Rare Earths, the Chinese Lever Beijing Pulls While Taiwan Rehearses War

Introduction: two exercises that echo each other

An ISW report that describes a multi-dimensional front

On July 2, 2026, the Institute for the Study of War published its weekly China-Taiwan Update, a document that, beneath its technical surface, tells a clear story: that of a Chinese regime multiplying pressure fronts against its neighbors and rivals, from Japan to Taiwan, including the global rare earths markets. This is not an isolated escalation, but a methodical accumulation of coercive gestures, economic and military, unfolding in parallel.

The same day, thousands of kilometers from the Pentagon where this report was being dissected, Reuters revealed exclusive behind-the-scenes details of a Taiwanese exercise in Nantou, simulating a nightmarish scenario combining a Chinese naval blockade, a major earthquake, information sabotage, and a large-scale invasion. Read together, these two texts paint the portrait of a region actively preparing for a confrontation it hopes to avoid but can no longer ignore.

China's new rare-earth rules

A licensing regime taking effect on July 15

On June 25, 2026, China's Ministry of Commerce and the General Administration of Customs published Announcement No. 1 of 2026, titled "Detailed Rules for the Implementation of Export Control on Dual-Use Items Related to Rare Earths." This measure takes effect on July 15, 2026 and subjects 17 categories of key intermediate products to an export licensing regime, according to detailed analysis published by HGiron.

Among the materials explicitly targeted are rare-earth permanent magnetic materials, high-purity praseodymium-neodymium oxide, and dysprosium-iron alloy, essential components for the automotive electronics, battery, and electric machinery industries. Exporters will now have to provide foreign buyers with end-use declarations and proof of downstream application of the products.

A documentation burden weighing on global supply chains

According to HGiron, this new regulation adds substantial documentary and compliance checks to the sourcing processes of foreign manufacturers whose production depends on Chinese magnetic materials. Procurement teams now face an increased verification burden, and licensing procedures could become a limiting factor for delivery schedules and production planning.

The article notes that the full trade impact remains to be seen once the rules take effect, but simply imposing this bureaucratic straitjacket is already a tool of pressure: Beijing does not need to fully cut off supply to sow uncertainty among its Western customers — it only needs to complicate every transaction.

China's sanctions campaign against Japan

Forty new entities targeted on June 29

On June 29, 2026, the People's Republic of China added 40 additional entities to its sanctions lists as part of its diplomatic and economic pressure campaign against Japan, according to the ISW report. Twenty entities were placed on a control list, which bars China-based companies and foreign firms from selling China-produced dual-use items, while twenty others joined a dual-use watch list.

Beijing justifies these measures as a response to Japanese "militarism," following remarks made in November 2025 by Prime Minister Sanae Takaichi, who stated that a military contingency involving Taiwan would likely involve Japan. These sanctions add to Japanese import bans and travel advisories already issued by China.

Limited economic impact but a clear political signal

The ISW notes that Chinese sanctions on sectors like tourism and seafood imports have had a limited economic impact on Japan, which maintains diversified markets, notably with its Southeast Asian trading partners. But Beijing's strategic goal goes beyond simple economic calculation: it aims to discourage Japanese defense efforts and disrupt the building of regional coalitions against China.

China has also detained several Japanese citizens on smuggling charges, amid increasingly strict trade laws since this diplomatic dispute began, illustrating an escalation that goes beyond purely economic terms to directly affect individuals.

The nightmare scenario tested at Nantou

A two-day exercise to prepare for the unthinkable

According to Reuters's exclusive report, more than 370 government and military officials took part this week in a two-day exercise in Nantou county, in central Taiwan, simulating a cascading crisis: a Chinese blockade, a magnitude 6.8 earthquake exploited by Beijing to sow chaos, hijacked television broadcasts, sabotaged infrastructure, a bank run, civil unrest, and finally a large-scale invasion.

The exercise began with a seven-hour tabletop simulation session, followed the next day by field exercises including the simulated shootdown of a Chinese drone threatening a power plant and the setup of food rationing stations. The fictional earthquake killed 12 people in the scenario, adding a further layer of stress for officials having to juggle disaster relief with war planning.

Strong words from the ground

The minister without portfolio overseeing the exercise, Chi Lien-cheng, summed up the proximity of the threat in blunt terms: "Our adversary is right at our door, on the other side of the Taiwan Strait. That's very close," he said, according to Reuters. He added: "If you don't defend your own country, who else will? I think people are starting to understand that."

Lin Fei-fan, deputy secretary-general of Taiwan's National Security Council, for his part emphasized the intended deterrent effect: "The message to our adversary is clear: once they know Taiwanese society is prepared, they will have to think very carefully before launching such a costly war against Taiwan, one that might not succeed."

Lessons drawn from Ukraine

Civilian resilience conceived as a complete system

According to Reuters, Taiwanese officials explicitly drew lessons from the wars in Ukraine and the Middle East to make their tests more realistic: moving hospital operations underground, hiring professional hackers to test government networks, and disinformation scenarios where forged leaflets appear in the streets while local television stations are hijacked to broadcast propaganda from Beijing.

This choice of learning source is not trivial: it illustrates how Ukrainian resistance against the Russian invasion has, despite itself, become a reference manual for any democracy threatened by a militarily stronger authoritarian neighbor. Taiwan watches, learns, and adapts these lessons to its own island context and to the specific threat of a maritime blockade.

Nantou turned into a strategic rear area

Officials in Nantou county, Taiwan's only fully landlocked county, were tasked with turning their territory into a "rear zone," a refuge for people fleeing other counties and a fallback base for operations while frontline troops confronted Chinese forces. Dozens of grassroots government units across the country followed the exercise via live broadcast.

The questions posed to local officials give a sense of the realism sought: how many men of fighting age the local government could mobilize overnight, and how many boxes of infant formula the county had in stock. This level of detail, almost trivial on its surface, reveals preparation that reaches down to the most concrete needs of a population in a time of crisis.

The Chinese reaction and military patrol

Beijing accuses Lai Ching-te of provoking escalation

As the exercise was wrapping up, Taiwan reported that China had conducted a new "joint combat readiness patrol" around the island, deploying warships and at least 22 military aircraft, including nuclear-capable H-6 bombers, according to Reuters. China's Taiwan Affairs Office immediately accused President Lai Ching-te of "deliberately escalating" tensions.

Office spokesperson Zhu Fenglian stated: "This will only push Taiwan into the dangerous situation of war and conflict. Through all this, he is a destroyer of cross-strait peace, a creator of crisis in the Taiwan Strait, and an instigator of war." This rhetoric, typical of Chinese propaganda, flips the burden of provocation by accusing the party preparing to defend itself of being responsible for the escalation.

Military pressure that never really lets up

The ISW report confirms that this patrol fits within a sustained pace of pressure: the People's Liberation Army conducted a total of 134 aerial incursions into Taiwan's air defense identification zone in June, and the Chinese navy has maintained a near-constant presence of five to six warships around Taiwan at any given time in 2025, compared with a single ship in 2020. The carrier Fujian also transited the Taiwan Strait on June 23, its third crossing since entering service.

This figure of five to six ships on permanent station, compared with just one five years ago, alone illustrates the scale of China's militarization of the region, a trajectory showing no signs of slowing despite repeated diplomatic protests from Taipei and its Western partners.

Taiwan's accelerated military buildup

The littoral combat command enters service

On July 1, 2026, Taiwan activated its new Littoral Combat Command, a structure that integrates Taiwanese and American missile systems, incorporates a new unmanned surface vehicle unit, and unifies mobile and coastal radars along with anti-ship missiles under a single command covering the island's entire coastal defenses, outlying islands included, according to the ISW.

This command will focus on maritime threats within a 24-nautical-mile radius around Taiwan and will integrate Taiwan's Hsiung Feng missiles as well as American Harpoon missiles, whose range covers areas of the Chinese coastline. The Ministry of National Defense's chief of staff, Chien Shih-yuan, who led Taiwan's naval response after Nancy Pelosi's visit in August 2022, will head this new structure and be promoted to lieutenant general.

A budget debate reflecting internal political divisions

The military buildup, however, is not unanimously supported within Taiwan's Legislative Yuan: the Democratic Progressive Party (DPP) is proposing a special budget of 210 billion New Taiwan dollars, roughly 6.5 billion US dollars, for acquiring domestic drones between August 2026 and 2031, while the Kuomintang (KMT) opposition has blocked sending the bill to committee and is proposing its own version worth 240 billion New Taiwan dollars over six years.

DPP spokesperson Michelle Lin advocated for stable long-term funding via a special budget, while Taiwan People's Party (TPP) deputy whip Wang An-Hsiang criticized this approach in the name of fiscal discipline. This debate, however technical it may appear, reveals a real political rift over the speed and method of rearmament in the face of a threat that is otherwise broadly consensual.

The Taiwanese delegation in Washington

A bipartisan call to unblock American military aid

Between June 21 and 26, a Taiwanese delegation led by Legislative Yuan speaker Han Kuo-yu traveled to the United States, meeting seven Democratic senators including Jeanne Shaheen as well as 33 members of the House of Representatives, including former speaker Nancy Pelosi, according to the ISW. The senators urged President Donald Trump to advance a 14-billion-dollar arms deal, approved by Congress in January but apparently stalled since Trump's meeting with Chinese Communist Party general secretary Xi Jinping in mid-May.

This stall, occurring in the wake of the ongoing US-Iran conflict, illustrates a real tension in American foreign policy: the need to manage several fronts simultaneously can delay essential strategic commitments to allies like Taiwan, even when bipartisan support in Congress remains solid and clearly stated.

A powerful symbolic gesture despite the tensions

The delegation nonetheless secured a powerful symbol: it returned to Taipei aboard the very first direct commercial flight between Washington and Taiwan, a gesture that, while not resolving the arms-deal holdup, sends a message of continued rapprochement between the two capitals. The senators also said they were encouraged by the May passage of a special Taiwanese defense budget of 25 billion dollars.

This contrast between diplomatic enthusiasm and the concrete stalling of a critical arms deal fairly well sums up the current ambiguity of the US-Taiwan relationship: support in principle remains firm, but its concrete execution regularly runs into the Trump administration's shifting priorities on the world stage.

Internal purges within the People's Liberation Army

Six senior officers removed without explanation

The ISW report also documents a less visible but equally revealing dimension: China's National People's Congress Standing Committee removed six People's Liberation Army officers and nine other delegates, without giving a reason. Among the officers removed are Xu Xueqiang, former head of the Central Military Commission's equipment development department, and Zhang Minghua, commander of the Chinese military's cyberspace force.

These purges follow an ideological training camp held from April 8 to June 12, personally launched by Xi Jinping, blending ideological study, anticorruption rhetoric, and military exercises. Xi stressed the need for senior cadres to create an atmosphere where "people speak the truth, offer candid advice, and fight bad practices," a formula that rings oddly coming from a leader who just removed fifteen party officials without explanation.

A signal of power centralization rather than transparency

The ISW assesses that these repeated purges, which add to the removal of Zhang Youxia and Liu Zhenli from the Central Military Commission in January 2026, likely aim to further centralize power and ideology within the Chinese military rather than genuinely fight corruption or encourage internal candor.

This instability at the top of the Chinese military apparatus deserves close attention from Western analysts: an army that regularly purges its senior cadres without public explanation is not necessarily a weakened army, but it is certainly an army under internal political strain, a factor that could influence the timing and nature of any future action against Taiwan.

China's new ethnic unity law

A potential tool for extraterritorial repression

A new Chinese law on "ethnic unity" took effect on July 1, 2026, and Taiwanese national security officials warn it could be used to detain or sanction ethnic Chinese minorities abroad, dissidents, foreign lawmakers, journalists, researchers, Taiwanese citizens, and even multinational companies, according to the ISW. Mainland Affairs Council deputy minister Liang Wen-chieh noted that the law does not clearly define what acts would threaten this "ethnic unity."

This deliberate vagueness is not a trivial legal detail: it gives Beijing near-unlimited latitude to justify prosecuting anyone, anywhere in the world, the moment their words or actions displease the regime. It is a tool of transnational repression disguised as a social cohesion law.

Concern over the London mega-embassy

Taiwan's envoy to the United Kingdom, Vincent Chin-Hsiang Yao, voiced concern that the new Chinese mega-embassy in London, reported to contain 208 secret rooms as well as hidden bathrooms and backup generators, could be used to imprison dissidents and conduct espionage operations. Yao specified he feared Taiwanese politicians labeled "diehard Taiwan independence separatists" could be abducted by Chinese secret police and detained within the diplomatic compound itself.

Whether or not these fears materialize, their public statement by a serving diplomat illustrates the climate of deep mistrust that now characterizes relations between Taiwan and China, a climate extending well beyond the military realm alone into international law and diplomacy itself.

Lighter judicial sentences for espionage

Three former DPP staffers see their sentences reduced

Taiwan's High Court overturned one conviction and reduced the sentences of three former Democratic Progressive Party staffers found guilty in 2025 of leaking classified information to China, according to the ISW. Huang Chu-jung, a former assistant to a Taipei city councilor who had received nearly 5 million New Taiwan dollars from China, had his sentence reduced from ten to six years.

Wu Shang-yu, a former assistant to President Lai Ching-te during his time as vice president and briefly as president, accused of leaking his travel itineraries, had his sentence cut from four to three years, while Ho Jen-chieh, a former assistant to ex-foreign minister Joseph Wu, was acquitted outright on appeal.

Judicial leniency that raises questions amid heightened security tension

This relative leniency from Taiwan's judiciary, coming precisely as the island intensifies its defense preparations against Chinese infiltration and espionage, raises legitimate questions about the consistency of the judicial system in the face of a threat the government itself calls existential.

This is not about demanding summary justice, but about noting a striking gap: while Taiwan mobilizes 370 officials for a national survival exercise, its courts are reducing the sentences of those who concretely transmitted sensitive information to the designated adversary. This contradiction deserves a fuller public debate than it has received so far.

The overall strategic significance for the West

An Asian theater that joins the European theater

Taken together, these developments, from the rare-earth licensing regime to internal military purges, sanctions against Japan, and the Nantou exercise, paint a reality Western policymakers can no longer afford to treat as an isolated regional matter. China, much like Russia in Europe, simultaneously uses economic coercion, military pressure, and information manipulation to erode the resistance of its democratic neighbors.

The parallel with Ukraine, explicitly claimed by Taiwanese planners themselves, is no rhetorical coincidence: it is the lucid recognition that democracies bordering authoritarian regimes today share the same survival manual, whether they sit on the South China Sea or the banks of the Dnipro.

Western dependence on rare earths remains an Achilles' heel

China's new rare-earth licensing regime, effective July 15, recalls a structural vulnerability the West still struggles to correct despite years of warnings: its persistent dependence on Chinese critical materials for its strategic industries, from electric vehicles to the most advanced defense systems.

As long as this dependence persists, every new Chinese bureaucratic rule, however technical it may look on paper, will remain a first-order geopolitical pressure lever, capable of influencing strategic decisions well beyond mere trade and industrial considerations.

What comparing the two texts reveals

A hybrid war playing out on every front at once

Reading the ISW report and the Reuters investigation together reveals a truth that isolated sector-by-sector analyses often miss: Chinese pressure on Taiwan and its neighbors is never confined to a single register. It simultaneously combines economic warfare through export licenses, legal warfare through new extraterritorial laws, psychological warfare through repeated aerial incursions, and information warfare through disinformation scenarios that Taiwan now actively trains to counter.

This multiplicity of fronts is no strategic accident: it reflects a deliberate Chinese doctrine of hybrid warfare, where each register of pressure reinforces the others, making any unified and coherent Western response harder to mount against an adversary that, for its part, perfectly coordinates its instruments of power.

Taiwanese preparation as a signal sent to the entire world

The Nantou exercise is not merely an internal test of Taiwanese resilience: it is also a message addressed to Washington, Tokyo, and every Western capital, reminding them that Taiwan takes its own defense seriously and deserves in return tangible and consistent support, beyond diplomatic symbols like direct commercial flights or parliamentary visits.

It is precisely this consistency between local preparation and international support that will ultimately determine whether deterrence against Beijing holds or gives way, a stake that goes far beyond the island's own future to engage the credibility of the entire rules-based international order the West claims to defend.

The quiet but real role of regional allies

South Korea and Australia watch closely

Beyond Japan, directly targeted by Chinese sanctions, other regional partners like South Korea and Australia are closely watching the evolution of China's posture toward Taiwan, aware that a successful blockade or invasion would fundamentally transform the security balance of the entire Indo-Pacific region. These countries share with Japan an economic dependence on China that complicates any swift, unified collective response.

This regional caution, understandable on economic grounds, nonetheless illustrates a persistent challenge to building a truly coherent Western front and alliance against Beijing: each capital calculates its own economic risk before aligning its policy with that of Washington or Tokyo, a fragmentation China skillfully exploits to its strategic advantage.

Western coordination still imperfect

Experts cited in regional coverage note that coordination between Washington, Tokyo, Canberra, and Seoul remains largely bilateral rather than truly multilateral, a structural gap that weakens collective capacity to respond quickly to a sudden crisis in the Taiwan Strait. This institutional fragmentation contrasts with the relatively tighter coordination observed within NATO against Russia.

Closing this Indo-Pacific coordination gap should be an urgent strategic priority for all democracies in the region, otherwise China will continue to benefit from a tactical advantage in sequentially managing its multiple pressure fronts against its democratic neighbors.

Conclusion: a region preparing while the world looks elsewhere

A dossier that deserves more Western attention

The ISW report and the Reuters exclusive each tell, in their own way, the same fundamental story: Taiwan is methodically preparing for a scenario no one wants to see realized, while China multiplies economic, military, and legal pressure levers to weaken its resolve and that of regional partners like Japan.

This preparation deserves far more sustained Western attention than it currently receives, eclipsed in the headlines by other urgent international crises. Yet the Taiwan Strait remains one of the most critical tipping points in the twenty-first century's global geopolitical balance.

A universal lesson for any threatened democracy

What Taiwan is putting into practice, from the Nantou exercise to the littoral combat command, constitutes a model of national resilience that other democracies bordering authoritarian regimes, including in Europe, would do well to study closely. Methodical preparation, far from being an admission of weakness or a provocation, remains the best safeguard against the adventurism of a militarily stronger neighbor.

By Maxime Marquette, columnist

Columnist's transparency note

Who I am and my acknowledged biases

I am a pro-Western columnist, convinced that China, like Russia, Iran, and North Korea, represents a structural threat to the rules-based international order. I unreservedly support Taiwan's right to self-determination and consider Ukrainian resistance a legitimate source of inspiration for any democracy threatened by an authoritarian neighbor.

This narrative relies exclusively on the report published by the Institute for the Study of War and on Reuters's exclusive investigation, supplemented by specialized analysis of China's new rare-earth export rules. I have invented no fact, no quote, and no figure in this text.

What I do not know, and my method

I cannot predict whether China genuinely contemplates imminent military action against Taiwan, nor can I quantify the final economic impact of the new rare-earth rules once fully implemented. My method consists of cross-referencing primary sources specialized in military analysis with on-the-ground journalistic reporting, explicitly flagging areas of uncertainty rather than filling them with unverified assumptions.

Sources

Primary sources

Institute for the Study of War, China & Taiwan Update — July 2, 2026

Reuters, Inside Taiwan's nightmare scenario: Chinese blockade, earthquake, sabotage and invasion — July 3, 2026

Secondary sources

HGiron, China Tightens Rare Earth Export Rules for Supply Chains — June 26, 2026

Kyiv Independent, ongoing coverage of Ukrainian resistance cited for comparison — accessed July 2026

Foreign Policy, analyses of China's coercion strategy in the Asia-Pacific — accessed July 2026

Military Times, context on regional military tensions in the Asia-Pacific — accessed July 2026