China's export restrictions on Japan, now in their sixth month, are doing exactly what Beijing intended: severing a critical link in the U.S. defense industrial supply chain — and Washington is only beginning to feel the full weight of that blow.
The restrictions trace back to a single statement. In November 2025, Japanese Prime Minister Sanae Takaichi declared that "a Taiwan contingency is a Japan contingency" — language Beijing interpreted as a direct provocation, and punished swiftly.
On January 6, 2026, Beijing issued Announcement No. 1, tightening controls on all dual-use goods bound for Japan. The list spans more than 1,000 categories — rare earth elements, telecommunications equipment, drone components, and more. Any export that could reach Japanese military users, serve military applications, or "enhance Japan's military capabilities" was prohibited. Third-country transfers were banned as well.
Mitsubishi At The Center Of A Calculated Strike
The January decree's target list tells the real story. In February, China's Ministry of Commerce formally blacklisted 20 Japanese entities, placing five Mitsubishi Group subsidiaries at the top: Mitsubishi Shipbuilding, Mitsubishi Heavy Industries Aero Engines, Mitsubishi Heavy Industries Marine Machinery, Mitsubishi Heavy Industries Engine & Turbocharger, and Mitsubishi Heavy Industries Marine Systems.
That is not a coincidence. Together with IHI and Kawasaki Heavy Industries, Mitsubishi Heavy Industries forms Japan's "Big Three" defense manufacturers — the industrial core of Japan's Self-Defense Forces. For Washington, the stakes are even higher: Mitsubishi Heavy Industries is Lockheed Martin's sole Final Assembly and Check Out (FACO) partner in Asia for the F-35 fighter jet.
The F-35's radar systems, stealth-absorbing coatings, and electric motors all depend on heavy rare earth permanent magnets — dysprosium, terbium, and yttrium — that Japan has long sourced almost entirely from China. Cut the upstream supply, and Japan's precision mid-stream processing capabilities count for nothing.
Patriot Production Stalls As Supply Data Turns Alarming
The damage is not confined to fighter jets. Raytheon Technologies had licensed Mitsubishi Heavy Industries to produce Patriot missile systems in Japan — a program designed to ease American production pressure following heavy consumption in the Russia-Ukraine and Middle East conflicts. That plan has stalled. China's restrictions cut off stable supplies of gallium, germanium, and rare earth materials essential for manufacturing missile guidance seekers.
The numbers from the Nikkei newspaper confirm the severity of the squeeze. Chinese exports of heavy rare earths to Japan dropped 88% year-on-year in March, and 82% in April. The collapse is spreading beyond companies on Beijing's official blacklist.
Shin-Etsu Chemical — the world's leading producer of rare earth permanent magnets and semiconductor materials — has suspended new orders for dysprosium-containing magnets. Two other major semiconductor material suppliers, Kanto Denka Kogyo and Central Glass, have notified TSMC, Samsung, and SK Hynix that they will permanently halt production of tungsten hexafluoride from July 1, unable to secure Chinese high-purity tungsten powder. That product holds roughly 25% of the global market. Chinese state-linked suppliers have already moved in to fill the void.
The trade figures from the American side are equally stark. U.S. imports of Japanese rare earth permanent magnets and alloy products were valued at between $250 million and $400 million in 2025. By 2026, that figure had collapsed to approximately $7.94 million.
The Pentagon's 2027 Deadline Has Become A Vulnerability
Washington has been pressing ahead with a "Mine-to-Magnet" supply chain localization strategy for years. The latest National Defense Authorization Act sets a hard deadline: from January 1, 2027, all controlled materials — samarium-cobalt magnets, tantalum, tungsten alloys, and others — must be sourced entirely outside China, Russia, Iran, and North Korea. Not just processed goods. The ore itself.
The strategy was designed to build pressure and buy time. The problem is that the alternatives are nowhere near ready.
Australia's Lynas Rare Earths, the Western world's most established bet on non-Chinese heavy rare earth processing, has spent over a decade attempting to refine dysprosium and terbium. Its current purity ceiling of 99.5% still falls short of Japanese procurement standards, which require a minimum of 99.7% — and falls far short of the 4N to 6N grade (99.99% to 99.9999%) that Chinese processors deliver routinely. In the first quarter of 2026, Lynas produced just eight metric tons of combined dysprosium and terbium oxide — not enough to serve U.S. and Japanese demand at the same time.
Domestic American players like MP Materials and recycling ventures like REalloys remain years from filling the gap at scale. The result: Lockheed Martin and Raytheon are now scrambling through compliance overhauls that will likely require design changes, component re-certification, and significant cost and schedule overruns.
Japan's 15-Year Diversification Effort Falls Short
Japan has faced this pressure before. A 2010 standoff over the Senkaku Islands — claimed by China as the Diaoyu Islands — triggered a Chinese rare earth embargo that deeply unsettled Tokyo. In the years that followed, Japan worked systematically to reduce its exposure, bringing its overall dependence on Chinese rare earths down from roughly 90% to around 60%.
But for heavy rare earths — the kind that matter most for advanced military hardware — that progress stalled. Japan still imports approximately 99% of its dysprosium, terbium, and yttrium from China.
With no quick alternative in sight, Japan is now relying on existing stockpiles and government strategic reserves. Tokyo has also moved to fund a new rare earth refining facility for Shin-Etsu Chemical in Fukui Prefecture, expected to begin production in 2028 — the company's first new plant in 18 years.
If the restrictions hold for a full year, Taiwan's Ministry of Economic Affairs estimates Japan's economic losses could reach 2.6 trillion yen, equivalent to a roughly 0.43% contraction in GDP.
Taiwan Watching For Openings In The Supply Chain Shake-Up
For Taipei, the disruption carries a different kind of significance. As China's restrictions pull apart existing U.S.-Japan defense supply chain arrangements, Japan faces growing pressure to integrate more deeply into the Pentagon's emerging decentralized production framework — one designed to operate without Chinese inputs.
That realignment may, over time, create openings for Taiwan. In semiconductor materials and precision components in particular, Beijing has just vacated supply chain roles by force. Whether Taipei has the capacity and the political will to step into them is a question worth asking now, before the window closes.
*The author is the convener of the Taiwan Rare Earth and Rare Resources Application Industry Alliance. （Related： China Locks U.S. Defense Giants Out of Public Procurement, Targets Rare Earth Firms With Export Controls ｜ Latest ）
