China “deterrent capabilities based on artificially cutting off supply to foreigners” should they impose sanctions.
If successful this would add to a growing one-way dependency of Western economies on China. Canada’s producers, for example, are ten times more reliant on the use of Chinese inputs than Chinese producers are on inputs from Canada. Similarly stark asymmetries show up in countries from the EU.
This has allowed Mr Xi to take aim at a vulnerability in Western economies, and to exploit one of China’s key strengths. A wide range of electronics, from radars and smartphone chargers to the computer chips that will be used to train artificial intelligence, rely on a small number of rare minerals dominated by China.
One of these is gallium, which America has not produced since 1987. Although America imported less than $150m worth of the stuff last year, its impact is far bigger because it is used in high-value products. A full embargo would trim some $3.1bn a year from America’s output.
Gallium is not the only critical mineral that China now dominates. Although many rare metals are found in places such as Australia, Brazil, Greenland and South Africa, about 90% of the world’s capacity for refining them is in China.
China produces almost all of the world’s germanium and manganese, three-quarters of its lithium and natural graphite and half its antimony. Often few good substitutes for such metals exist. When it comes to the magnets used in wind turbines, for example, only neodymium will do. Alternatives are either more expensive or not as good.
Worryingly, the West’s reliance on Chinese-made inputs for its own industries goes far beyond rare minerals and is greater than meets the eye. Most economists or strategists look simply at how much Western countries import from China when assessing vulnerabilities. But when you also include imports from third countries that contain Chinese inputs, the figure jumps sharply, according to Richard Baldwin of IMD Business School and co-authors. Looked at this way, America’s dependence on China is four times greater than indicated by bilateral trade statistics.
When it is not being used to punish, China’s exercise of economic power and of its new export-control tool follows a clear commercial logic. Its officials stop the flow of inputs and intellectual property into foreign products that may challenge Chinese national champions, says Rebecca Arcesati of MERICS, a European think-tank. Take, for example, high-end medical equipment.
On February 4th, as part of its response to Mr Trump’s tariffs, China’s commerce ministry added an American genomic-sequencing giant, Illumina, to its new “unreliable entities list”, potentially cutting it off from its Chinese patients and manufacturing facility. China’s own sequencing champion, BGI, is in a bitter battle with Illumina for global market share.
Beyond stemming the flow of raw inputs, China’s bureaucrats are also keen to slow the efforts of other countries to build supply chains that bypass it. In recent years, both Chinese and Western firms have moved production to third countries to skirt tariffs and avoid being cut off in a conflict.
This transformation, known as “China Plus One”, challenges the Communist Party’s grip on an increasing number of global supply chains and has spurred economic planners to issue tighter controls on the sharing of intellectual property. In January China proposed controlling the export of know-how for the extraction and processing of rare metals, specifically gallium and lithium.
China clearly sees some parallels between the power America has to impose financial sanctions from its position at the centre of global finance, and its own power to punish adversaries from its position at the heart of global manufacturing, through its dominance of critical minerals.
But America’s use of financial sanctions also offers a cautionary lesson on the geopolitical paradox that China faces: the more successful it is in creating monopolies and dependencies, and using them to bend countries to its will, the more it will push those countries to diversify their exposure.
America has been able to punish people, companies and countries by shutting off their access to international payment systems.
For instance, it has booted some Russian banks off SWIFT, the messaging system used by more than 11,000 financial institutions for cross-border payments. But in doing so, it has pushed China, Russia and others to develop alternative payment systems. Last year Russia presented efforts to persuade the BRICS group of countries to create such a system as a way of sanctions-proofing themselves.
The West’s use of financial sanctions offers other lessons, too. In theory these hit hard and quickly, and ought to be easy to police. In the real world, however, groups ranging from Hamas to drug gangs have been able to dodge them by funnelling money through cryptocurrency markets or lightly regulated banking systems.
China’s ability to enforce export controls abroad may face similar problems. It will require officials to keep track of more than 700 products and producers, their customers and the customers of those customers. America has struggled to stop its high-end chips from being smuggled into China, or dual-use materials making their way to Russian defence firms. It will be harder for China to track critical minerals shipped in small quantities.
Western governments cannot rely on smuggling metals, or on suppliers in third countries turning a blind eye. Instead many are keen to diversify their supply of critical minerals. Throughout 2022-24, dozens of countries signed agreements to share information, including sensitive trade secrets, and encourage private investment for alternative supplies of inputs critical to their economies. Last autumn officials from 14 countries in the Indo-Pacific, led by South Korea, huddled in Washington to map their shared vulnerability to supply-chain shocks and to war-game responses. The countries included Vietnam, Thailand, Malaysia and Fiji as well as the major Western allies.
They can draw some comfort that China would face the same dilemma that the West has long faced: the more powerful the sanctions and the bigger your enemy, the mightier the blowback. ■
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Illustration: Mikel Jaso
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