China deprives Japan of rare-earths supply, escalating dispute

The move is the latest by Beijing to punish Japan for Prime Minister Sanae Takaichi’s remarks late last year suggesting the country could become involved in a conflict over Taiwan, the self-ruled island that China has pledged to take by force, if necessary.

China has wielded its control over rare earths—which are crucial to making everything from jet engines to cars—as an economic weapon.

After Beijing cut off rare-earth exports to U.S. companies last year, President Trump retreated in his trade war with China. China’s new restrictions on exports to Japan—a close U.S. ally and key industrial partner—illustrate that Beijing remains willing to use the minerals for geopolitical leverage.

On Tuesday, China announced a broad ban on the export to Japan of so-called dual-use goods with potential military applications.

Then, in the days since, China began restricting exports to Japanese companies of scarce and expensive “heavy" rare earths, as well as the powerful magnets containing them, according to two exporters in China.

Another person familiar with Chinese government decisions said the review of applications for export licenses to Japan has been halted. The licensing restrictions extend across Japanese industry, the people said, and don’t only target Japanese defense companies.

Earlier this week, China Daily, a state-run outlet, reported that China was considering tightening export permit reviews for certain rare-earth products to Japan.

China’s Ministry of Commerce didn’t immediately respond to a request for comment.

Over time, these restrictions could hurt Japanese manufacturers, which play a major role in the world’s electronics and semiconductor supply chains but are highly reliant on Chinese rare earths.

After China, Japan is the largest producer of rare-earth magnets. But it relies on China for the raw material to make many of those magnets, despite efforts to wean itself off Chinese supplies since 2010, when Japanese buyers suffered major disruptions in shipments from the Asian giant during a row over contested islands. China denied targeting Japan.

Japan, like other countries, struggled to import rare-earth materials from China for part of last year after Beijing choked off overall rare-earth exports in response to Trump’s tariffs on Chinese goods. Beijing eased exports of rare earths as part of a broad trade deal with Washington in October, though it kept in place the licensing regime that allows it to restrict rare earths and magnets any time.

Since then, some American companies say they have had an easier time getting licenses. Rare-earth magnet exports to Japan had also returned to normal levels even before the October deal between the U.S. and China, according to Chinese trade data.

If maintained, Chinese restrictions on rare earths could cause the equivalent of about $17 billion in economic losses over the course of the year, according to Nomura Research Institute.

China has demanded Takaichi retract her remarks on Taiwan. She has refused to do so but has said she won’t repeat them.

On Thursday afternoon Takehiro Funakoshi, Japan’s vice minister for foreign affairs, spoke to China’s ambassador to Japan and demanded the withdrawal of recent Chinese export-control measures on dual-use items.

China’s Ministry of Commerce said Thursday that exports of goods for civilian use wouldn’t be affected. “The purpose is to curb attempts at remilitarization and nuclear ambitions, and the measures are entirely legitimate, reasonable and lawful," a spokesman for the ministry said.

David S. Abraham, a rare-earths analyst who researched trade in critical minerals for Japan’s economy ministry during the 2010 rare-earth crisis, said that any industrial disruptions in Japan would reverberate across global supply chains. “That will filter down," Abraham said.

Write to Jon Emont at jonathan.emont@wsj.com