Sanctions Used as Industrial Policy Tool
Sanctions regimes are increasingly being used as instruments of industrial policy, particularly concerning critical materials like rare earths and semiconductors. According to the *Critical Minerals Report* podcast, this trend shifts the risk landscape for manufacturers. Supply chain compliance programs now need to account for geopolitical aims, not just traditional trade restrictions.
- In response to U.S. sanctions on its semiconductor industry, China has imposed export controls on critical minerals like gallium, germanium, and antimony, which are vital for producing batteries, solar cells, and defense technology. - The U.S. Commerce Department's Bureau of Industry and Security has used its "Entity List" to restrict Chinese companies' access to advanced semiconductor manufacturing equipment and AI technologies, citing national security concerns. As of July 2023, 721 Chinese entities had been added to this list. - This weaponization of trade is potent because of significant supply chain concentration; for example, China refines approximately 90% of the world's rare earth elements and 99% of key minerals like dysprosium. - As a countermeasure, the U.S. government is moving beyond subsidies to take direct equity stakes in strategic mining companies, such as MP Materials, and is working to build a preferential minerals trading zone with allied nations to secure supply chains. - The European Union has also responded to these global pressures by adopting the European Critical Raw Materials Act, which sets domestic targets for the extraction, processing, and recycling of critical minerals to reduce reliance on single sources. - This geopolitical friction is forcing manufacturers to shift from cost-efficient "just-in-time" models to more resilient "just-in-case" strategies, diversifying their manufacturing bases to regions like Vietnam, Mexico, and Eastern Europe. - Companies are evolving their compliance functions, moving from siloed teams that manage tariffs to integrated risk management programs that assess deep multi-tier supply chain visibility for hidden geopolitical exposures. - Historical data from sanctions on other nations illustrates the potential impact on the manufacturing sector; for instance, international sanctions on Iran led to a 16.4 percentage point decline in the manufacturing employment growth rate between 2012 and 2014.
