In the past month, the global trade and economic landscape has once again been shaken. The export control of dual-use items by a certain Eastern major power against an island nation instantly triggered market reactions. The island nation's officials were furious, and the public was even more anxious.

Let's start with the short-term response. The market is highly perceptive; as soon as the news broke, the island nation's stock market responded by falling— the Nikkei 225 index dropped over 400 points in the subsequent morning trading session, a decline of about 0.7%. It doesn't seem like much, but the underlying psychological expectations behind it should not be underestimated.

So, where exactly is the bottleneck? This control list covers over 800 items of goods and technologies, not just rare earths. Electronic components, sensors, precision equipment, chemical precursor materials—all are included. Even more severe, battery technology has been added to the control scope—from lithium battery cathode precursors and anode materials to manufacturing equipment, the entire industry chain is affected. This directly threatens the island nation's electric vehicle and clean energy industries.

How dependent is the island manufacturing industry on these imports? Data speaks: rare earth imports rely on over 60% dependency. The affected supply chain covers about 40% of the national supply chain. Automotive, chemical, semiconductor, precision instruments, robotics—these are the pillars of the island nation's economy, and none are immune.

Economists have done the math. If the rare earth embargo lasts for three months, the estimated loss is about 660 billion yen, dragging down the annual GDP by approximately 0.11%. Sounds not so terrible? Look further—if it lasts for a year, the loss could soar to around 2.6 trillion yen, with GDP negative growth reaching 0.43%. If critical mineral imports are completely cut off, causing domestic shutdowns, GDP could fall to negative 3.2%, equivalent to an economic loss of 18 trillion yen. This is no longer a "small cold."

What’s even more painful are the implementation details. The scope and coverage of the control are so extensive that even circumventing through third-party countries is blocked—any individual or organization attempting to transfer origin-specific items to the island nation will be held accountable. This means that even island companies with overseas factories, if they use local raw materials or equipment in production and then sell back domestically, must undergo strict approval processes.

The "middle factory" model faces a break. Many island companies rely on local raw materials for initial processing and then ship back for fine processing. Now, with chemical materials and electronic components tightly controlled, any link in this industry chain could get stuck. Companies also need to establish a super-complex "export compliance review system" to prove to local authorities that their products are not for military use—this process is often so lengthy it can be suffocating.

For island companies investing locally, this is a dead end: violations can lead to fines or even inclusion on the entity list; if they do not export, their domestic parent company's production lines will halt. Between these dilemmas, costs are soaring. Defense industry inventories typically last only 2-3 months; once long-term restrictions take effect, urgently seeking alternative sources will become a nightmare.

Some local economists believe: this is not just an economic issue, but a heavy price paid by the island nation in balancing "military autonomy" and "economic prosperity." If diplomatic efforts cannot quickly de-escalate the situation, pillar industries like automotive, chemical, and precision instruments may experience permanent decline. The underlying message is: this could become a turning point.

Market players are now pondering the same question: a major restructuring of the industry chain is about to begin, and those who can adapt to the new order the fastest will be the winners.