Geopolitical Risks in Supply Chains: China's Sanctions on Hanwha and Rare Earth Controls

The U.S.-China trade conflict has entered a new phase, with China's recent sanctions on Hanwha Ocean's U.S. subsidiaries and expanded rare earth export controls signaling a strategic escalation. These moves, coupled with retaliatory tariffs and port fees, underscore the fragility of supply chain-dependent sectors and the growing risks for global investors.

China's Sanctions on Hanwha: A Strategic Blow to U.S. Shipbuilding

China's imposition of sanctions on five U.S.-based subsidiaries of South Korean shipbuilder Hanwha Ocean-including Hanwha Philly Shipyard Inc. and Hanwha Shipping LLC-represents a direct challenge to U.S. efforts to revitalize its domestic shipbuilding industryChina sanctions 5 US units of South Korean shipbuilder Hanwha ...^[1]. The sanctions, framed as retaliation for Hanwha's alleged support of U.S. investigations into China's maritime dominance, prohibit Chinese entities from engaging with these subsidiariesChina Sanctions Hanwha Ocean: U.S. Subsidiaries Targeted, Stock...^[2]. This disrupts supply chains for Hanwha's $5 billion investment in U.S. shipyards and its contracts with the U.S. Navy, raising concerns about operational continuityKorean shipbuilders broadsided by Chinese sanctions on Hanwha ...^[3].

The move aligns with broader trade tensions, as both nations simultaneously imposed port fees on each other's vessels. China's 400-yuan ($56) per net ton fee on U.S. ships, while exempting Chinese-built vessels, highlights its leverage in global shipping logisticsChina targets five U.S. subsidiaries of South Korea's Hanwha ...^[4]. For investors, this signals a shift toward geoeconomic fragmentation, where supply chains are increasingly bifurcated along U.S. and China-centric lines.

Rare Earth Export Controls: Weaponizing Critical Resources

China's expanded export restrictions on rare earth elements (REEs) further amplify geopolitical risks. The new controls now cover 12 rare earths-up from seven-and extend to downstream materials like superhard alloys and lithium battery componentsChinas Expanded Export Controls on Rare Earths^[5]. These materials are indispensable for defense systems (e.g., F-35 jets, Virginia-class submarines) and green technologies (e.g., wind turbines, EV motors)China's Rare Earth Export Controls Target U.S. Industries: Scope and Impact^[6].

According to a report by Taylor Wessing, China's 90% dominance in rare earth refining allows it to manipulate supply and pricing, creating vulnerabilities for U.S. and European manufacturersChinas Expanded Export Controls on Rare Earths^[5]. For instance, products containing even 0.1% Chinese-origin rare earths may require export licenses for re-export, adding administrative delays and compliance costsChina tightens rare earth export curbs, taking aim at military and ...^[7]. This strategic use of resource control mirrors China's 2010 rare earth embargo on Japan, demonstrating a pattern of economic statecraftRestrictions on the Export of Rare Earth Elements and Their Impacts^[8].

Compounded Risks: Supply Chains in the Crosshairs

The interplay between sanctions on Hanwha and rare earth controls creates compounded risks for supply chain-dependent sectors. The U.S. Department of Defense, which relies on 78% Chinese-processed rare earths for defense platforms, faces immediate bottlenecksHow do China's Export Restrictions on Rare Earths Impact Global Trade and Major Industries?^[9]. Meanwhile, Hanwha's disrupted shipping operations could delay critical infrastructure projects, such as Philly Shipyard's naval contractsChina targets five U.S. subsidiaries of South Korea's Hanwha ...^[10].

For investors, the implications are twofold:
1. Short-Term Volatility: Sectors like defense, EVs, and renewable energy face production halts and price spikes due to restricted access to rare earths and shipping delaysChina Sanctions US Maritime Companies: Trade War Escalates^[11].
2. Long-Term Structural Shifts: The U.S. and EU are accelerating efforts to diversify supply chains, including domestic refining and recycling initiatives. However, these projects require years to mature, leaving markets exposed in the interimThe Consequences of China's New Rare Earths Export Restrictions^[12].

Investment Considerations in a Fractured Geopolitical Landscape

Investors must navigate a landscape where geopolitical risks are no longer abstract but operational realities. Key strategies include:
- Diversification: Prioritize companies with alternative supply sources or vertical integration in critical materials.
- Hedging Exposure: Use derivatives or insurance to mitigate currency and commodity risks in volatile markets.
- Policy Monitoring: Track U.S.-China negotiations and regional agreements (e.g., EU's Critical Raw Materials Act) for clues on regulatory shiftsChina's Rare Earth Export Controls: Impact and Western Response^[13].

The current escalation underscores a broader trend: supply chains are no longer just about efficiency but about geopolitical leverage. As China weaponizes its control over rare earths and shipping, investors must prepare for a world where economic stability hinges on strategic resource management.