As the United States pressures its allies, including Japan, to strengthen semiconductor sanctions against China, it has been reported that China has warned Japan of severe economic retaliation if additional sanctions are imposed.

Bloomberg News reported on September 2, citing multiple anonymous sources, that a senior Chinese official has repeatedly conveyed to Japan that China would impose severe economic retaliation if Japan further restricts the sale and maintenance of semiconductor equipment to Chinese companies. Sources explained that there are concerns China might cut off the supply of critical minerals essential for the manufacturing of automobiles by companies like Toyota.

The United States has been pressuring the Japanese government to impose additional sanctions to prevent companies like Tokyo Electron from selling and maintaining advanced semiconductor manufacturing equipment to China. The U.S. expects to reach an agreement with Japan by the end of the year. Additionally, the U.S. is considering the application of the Foreign Direct Product Rule (FDPR), which requires U.S. government approval for the export of products made in other countries if they use even a small amount of U.S.-origin software, equipment, or technology.

While U.S. and Japanese authorities, as well as Tokyo Electron, did not respond to Bloomberg’s request for comment. Toyota stated that it continuously considers optimal procurement strategies, which are not limited to the mineral sector. The Chinese Ministry of Foreign Affairs stated that it opposes any individual country politicizing normal transactions and involving other nations in a technological blockade against China.

Bloomberg previously reported that the Netherlands, where semiconductor company ASML is based, plans to join the U.S. sanctions and partially restrict the maintenance of equipment in China.

The global semiconductor industry is a critical component of modern electronics, including smartphones, computers, and automobiles. The industry is highly globalized, with different countries specializing in various stages of production, from raw materials to advanced manufacturing equipment. Japan plays a key role in this supply chain, particularly in the production of semiconductor manufacturing equipment, with companies like Tokyo Electron being crucial suppliers to semiconductor manufacturers worldwide.

The U.S. and China have been engaged in a trade war since 2018, characterized by tariffs and sanctions on various goods and technologies. The U.S. has been particularly focused on restricting China’s access to advanced technologies, including semiconductors, due to national security concerns. The FDPR extends the reach of U.S. export controls to products made in other countries if they incorporate U.S.-origin technology or software, a regulation that has been used to restrict China’s access to advanced technologies, even if they are produced outside the U.S.

Critical minerals, such as rare earth elements, are essential for various high-tech industries, including automotive manufacturing. China is a major supplier of these minerals, and any disruption in their supply can significantly impact global industries. Companies like Toyota must navigate complex global supply chains and geopolitical risks, often diversifying suppliers and mitigating risks associated with geopolitical tensions.