Shortly after Sanae Takaichi took office as Japan’s Prime Minister, she ended up ruffling feathers with China after linking a Taiwan emergency to a Japan emergency. China interpreted it as a direct threat to its sovereignty and an interference in its internal affairs. Since November 2025, Beijing has launched a coordinated campaign of pressure to force Tokyo to retract its stance.
But Takaichi’s refusal to retract her comments, despite Beijing’s demands, is playing well. Unlike previous PMs who often used ambiguous language, voters appreciate her clarity. In fact, this crisis led her to enjoy some of the highest approval ratings any Japanese Prime Minister has achieved in recent years. Riding on this wave of popularity, Takaichi has now called for a snap election to secure a stronger mandate.
A “Dual-Use” Stranglehold
In response to the Japanese leader’s remarks on Taiwan, China quickly moved from diplomatic protests to economic warfare, targeting specific bottlenecks in Japan’s high-tech supply chain.
Among the earliest steps was the reimposition of a ban on Japanese seafood, only months after it had been lifted, effectively undoing the limited progress made in recent years. This was followed by mass travel cancellations, suspended cultural forums and sharper maritime signalling. Simultaneously, China also engaged in a global diplomatic campaign, sending letters to the UN accusing Japan of planning military aggression and refusing high-level bilateral talks.
A more pointed step, however, came at the start of 2026 when China’s Ministry of Commerce announced a ban on the export of “dual-use” items to Japan. Under China’s existing export-control framework, this category covers roughly 1,100 controlled items and technologies. While officially targeted at military applications, the definition of dual-use has been applied broadly, effectively freezing shipments of critical materials to civilian tech giants. Shortly after this measure, China initiated an anti-dumping investigation into Japanese imports of dichlorosilane, a chemical integral to semiconductor manufacturing.
This is not the first time China has used such tactics. In 2010, the Senkaku boat collision incident prompted a similar response, but the landscape today has changed. For starters, there is improved resilience. In 2010, Japan relied on China for more than 90% of its rare earths. By 2025, that figure had dropped to 60–70%, thanks to investments in Australian miner Lynas Rare Earths.
Tokyo also expanded its capacity for advanced recycling, material substitution, and the maintenance of strategic stockpiles that buffer short-term disruptions. Additionally, external support from the United States has increased in the last few years in the form of agreements to secure critical mineral supply chains.
However, vulnerabilities remain. China still dominates the processing of these ores into usable metals and magnets. Japan has diversified its mining sources but not its refining capacity enough to weather a total shut-off.
Immediate Economic Fallout
The financial impact is projected to be severe and immediate, given Japan’s industrial reliance on these inputs. The Nomura Research Institute released an emergency forecast, estimating a loss of $4.2 billion if restrictions persist through March, and a potential $16.6 billion hit to Japan’s economy if the ban becomes a long-term status quo. The Nikkei index also dropped by more than 1%, with losses in the automotive and electronics sectors.
It is clear that China’s broader toolkit leans heavily on economic statecraft. When direct military escalation is costly or risky, economic levers help create an asymmetric impact, while offering deniability and scalability. From Beijing’s perspective, it aims to achieve a few goals. First, it demonstrates that political statements on core interests will carry tangible costs. Second, it signals to domestic audiences that the leadership is willing to push back against perceived hostility. Third, it tests alliance cohesion by forcing Japan and its partners, especially the United States, to absorb economic pain.
The High Cost of Normalising Coercion
Yet the downsides of using these tools are substantial. For China, repeated use of economic coercion accelerates distrust and incentivises diversification, undermining its own long-term leverage. The more predictable these tools become, the less effective they are. Additionally, using export controls risks harming China’s own economy, as its industries also depend on integrated global supply chains.
These moves were designed to force Prime Minister Takaichi to walk back her comments on Taiwan. But the domestic political costs of retreating far outweigh the economic consequences. A reversal would suggest weakness, not only to party members who propelled her to power, but also to the general public, which increasingly views their neighbour as a persistent bully.
Should Beijing persist with escalation, Tokyo may find itself compelled to retaliate. Yet China appears equally wary of allowing tensions to spiral out of control. Much will therefore hinge on Japan’s impending snap election. A strong showing by Prime Minister Sanae Takaichi would likely embolden her to sustain a firmer line toward China. A narrower victory, by contrast, could encourage restraint. Any loss of seats, meanwhile, may open the door to new voices from the opposition, advocating a more calibrated approach to Beijing.
Ultimately, the direction of the relationship may be driven more by Japan’s internal political calculus than by diplomacy alone. Even so, China must confront the reality that its economic muscle has limits, especially when dealing with its neighbour.