The Structural Persistence of the Japan-China Rare Earth Conflict and South Korea’s Supply Chain Response Strategy

Executive Summary

Following Prime Minister Takaichi's remarks on Taiwan, China has continued to pressure Japan through export controls on rare earths and magnetic materials. Given that Lu Kang, Vice Minister of the International Department of the Communist Party of China, has stated unequivocally that there will be no policy change without a revision of Japan's stance on Taiwan, this conflict should be viewed not as a short-term issue but as a multi-year structural risk. Japan's efforts to secure alternative supplies—including seabed mining near Minamitorishima, developing technology to recover materials from waste liquid via adsorption, and engaging with countries like Australia—are all medium- to long-term projects that will take years to commercialize. Consequently, China's comparative advantage in the refining and processing stages is expected to remain unshaken for the next three to five years. This issue directly translates into a critical minerals supply chain risk on the trade and economic security front. It also affects the ROK-U.S.-Japan cooperation framework at the alliance and multilateral security level, as it represents a spillover of the U.S.-China strategic competition over the Taiwan Strait into a bilateral Japan-China conflict. South Korea must maintain a distance from the bilateral Japan-China issue while immediately addressing its own exposed supply chain vulnerabilities. A dual strategy is needed, leveraging Japan's attempts to find alternative procurement sources as an opportunity for partnership. In the short term, this requires assessing domestic companies' dependence on China and expanding stockpiles. In the medium to long term, South Korea should pursue equity investments in non-Chinese refining projects while simultaneously entering security-linked supply chains.

I. Situational Analysis

The Japan-China Rare Earth Conflict: Beijing Responds with Export Restrictions Following Takaichi's Remarks on Taiwan

1. Background and Developments

In a Diet session last November, Prime Minister Sanae Takaichi stated that a blockade or armed occupation of Taiwan in a contingency could constitute a "situation that threatens Japan's survival" [4]. This remark triggered a response from Beijing because it linked the legal basis for the Japan Self-Defense Forces' (JSDF) use of force to the Taiwan issue [4]. For China, the Taiwan issue is non-negotiable. The Chinese government has consistently treated it as a red line, viewing any external involvement as interference in its internal affairs [1].

Beijing's response went beyond diplomatic protests. It issued an advisory for its citizens to refrain from visiting Japan, and a few months later, exports of rare earths and magnetic materials to Japan contracted sharply [4][1]. Chinese Foreign Ministry spokesperson Mao Ning officially confirmed the deteriorating atmosphere for bilateral exchange, stating that Takaichi's "erroneous remarks" on Taiwan had "gravely hurt the feelings of the Chinese people" [10]. The repercussions extended to the cultural sphere, with a series of concerts by Japanese musicians in Shanghai being canceled [10].

This conflict is not a one-off diplomatic friction but a product of a structural dynamic. Since revising its three key security documents in 2022, Japan has been on a trajectory of increasing its defense spending and acquiring counterstrike capabilities. Its 2026 Defense White Paper once again defined China as "an unprecedented and the greatest strategic challenge" [7]. This trajectory has coincided with China's expanding presence in the Western Pacific, providing the backdrop for a stronger-than-usual reaction from Beijing [7]. Amid mistrust over declining U.S. engagement in the Indo-Pacific, the Takaichi administration has adopted a dual strategy of increasing defense spending while expanding its own regional engagement, a structure that has provoked alarm in Beijing [2].

2. Current Situation

The Japanese government dispatched a cross-party delegation of lawmakers to Beijing in an attempt to resolve the conflict [1]. On August 27, the delegation, led by Diet member Shinichi Isa, met with Lu Kang, Vice Minister of the International Department of the Communist Party of China [8]. However, Lu Kang stated unequivocally that China's policy toward Japan would not change unless Japan revises its stance on Taiwan [8]. This suggests that Beijing intends to draw out the conflict into a long-term struggle, demanding a retraction or correction of Takaichi's personal remarks, rather than treating it as a one-time incident.

Domestically in Japan, criticism of the Takaichi cabinet is also on the rise. Tokyo's passive response to issues such as U.S. sanctions against Tomoko Akane, the Japanese president of the International Criminal Court (ICC), and Russian President Putin's visit to the Northern Territories has drawn criticism even from within the ruling party [6]. This asymmetrical stance—being vocal on the Taiwan issue while remaining silent on matters involving the United States and Russia—is raising questions about the Takaichi administration's diplomatic consistency [6].

On the supply chain front, efforts to diversify rare earth procurement are materializing. The Japanese government is revamping its technology support programs for economic security and is considering providing tens of billions of yen to support the development of seabed rare earth mining near Minamitorishima [12]. Institutions like the Japan Atomic Energy Agency (JAEA) are developing technology to recover rare earths from water and oil using adsorbents, exploring its application to industrial wastewater [16]. However, all these attempts are medium- to long-term projects. Australia is emerging as an alternative supplier, but it remains unclear whether buyers will share the environmental costs of the refining process [17]. As demonstrated by the discharge of wastewater from refining facilities in China's Inner Mongolia, low-cost refining comes with environmental risks, and cleaner production to avoid these risks leads to higher prices [17]. This is why, despite the G7 making critical mineral supply chain security a key agenda item at its meeting in France, the assessment is that China's comparative advantage in refining and processing will not be significantly challenged for the next three to five years [5].

3. Key Actors and Positions

Japanese GovernmentThe Japanese government is pursuing a dual-track approach: holding firm on the Taiwan issue while seeking to minimize economic damage. Prime Minister Takaichi is under significant political pressure, personally defending her stance on social media by quoting the Analects of Confucius [14]. At the same time, her administration is working to reduce technological dependence on China, pouring government-level support into advanced semiconductor domestic production projects like Rapidus [15]. However, conciliatory gestures, such as dispatching the parliamentary delegation, face limitations and are unlikely to be effective without a revision of Japan's position on Taiwan [8].

Chinese GovernmentThe Chinese government is pressuring Japan through two channels—the Ministry of Foreign Affairs and the International Department of the Communist Party—and is using rare earth export controls as both a means of retaliation over the Taiwan issue and as a negotiating lever [5][8]. This action also serves as a response to U.S. export controls and tariffs against China, making it a multi-purpose tool from Beijing's perspective [5]. Beijing is also simultaneously employing social pressure tactics, such as advising its citizens to refrain from visiting Japan and curtailing cultural exchanges [10][1].

United StatesThe United States has maintained a relatively quiet position in this phase of the conflict. The Takaichi administration's move to strengthen its independent course, based on the premise of declining U.S. engagement in the Indo-Pacific, is intertwined with this issue [2]. Japan's silence on the sanctions against Akane also stemmed from a calculation to avoid provoking the United States, its "sole official ally" [6]. This illustrates Japan's position of having to balance a hardline stance against China with managing its relationship with the U.S. amidst the broader U.S.-China strategic competition.

AustraliaAustralia is mentioned as an alternative refining source through companies like Lynas, but the question of who will bear the environmental costs remains a commercial obstacle [17]. South Korea and TaiwanWhile not direct parties to the conflict, South Korea and Taiwan's role highlights a key vulnerability. Amid expanding demand for AI semiconductors, their exports to Japan have surpassed Japan's exports to them for the first time, revealing the supply chain weaknesses inherent in Japan's materials-centric industrial structure [11].

4. Key Issues

The first issue is the structural nature of the rare earth supply chain risk. China's concentration of refining and processing technology cannot be resolved by diversifying mining sources alone. Japan's development of seabed mining and industrial wastewater recovery technologies are projects that require considerable time before commercialization [12][16]. This reaffirms that the risk of dependency on critical minerals in the realm of trade and economic security is unlikely to be mitigated in the short term.

The second is the rigidity of China's red line on the Taiwan issue. Lu Kang's statement made it clear that Beijing will not move to normalize relations without a revision of Takaichi's position, suggesting that there is little room for compromise in Japan-China relations, a secondary front in the U.S.-China strategic competition [8].

The third is the issue of the Takaichi administration's foreign policy consistency. Its asymmetry—maintaining a hardline stance on Taiwan while responding passively to issues concerning the U.S. and Russia—is emerging as a domestic political vulnerability [6]. This means that the next phase of the Japan-China conflict could be determined by the language used regarding Taiwan in the scheduled December revision of the three key security documents [7].

The fourth is the ripple effect on the ROK-U.S.-Japan cooperation framework. While Japan devotes resources to managing its conflict with China, its trajectory of increasing defense spending and expanding its independent Indo-Pacific engagement continues. This makes it a crucial time to re-examine the nature and scope of ROK-U.S.-Japan coordination at the alliance and multilateral security levels [2][7].

II. In-Depth Analysis

The Japan-China Rare Earth Conflict: An Analysis of Root Causes and Structural Context

1. Root Cause: The Combination of a Red Line Crossed and Asymmetric Leverage

The surface cause of the current conflict is Prime Minister Takaichi's response in the Diet. Her statement defining a Taiwan contingency as a "situation that threatens Japan's survival" directly linked the legal basis for the JSDF's use of force to the Taiwan issue [4]. However, there is a deeper reason why this single remark led to the severe economic retaliation of rare earth export controls. For China, the Taiwan issue is not a bargaining chip but a matter directly tied to the regime's legitimacy [1]. This is demonstrated by the statement from Lu Kang, Vice Minister of the International Department of the Communist Party of China, who told the Japanese delegation, "policy will not change unless Takaichi's stance on Taiwan is revised" [8]. This shows that Beijing is demanding a full retraction of the statement itself, not a resolution at the level of a diplomatic expression of regret.

Furthermore, China had already established a chokepoint in the critical minerals supply chain in response to U.S. export controls and tariffs [5]. Takaichi's remark merely provided a pretext to redirect this existing leverage toward Japan. In other words, the rare earth card was not newly created for this incident; rather, a control system already built during the U.S.-China tech competition was retargeted at Japan. In this respect, the risk of dependency on critical minerals in the realm of trade and economic security is a central axis defining the nature of this issue.

2. Structural Context: A Convergence of Three Layers of Pressure

The Security Structure.Since revising its three key security documents in 2022, Japan has been on a trajectory of increasing defense spending and acquiring counterstrike capabilities. The 2026 Defense White Paper again defined China as "an unprecedented and the greatest strategic challenge" [7]. This trajectory has precisely coincided with the timeline of China's expanding presence in the Western Pacific, triggering a stronger reaction than in previous years [7]. The Takaichi administration perceived this situation as necessitating a dual strategy of expanding its own regional engagement amid mistrust over declining U.S. engagement in the Indo-Pacific [2]. The problem is that from Beijing's perspective, this strategy is read as a strengthening of Japan's will to intervene in Taiwan. This is a structure in which the Taiwan Strait issue, the military axis of the U.S.-China strategic competition, has spilled over into the bilateral Japan-China relationship.

The Economic Structure.Japan's high-tech industries have a structural dependence on China for over 90% of their rare earth refining and processing. Amid the AI semiconductor boom, while South Korea and Taiwan have captured value-added through HBM and foundries, Japan has maintained its strength in the materials and components sector [11]. However, a significant part of this materials competitiveness relies on the supply of raw materials for rare earths and magnets, meaning China's export controls have precisely targeted a vulnerability in Japan's industrial structure. The fact that the G7 treated critical mineral supply chain security as a key agenda item at its meeting in France reflects a recognition that this structural vulnerability is not unique to Japan [5].

The Political Structure.Domestically, the Takaichi cabinet has built its political identity on a platform of constitutional revision and military buildup [7]. This is why it is difficult for the administration to be seen as backing down on the Taiwan issue. At the same time, its asymmetry—being vocal only on Taiwan while responding passively to U.S. sanctions on the ICC president and Russian President Putin's visit to the Northern Territories—is drawing criticism even from within the ruling party [6]. This shows that the Takaichi administration is in a dilemma, finding it difficult to either easily retract the Taiwan remarks or maintain a consistently hardline stance in its relations with China.

3. Historical Precedent: A Comparison with the 2010 Senkaku Incident, and the Differences

This is not the first time China has used rare earth controls against Japan. In 2010, following a collision between a Chinese fishing trawler and Japan Coast Guard vessels near the Senkaku (Diaoyu) Islands, China effectively halted rare earth exports to Japan. That incident was resolved in a relatively short period after the Japanese government released the trawler captain, and Japan subsequently moved to diversify its supply sources, including through an equity investment in Australia's Lynas.

The current situation is an extension of that event, but its character is different. While the 2010 conflict was triggered by a localized issue—a territorial dispute—the current incident is directly linked to the Taiwan issue, China's top political priority. This leaves much less room for a negotiated resolution. Furthermore, unlike in 2010, the overarching structure of the U.S.-China tech competition is now in full swing. China's export control infrastructure and legal framework have become more sophisticated in the interim [5]. If the 2010 controls were effectively an informal and improvised measure, the current approach is closer to aiming institutionalized control mechanisms as the situation demands.

The very fact that Japan has been unable to escape its dependence on China despite nearly 15 years of attempting to diversify its supply chain since 2010 reveals the structural implications of the current situation. Australia presents itself as a responsible alternative supplier, but the issue of who will bear the environmental costs of refining remains unresolved [17]. A recurring dilemma persists: lowering refining costs increases the environmental burden, while raising environmental standards makes it difficult to compete with China on price. That Japan is exploring alternatives like seabed mining off Minamitorishima and technology for recovery from industrial wastewater [12][16] suggests it is taking a detour rather than a direct approach. This aligns with the assessment that China's concentration in refining and processing technology will not be shaken within the next five years or so [5].

4. Key Variables Shaping the Issue's Development

The language in the December revision of the three key security documents.The degree to which Japan specifies its language on Taiwan will be the biggest variable determining the intensity of China's response [7]. If the language is strengthened, China will lose any pretext for easing its rare earth controls.

Whether Takaichi corrects her remarks.As Lu Kang's statement indicates, China's demand is clear [8]. Unless Takaichi effectively retracts her Diet response or reinterprets it in a similar vein, Beijing has little incentive to lift the controls first. However, from a domestic political standpoint, there is currently little room for Takaichi to accept this.

The level of U.S. engagement.Given that declining Indo-Pacific engagement under the Trump administration was the backdrop that prompted the Takaichi government's independent course [2], whether the U.S. intervenes in the Japan-China conflict to mediate or provide deterrence will determine if the conflict escalates or contracts. To date, U.S. intervention has been limited.

Substantive progress in supply chain diversification.The medium- to long-term variables are the point at which Japan's seabed mining and adsorption recovery technologies enter the commercialization stage, and the point at which refining cooperation with alternative suppliers like Australia and Brazil translates into actual supply volumes [12][16][17]. The slower this progress, the more limited Japan's negotiating power will be.

These four variables are not independent of each other. If the language in the security documents is strengthened, the likelihood of a correction to the remarks decreases. If supply chain diversification is delayed, Japan's negotiating leverage with China will continue to weaken.