Key takeaways from Silverado’s industrial robot dashboard are discussed below.

1. China’s share of global exports reached a record high.

China’s share of global exports reached a record high of 18 percent, not far behind Japan’s leading export share of 21 percent. China’s share of exports is up from only 9 percent in Q1 2024. The United States was the fifth largest exporter, accounting for 5 percent of exports.

2. A majority of China’s exports went to Asia. The United States was the third largest export destination on an individual country basis.

Over half of Chinese exports were destined for Asian countries, with India, Thailand, and Vietnam each accounting for 9 percent of Chinese exports. The United States was the third largest individual country destination, also accounting for 9 percent of China’s exports. China’s exports of industrial robots to the United States increased by 66% from Q1 2026 to Q2 2026 and 170 percent from Q1 2024 to Q2 2026. However, China supplies a relatively small share of U.S. imports, as discussed below.

3. U.S. imports of industrial robots reached the highest level since 2022.

U.S. imports in Q2 2026 reached $551 million, a 23% increase from Q1 and the highest level since the second quarter of 2022. Japan remained the largest supplier to the U.S. market, accounting for 21 percent of U.S. imports. China only accounted for 6 percent of U.S. imports.

1. China’s exports of export-controlled rare earth compounds and metals to the United States increased in July 2026, driven primarily by yttrium oxide exports, which reached 29 metric tons.

China shipped 29 metric tons of rare earth compounds and metals covered by the April 2025 export controls to the United States in July 2026, up from just 8 metric tons in June. The increase was driven primarily by shipments of yttrium oxide, with all other rare earth metals and compounds falling to zero in July 2026. Despite the rebound, July exports remained well below levels recorded before the April 2025 controls, when monthly shipments to the United States frequently exceeded 50 metric tons and at times surpassed 100 metric tons.

2. China’s global exports of rare earth compounds and metals increased from June to July 2026, though they were still below typical historical levels. Results for individual minerals were mixed.

The July increase reflects an uneven recovery across individual rare earth elements. Global dysprosium exports returned to around historical levels in July, though none were exported to the United States. Yttrium exports remained well below historical levels even though their exports to the United States somewhat recovered. Terbium exports also remained minimal, and lutetium oxide exports fell to zero.

3. China’s exports of export-controlled rare earth compounds and metals to Japan remained minimal in July, while shipments to South Korea continued to increase.

China’s exports of export-controlled rare earth compounds and metals to Japan remained near historic lows in July 2026, continuing the sudden halt in shipments since China imposed additional export controls on Japan in January. Prior to the additional export controls, Japan had been one of China’s largest destinations for these products and continued to receive significant volumes even after the April 2025 export controls took effect. Since January 2026, however, shipments to Japan have been minimal. Japanese import data indicate sharply higher yttrium oxide prices for minerals that Japan has been able to secure.

South Korea has followed the opposite trend. China’s shipments of export-controlled rare earth compounds and metals continued to increase in July, building on gains in recent months. South Korea received all 11 metric tons of China’s dysprosium exports in July and was also a major destination for yttrium exports. The diverging trends have become increasingly pronounced, with exports to Japan remaining heavily constrained while shipments to South Korea continue to rise to above historic levels.

4. China continues to ship large volumes of rare earth magnets globally, though the United States remains an exception among major destinations.

China’s global exports of rare earth permanent magnets remained strong in July 2026, totalling 5,375 metric tons. This was slightly above the 5,278 metric tons exported in July 2024 and continued the broader recovery in magnet exports that began after shipments fell sharply following the imposition of the April 2025 export controls.

Exports to most major destinations have also increased compared with 2024. From January through July 2026, China exported 15,165 metric tons of rare earth magnets to the European Union, up roughly 17 percent from the same period in 2024. Shipments to South Korea increased by approximately 24 percent, Vietnam by 16 percent, India by 39 percent, and Thailand by 39 percent.

The United States remains the notable exception. China exported 3,521 metric tons of rare earth magnets to the United States from January through July 2026, approximately 16 percent below the 4,212 metric tons shipped during the same period in 2024. While China’s overall magnet exports have largely returned to or exceeded historical levels, shipments to the United States have yet to experience the same degree of recovery.

5. U.S. imports of sintered NdFeB magnets are shifting in both source and size, as suppliers outside China help offset lower Chinese shipments.

By weight, U.S. imports of sintered NdFeB permanent magnets remained below H1 2024 levels in H1 2026, as increased imports from Japan, the EU, and Southeast Asia only partially offset lower imports from China. At the same time, the total number of sintered NdFeB magnets imported rose above H1 2024 levels, suggesting that U.S. imports, particularly from China, are shifting toward smaller magnets. Conversely, imports, particularly from Japan and the EU, in H1 2026 appear to be shifting to larger magnets, based on the greater weight of imports relative to the number of sintered NdFeB magnets imported.

Executive Summary

Over the last decade, the U.S. Government has been busy creating and updating Restricted Party Lists (“RPLs” or just “Lists”) for various types of international transactions, including exports, imports, investment, and even immigration. These actions were driven in large part to address a set of emerging threats largely from China. Each iteration of this process was well-intentioned, but not-well coordinated, and there was a Russian invasion in the middle that may have distracted policymakers. The decentralized nature of List formation has created confusion for industry, difficulty for targeted enforcement, and in some cases, exploitable gaps for adversaries.

With U.S.-China relations sitting in a historic “pause and rethink” moment, it is time to consider how to use Lists to best support U.S. interests. At minimum, the United States should invest in a coherent List-based approach that advances a single national security technology strategy together with industry, and in a potentially scalable manner through joint actions with allies and partners. The solution should anchor around the following characteristics:

• Mutual recognition for both threat identification and mitigation across the interagency.

• Longer-term predictability for industries caught between Beijing and Washington, accepting that global industries that are resilient enough to resist China’s sphere of influence are still beneficial to U.S. national security even if they fail to meet every single U.S. preference.

• Clear directives from the White House and/or Congress as to the goals, and cogently communicated thresholds, on a sector-by-sector basis, when the List-based approach is no longer sufficient, and a switch to sectoral controls is necessary.

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Background – Why a “List” Approach?

It wasn’t that long ago that the United States and the Republic of China joined together to defeat the Axis powers for control of the free world. But much has happened since. Fast forward through half a century of Chinese hardship and the re-branding to the Peoples’ Republic of China, contrasted against U.S. ascension to the status of sole superpower, and you arrive at some point in the late 1990s, where the U.S. and China again found optimism in collaboration through cautious economic integration. Discussions ultimately led to China’s accession to the World Trade Organization in 2001, and the global economy sailed off into the sunset of Ricardian comparative advantage and efficient markets... except it didn’t.

Over the ensuing decade, the two economies accelerated supply chain integration while at the same time the U.S. subtly attempted—and failed—to persuade Beijing to become a responsible stakeholder of the global economic order. As the latter effort began to show signs of failure, the relationship took on a wholly unfamiliar nature for the U.S.; one of shrinking supremacy. The pivot to Asia that the Obama Presidency attempted, as noted by the World Economic Forum in 2016, left China with the mixed status as both a growth market for U.S. businesses, and a threat to U.S. economic prosperity.2

Roughly from that moment, the relationship accelerated in its devolution into a multi-front rivalry defined by cyber warfare, aggressive de-risking and in some cases decoupling, and increasing militarization. If China had been a smaller share of global GDP in 2016, the solution would have be simple: country-wide sectoral sanctions that applied to all types of transactions; import, export, investment, etc. Yet, because global economic and technological interdependence with China was, and remains high, any strict form of broad economic blockade would cause severe harm and risk alienating the United States from certain aspects of global growth and development.

Enter the regulatory scalpel. If a geopolitical threat can be identified with great precision—the theory goes—then broader tools like sector-based, or even country-wide sanctions are not necessary. Instead, the regulating government can provide industry with ex ante notice about the specific entity that must be avoided in each type of international transaction, and industry does the heavy lifting. Precision in this manner avoids large scale economic harm. It also empowers more impactful government enforcement actions; is the legally distinct entity is identified, and an industry party interacts anyway, the government has a stronger case for penalties.

Over the last decade many U.S. agencies have attempted to use the scalpel approach to review, mitigate, restrict, or even prohibit transactions with certain entities while maintaining overall normal trade relations with China.3 Congress has largely punted on a broad fix, other than a few targeted efforts aimed at forced labor and semiconductors. The result has been a massive expansion of Lists and other end user controls across several authorities. In theory, it is beginning to look less like surgery and more like “death from a thousand cuts.” In practice, it has a strange similarity to a circus knife throwing act.

Table 1 summarizes what is emerging to be the “Core Set” of these Lists and Appendix A provides additional details on a slightly more comprehensive set. Within the context of the Core Set, this brief examines recent USG efforts for a more unified approach. It also identifies a few tools that could make current Lists more interoperable for government enforcement and industry risk management.

Table 1: The Core Set of Restricted Party Lists4

Prior to now, efforts to make the application of certain Lists interoperable across the range of potential transactions have been limited. This is due, in part, to the nature of the Lists in the Core Set, with each having a specific target audience and inherent limits on who or what it regulates. This may be a missed opportunity, however, as the issues addressed by the Lists largely center around a few topical areas, summarized as:

• Adversary Military Support: Lists largely designed to address the growing threat of modernization of the People’s Liberation Army (PLA) through Chinese industrial development, and headlined by DoW’s Section 1260H List, the BIS MEU List, and Treasury’s NS-CMIC List. In the case of the MEU List, there is an additional aspect in that the item must be of the nature to support or contribute to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production, of dual use and military use items.

• Foreign Policy Goals: Lists designed to address issues ranging from forced labor and drug trafficking to trade evasion and intellectual property theft. The Entity List is the more senior statesman here, but new entrants include the UFLPA List and the DoW’s Section 1286 List, which bans U.S. universities and research institutions that receive DoW funding from collaborating with any institution on the 1286 List.

• Cyber/Infrastructure Risk: Lists that seek to identify technology products or services providers where there is an unacceptable level of malign cyber risk. Although a lot of attention has been directed to this area in creating the authorities, few Lists have been widely implemented. Section 5494 List is the latest in this realm and is quickly making its way into the Core set, even though it remains in Notice of Proposed Rulemaking (NPRM) status with just three names.5 Additional examples include: the FASC List; the Protecting Americans from Foreign Adversary Controlled Applications Act (PAFACA) List;6 and the DOJ Bulk Data Rule List. Greater details on these can be found in Appendix A.

• The Special Case of the FCC Covered List: At the outset, it is important to note that the Covered List is of a slightly different type. It is managed by the FCC, a quasi-independent agency, and under the Secure and Trusted Communications Networks Act (STCNA), the FCC is authorized to add individual entities to the Covered List where there has been a relevant national security risk assessment conducted by another federal agency.7 The Covered List does not purport to address military risk, or implement foreign policy per se, but the recent shift in how the FCC is applying it (more on this below) might make it a tool for those goals.

Problem – The Lists Do Not Always Speak the Same Language

Internally, U.S Government action to address technology risks through national security and foreign policy is coordinated in the National Security Council (NSC). Unfortunately, there is no external facing NSC-issued guidance to industry outside of major changes implemented through Executive Orders and Presidential Proclamations. Congress can also play a role in the creation of Lists—arguably should play a greater role—but likewise cannot interact on a granular implementation basis, other than to occasionally add an entity to a List directly as part of a larger legislative action.8 Despite best intentions, the ongoing coordination of a single, coherent national security technology strategy across various government agencies is not self-effectuating.

In practice, differing agency authorities and enforcement priorities, and variable capacity of industry to conduct due diligence and predict the strategic actions of adversarial foreign governments create gaps and discontinuity over time. The default has generally been that inclusion on one List did not impact the determination under a separate List. Essentially, the Lists don’t “talk to each other.”

One example of this can be found in the communication gap between the BIS MEU List and the DoW 1260H List. While both are expressly intended to identify Chinese military entities whose interaction with U.S. sensitive technology should be limited, they vary on which entities are named and what actions are required. The two Lists share many of the typical state-owned enterprises.9 They diverge, however, in how they address new and emerging technology companies, with the 1260H List identifying consumer tech focused entities like Tencent, Alibaba, Unitree, and BYD. It is worth noting that the MEU List is illustrative, not exhaustive.10 Which, of course begs the question of whether the newly minted entries on the 1260H List should just be assumed to also be subject to the MEU restrictions in EAR Part 744.21 and elsewhere.

The mismatch goes the other way too, where U.S. technology companies seek to include foreign suppliers into global supply chains, even though the U.S. company could not export to such an entity without a license. That is, the presence of a supplier on the BIS Entity List does not necessarily constrain an import-focused transaction. For example, as Apple attempts to navigate the current shortage of memory chips, it is actively looking to integrate NAND flash memory from Yangtze Memory Technologies Corp (YMTC).

YMTC has been on the Entity List since 2022 but has avoided inclusion on the 1260H List and other Lists in the Core Set. When looking at globally integrated supply chains for the digital realm, like Apple’s, the distinction between exports and imports seems lacking; it is hard to imagine that information, technology, data, and other intellectual property or know how will not be shared with (exported) YMTC as it is integrated into a supply chain as complex as Apple’s. If the message the U.S. Government is trying to send is that YMTC is bad for national security, it should send that message across all relevant Lists.

Models for Integration

As the United States continues to navigate the transition from China as a former growth market business partner, to China as malign near-peer technological power, the use of Lists should serve a consistent strategy with coordinated compliance, licensing, and mitigation operations. In short, greater integration is needed. That part is easy to say. The task gets harder on the notion of “but how?” The following are a few models of integration that can be currently observed:

• Integration by Placement: Congress can, through legislation, place an entity on an existing List. This type of integration—call it placement—does not really move the needle on overall List coherence but at least prevents further confusion by additional List proliferation.

• Integration by Proxy: Congress can also identify an existing List or set of Lists for use in the creation of a new authority—call it integration by proxy—potentially giving new scope to the agency already managing the original List. As one example of this, the American Security Drone Act of 2023 required the FASC to develop and publish a list of “covered foreign entities” using, as a baseline, the Consolidated Screening List (which is itself a consolidation of certain foreign looking Lists, managed by DOC’s International Trade Administration).11 Likewise, in the CHIPS and Science Act Congress used the subset of the 1260H List and an earlier authority (Section 1237 from the FY1999 NDAA) to define the term ”Entity of Concern.”

• Integration by Curation: Whether on their own initiative or in response to a presidential directive, agencies have also made attempts to bring select Lists together to operate in a more harmonious manner. This type of integration—call it curation, or even unilateral recognition—appears to be catching on with recent efforts like the BIS Affiliates Rule, as further discussed below.

• Integration by Pre-emption: Finally, although less common, there are a few government authorities that operate with true integration—call it pre-emption—where one national security program, informed by all other relevant authorities, creates a resolution with a controlling status. The best example of this (admittedly not a “List” approach) is how a National Security Agreement (NSA) under the CFIUS authority will centralize the government’s oversight of that company under those terms.12

Green Shoots – Emerging List Interactions in 2026

There are subtle signs that some List interaction might be happening even if the interactions are not centrally coordinated and appear to be taking different forms.

Curation of “Prohibited Entity Lists”

Starting last fall, the FCC began to use a set of curated Lists as a benchmark for exercising its own authority: before any device that emits radio frequency energy (like a Wi-Fi router, or cellular module) can be sold in the U.S., it must be tested and certified by an FCC-approved Telecommunication Certification Body (TCB). As per a final rule published in September, the FCC no longer accepted certification from a TCB that is owned or controlled by a “prohibited entity”.13 The FCC defined that term through reference to the following curated set of Lists: The BIS Entity and MEU Lists, the 1260H List, the UFLPA List, the Section 5949 List, the FCC Covered List, Entities identified as “foreign adversaries” by the Department of Commerce, and the NS-CMIC List.

In March 2026, DoW also began to dabble in curation, requiring recipients of its research funding—including funding for basic, open research, a previously lightly regulated area—to certify that the recipient will not use the funds to support research “in collaboration with, or using equipment from” any entity on one or more “Prohibited Entity Lists”.14 DoW defined this term as a curated set of Lists that included the 1260H List, 1286 List, NS-CMIC List, BIS Entity List, BIS MEU List, FCC Covered List, Section 889 List, Section 5949 List, COINS Act List, and the UFLPA List.

On May 29, 2026, the Office of Management and Budget took this concept further by issuing a wide-reaching NPRM on how federal grants and assistance awards can be used.15 This rule contains a prohibition on using federal funding to support an activity with an “entity of particular concern” which is identified as an entity “on a list maintained by a Federal agency pursuant to statute” which it defined to include the National Defense Authorization Act or the International Emergency Economic Powers Act.16 Shortly thereafter the National Science Foundation began to issue “Dear Colleague” letters to research institutions indicating that it will prohibit the use of its funding to support collaboration with “entities on U.S. restricted parties lists” which were identified as essentially the Core Set.17

The upside of a curation approach is it creates ex-ante clarity for regulated industries, at least on the question of where to look for the names. And there are software tools to provide a one-stop shop for screening entities against all the implicated Lists. For certain types of risks, this may be an effective way to address the more general question of how to avoid doing business directly with a malign entity: the U.S. party is put on notice, and if their counterparty is on one or more Lists, they choose not to participate in the transaction.

The downside is that the agency applying it might not always agree with additions or subtractions from the Lists it does not control. Moreover, given the focus of certain Lists, inclusion on them might not present the same type of risk the agency using a curation approach is seeking to address. Curation in this manner is also less effective for risks further up the supply chain and makes licensing and ad hoc mitigation more difficult. From a systemic coherence perspective, there is also the problem of ensuring the same set of Lists is curated by each relevant agency.

A Single List Proxy for “Malign Chinese Entities”

In the first couple years of existence, the 1260H List was largely viewed as a lens to inform geopolitical strategy, and less of an operational compliance mandate. Just a few years later—with the passage of the FY2024 NDAA and the recent addition of more mainstream PRC companies to the List—it looks positioned to become a central feature of the National Security technology framework. As of June 2026, the DoW ceased to provide funding to be used in direct connection with goods or services from an entity on the 1260H List. Starting in June 2027, DoW will not purchase goods or services that include components or services from 1260H entities. Even without further cross-List interaction, this indirect supply chain restriction should create ripples as the United States defense industrial base has a broad footprint across the economy and U.S. companies with even a single DoW contract may want to present a clean slate on the question of 1260H.

The BIOSECURE Act (which was part of the FY2026 NDAA) demonstrates how the 1260H List can be used as a proxy in other areas. The BIOSECURE Act restricts all U.S. federal agencies and federal fund recipients from using biotechnology equipment or services from designated "biotechnology companies of concern" (BCCs) and makes the 1260H List the default list for BCCs.

This theme is catching on. There are other bills at various stages in Congress that reference the 1260H List in exercise of authorities that are far outside of DoW’s direct purview: from denying VISA entry for former employees of a 1260H list entity,18 to preventing 1260H entities from holding U.S. patents.19 There is a bill to create an automatic process to force any 1260H entity to be added to the NS-CMIC List, leading to divestment of the relevant investment.20 In addition, there is at least one attempt that would mandate that DoW review any Chinese entity restricted by other Lists (like the BIS Entity List) to determine if they should be added to the 1260H List.21

It is a good development to see the 1260H List get traction. The recent interest in using it as a proxy outside the defense industrial base, however, brings deeper questions: Should incorporating as a proxy the 1260H List be the main way for an agency to limit interaction with all PRC-related threat actors? There are nuances involved for agencies with a mission to address IP theft, forced labor, or other issues that don’t necessarily follow military civil fusion. What about Russian or Iranian threats, or entities not clearly under PRC ownership, but suffering from PRC influence or indirect control?

This approach also raises serious questions for compliance and mitigation: How do non-DoW agencies engage in licensing or advisory opinions? For that matter, as more agencies use 1260H as a proxy, DoW may need to think of the non-defense sector and other agencies regulatory concerns when it mitigates with a single U.S. party regarding a listed entity, or adds/removes entities each year.

Amplification by Affiliates?

In September 2025, BIS promulgated the “Affiliates Rule” in an attempt to extend the reach of the Entities List to foreign end-users that are at least 50 percent owned, directly or indirectly, by one or more entities already expressly identified on the BIS Entity or MEU List, or the OFAC SDN List.22

The Affiliates Rule can be seen as an attempt to cureate a set of Lists and put greater onus on U.S. persons to “know the end user.” It also deploys an amplification concept, where under the Affiliates Rule, the foreign entity is subject to the most restrictive license review policy applicable to one or more of its owners or affiliated entities. If for example, OFAC has a complete ban on a 10 percent owner of the parent company, then that is how BIS will address attempts to export to the subsidiary.

The strength of this approach is that it is somewhat self-adapting to evasion through business formation: it does not leave a gap between the information last published by BIS and any current information known or reasonably available to U.S. persons involved in the transaction. It also requires the U.S. person to gather additional non-public information—including asking for information on the beneficial owner—through the business relationship with a foreign entity.

The downside of the Affiliates approach, in current form, is that it lessens the clarity and precision of using one or more published Lists to identify the entity to avoid. It might also cause mismatch in the risks inherent in each type of transaction, and prevent the U.S. government from taking a stricter approach with the foreign parent organization, or a particularly malign affiliate, in the first place.

The Covered List as the Master Curator?

Covered List 1.0. Under the approach precisely stated in the text of STCNA, the FCC is empowered to curate the interaction of the technology-focused Lists by looking at technology risk assessments and adding entities to the Covered List after a separate national security agency has reached a final decision. STCNA identifies the following sources of authority to add an entity to the Covered List:

i. The Federal Acquisition Security Council (i.e. pursuant to 41 USC Sec. 1222);

ii. The Department of Commerce, OICTS (i.e. pursuant to E.O. 13873);

iii. Section 889 of the 2019 National Defense Authorization Act; or

iv. A specific determination made by an appropriate national security agency.

The first three sources are rather clear, and track authorities put in place around the same time STCNA was passed. These were all parts of a similar effort to address the growing threat of China origin—specifically Huawei—equipment on U.S. telecom networks. The last source is a very different type, and would appear to give the FCC a sweeping ability to curate a master list from any existing List, and even from non-List determinations, public or nonpublic. That alone would be a dramatic increase in cross-List integration, noting that it is still limited to “specific” determinations.

Under this approach, the Covered List adds a layer of compliance and enforcement on top of the original appropriate national security agency. Any actions to establish mitigation measures must be made under the original authority and somehow conveyed back to FCC. For the first three sources, it is likely a good match on the regulatory objectives of the original authority and the FCC. The “specific determination” prong, however, may not be aligned with the intent of the Covered List—which is identified as ensuring the security of technology that is placed into major U.S. communications networks.23 For these reasons and others, using the Covered List as a master curator (instead of an enforcement tool for the three named programs) may not be structurally aligned nor capable of incentivizing industry to change global supply chains to meet a single mitigation standard.

Covered List 2.0. The FCC has further evolved the Covered List to categorically identify foreign equipment with no reference to a specific entity. Once a type of equipment is identified, the FCC will prohibit any new equipment authorizations unless the entity associated has been given a conditional approval under a specific agency process currently limited to DHS and DoW. Since all radio frequency devices must be authorized by the FCC for spectrum use and radiation levels to enter the U.S. market, this effectively blocks all new items with a radio frequency function from being imported, marketed, or sold in the United States.

The FCC has bolstered this endeavor through recent efforts to address component parts. This effort is intended to close the loophole that may have allowed a non-Covered List entity to import an item that otherwise incorporated a component from a Covered List entity.24 The new approach would prohibit the authorization of any logic-bearing hardware components identified on the Covered List, and of any device that incorporates such a component.

This is a further significant change in scope: rather than a precise list of legally distinct entities, the Covered List 2.0 is essentially a country non-specific, broad multi-sectoral import ban. The ban covers all foreign production, but provides the opportunity to seek a specific authorization (from DHS or DoW) by voluntarily demonstrating low-risk corporate structure, foreign ownership, supply chains, and by establishing a timeline for on-shoring the manufacturing. The first two applications of this new approach—UAS and Foreign-made routers—had some underlying reason as they were essentially implementations of Congressional inquiries (of DJI/Autel and then TP Link).25 In each of those first applications, the FCC provided a caveat that it was limiting the impact to only that equipment or services capable of the functions outlined in sections 2(b)(2)(A), (B), or (C) of STCNA.26 It is worth noting that the public-facing versions of the relevant national security determinations lacked significant details to guide industry as to the technical nature of the risks.27 Subsequent applications now include Advanced Robotic Devices and Connected Power Inverters, and generally follow the same formula which prohibits new models (not current models, already having FCC approval) from receiving FCC equipment certification needed for import or sale.

While the Covered List 2.0 approach has been praised by some national security experts for making broad strokes to address growing insecurities in certain supply chains, it has also been met with criticism from industry trade groups. The critics argue that the sweeping categorical bans are likely to create administrative bottlenecks, risk slowing down commercial innovation, and put immense pressure on tech manufacturers to fundamentally restructure all aspects of their supply chains in an environment that lacks abundance of supply chain options.28 Some have also noted the potential due process concerns as there is no clear identification of the technical aspects of the vulnerability in question, and no clear path to mitigate the risk in advance. There might be a lot going on behind the scenes, but on the surface this approach seems to miss a big opportunity not only to secure supply chains for U.S. consumers, but to identify technical standards that could shape global supply chains in ways favorable to U.S. industry and U.S. national security.

There is also the criticism that the Covered List 2.0 approach, as applied to information services and non-communications equipment, exceeds the scope of STCNA, a 2019 law that was designed to support greater enforcement of entity-specific determinations under programs that were designed to have frequent industry engagement, as well as robust mitigation, monitoring, and enforcement mechanisms already in place prior to the FCC adding the entity to the Covered List.

The Position of Translator is Still Open

These recent attempts to unify the Lists are new and still evolving. The effort is commendable as the problem has been a decade in the making. At least for the moment, however, there is a real risk of ending up with more confusion in the coherence than there was in applying them independently. The Affiliates Rule and the Covered List 2.0 are sincere attempts to create a more centralized approach to technology security, but both suffer the same flaw: they erode the clarity of having a List-based approach in the first place and put the onus on industry to fully understand complex foreign supply chains and ownership interests. Supply chain oversight is significantly challenged when applied to opaque national security technology risks. Importantly, neither approach expressly adopts or accepts mitigation actions taken under the original authority, nor provides clarity on pre-emption and priority.

In short, the position of “List Translator” is still unfilled.

A New Hope?

The Comprehensive Outbound Investment National Security (COINS) Act, enacted on December 18, 2025 as part of the FY2026 NDAA, presents a glimmer of hope. Under COINS, Treasury has 365 days to establish a process for certain federal agencies (Treasury, Commerce, DoW, State) to share data, and to coordinate in evaluating entities already on Entity List, MEU List, or the DoW 1260H List to determine if they should face investment prohibitions or inclusion on the CMIC List. The text of the law does not go so far as to instruct the creation of a single combined List, but it could be interpreted in that way, at least for those four China-focused Lists. It might even support the creation of a pre-emption program, with formal process for adding, mitigating, or removing entities from all lists at once.

This aspect of the COINS Act could prove to be extremely timely and impactful. Export controls address not only the transfer of tangible things (equipment, hardware), but also intangible items like data and information. The COINS Act regulates the transfer of capital and the related "intangible benefits" (management, expertise, and information) for those technologies addressed.29 As there is bound to be overlap in information and intangibles, it will be important to ensure that the Entity List and the COINS Act are used in concert to achieve the same goals.

Historically, the Entity List applied to the “legally distinct” entity identified, which is the exact entity at the exact address listed. The Affiliates Rule changes this and instead looks not only to the entity precisely identified, but also at a much broader set of affiliated entities under its ownership or control. The impact is that an entity can be implicitly on the Entity List based on its ownership, yet ownership can change, including through outbound investment.

At a minimum, a collaborative review could begin to address some of the inevitable issues of integration, including whether a COINS Act license to invest in a foreign technology company will address the need for a separate BIS license if the company is also on the Entity list. It could also set up the framework for investment regulated by the COINS Act to be one way to allow a foreign ownership to be brought down below the 50% threshold under the Affiliates Rule, essentially allowing export transactions without further license requirements.

Recommendation – Mutual Recognition

There are concepts embedded in the current efforts that are worth highlighting and potentially building on. The first is a need to have mutual recognition across certain agency Lists, at least initially, when the risk is of the similar type (e.g., cyber risk, tech transfer, support of foreign military, etc.). This concept would allow for implementation of cross-List enforcement that preserves the authority of the original List owner to update and amend its own List, as well as to retain flexibility for other agencies to provide license arrangements with a specific party for a specific use, while maintaining broader cross-agency prohibitions under the set of mutually recognized Lists.

This concept could be scaled, at least as it regards actions with a government approval nexus like imports/exports, or government contracts, by having the agency involved in the immediate transaction, require the U.S. party to certifying compliance with all of the Core Set of mutually recognized Lists. As part of this process, the U.S. party would identify any licenses or other authorizations held in regard to another agency’s List. In addition, each agency in the group could provide a “General License” approach when the U.S. party obtains a license or approval from the original List authority.

As we are still in the 365-day implementation period embedded in the COINS Act, there is an opportunity to build a mutual recognition regime—at least as it involves the 1260H, Entity, MEU, and CMIC Lists—that leverages each implicated agency’s distinct authorities and industry partnerships while providing greater certainty and license uniformity. Remember the goal should be to unite global supply chains in how they address malign Chinese actions, not necessarily limited to preventing U.S. persons from interacting with China.

Recommendation – Due Diligence Beyond Static Lists

The second concept worth consideration is a broader due diligence requirement, as generally expressed in the Affiliates Rule.30 This concept would require more than just a reference to a static List for the specific transaction in question. Even if the four China-focused Lists identified in the COINS Act remain distinct, this concept could be implicated through a requirement for cross List diligence and reporting: If a U.S. person has knowledge that a foreign party to an intended transaction is on one of the China-focused Lists, or has significant ownership interests that are implicated by one or more Lists, then there would be an affirmative duty to inquire and report to the agency overseeing the immediate transaction the implications of the foreign party’s presence on one or more other Lists. Specifically, the U.S. person will identify how it will mitigate any risk created by the immediate transaction to any of the other areas of regulation. For example, if Apple wants to use YMTC’s NAND memory in products in ways that would need to clear 1260H List review (if YMTC was on the 1260H List) Apple would be required to identify exactly how it will mitigate the potential for technology transfers that would undermine YMTC’s presence on the Entity List.

This type of approach could create connective tissue between different risks addressed by different USG authorities, while also preserving individual agency autonomy. Essentially, if an entity is on one of the Core Set, then all agencies will will work to ensure that the business involved certifies its actions in a way that prevents new risks from emerging through the transaction.

Closing Thoughts

A mandate of good governance is to provide clear, consistent, and predictable rules, publicly to the regulated parties, with sufficient notice for them to make changes. In addition to the obvious reason — how can a person do what you want if they don’t know what you want — there is the Constitutional right of Due Process, which at a minimum requires some level of notice prior to any adverse enforcement action. Yet, clarity can be a challenge in the realm of national security controls, where a cogent public description of the threat is often clouded by the government’s need to maintain some level of secrecy around certain facts.

Restricted Party Lists have been somewhat useful in meeting this mandate, as they add clarity and precision for discrete actions at the margins to complement broader tools of national and economic security statecraft. The scale and complexity of China’s interventions with global supply chains, however, may have elevated the scope of the risk from the margins to the main stage. This seems to be reflected in the emerging focus of Lists to prohibit transactions involving items of Chinese origin, rather than force technological changes to address the vulnerabilities.

The purpose of a List-based approach should be to entice global supply chains to reduce their interaction with a small number of truly malign entities, while simultaneously creating the incentives, through certainty, to do business with and invest in companies that compete on market principles. If a country’s government is so oppressive as to render any entity subject to its jurisdiction as a malign proxy, with no technical mitigation that can suffice, then it may be time to put Lists back on the shelf and look at broader tools like country-based sectoral sanctions. It is hard to tell if the state of the U.S.-China relationship is to this point. Before we conclude it is, it is worth one last effort to get the Lists to sit down, converse, and ultimately speak with one voice. Maybe industry and our allies will listen.

Appendix A – Core and Emerging Lists Fact Sheet

DoW Section 1260H List

• Governing Agency: Department of War (DoW)

• Established: 2020 as part of the FY2021 National Defense Authorization Act (NDAA)

• Application: Identifies “Chinese military companies operating in the United States.” Required by statute to be updated annually through 2030.

• Impact: Serves as a reputational risk flag signaling military-civil fusion risks. As of June 2026, the DoW is prohibited from entering into or renewing contracts with listed entities. As of June 2027, the DoW cannot purchase goods/services containing components or services from listed entities.

• Recent Actions: On June 8, 2026, DoW added PRC consumer-focused companies (e.g., Alibaba, BYD, Baidu) and biotech firms (e.g., WuXi AppTec, WuXi Biologics, GenScript Group).

• Limitations: Requires that the entity operates or does business within the United States.

BIS Military End User (MEU) List

• Governing Agency: Department of Commerce, Bureau of Industry and Security (BIS)

• Established: 2020 as a BIS Final Rule (85 FR 83793)

• Application: Identifies specific foreign entities (primarily in China, Russia, and Venezuela) determined to be “military end users.”

• Impact: Requires a license to export specific dual-use items (Supplement No. 2 to Part 744 of the EAR) to listed parties. License applications face a “presumption of denial,” restricting access to U.S. technology in sectors like aerospace, sensors, and marine propulsion.

• Limitations: Limited to foreign parties in export transactions. It is non-exhaustive, requiring U.S. parties to conduct due diligence on unlisted entities.

DoW Section 1286 List

• Governing Agency: Department of War (DoW)

• Established: 2018 as part of the FY2019 National Defense Authorization Act (NDAA)

• Application: Identifies foreign universities and research institutes (primarily in China, Russia, and Iran) involved in malign activities like IP theft or military-civil fusion (e.g., the “Seven Sons of National Defense” polytechnics and Academy of Military Medical Sciences branches).

• Impact: U.S. universities and institutions receiving DoW funding are barred from collaborating with listed institutions. Non-DoW-funded industry and academia use it to guide risk management.

• Limitations: Primarily a defense expenditure funding/research restriction. Does not carry asset-blocking financial sanctions or independently ban non-DoD-funded general commercial transactions or joint ventures.

FCC Covered List

• Governing Agency: Federal Communications Commission (FCC)

• Established: 2020 as part of the Secure and Trusted Communications Networks Act

• Application: Curates additions identified via interagency review to flag foreign communications/video surveillance hardware (and foreign commercial drones) posing cyber or espionage risks.

• Impact: Legally bars the FCC from granting new equipment authorizations to listed items. Because radiofrequency devices require FCC authorization to enter the market, new items cannot be imported, marketed, or sold in the U.S.

• Limitations: Tightly bound to telecommunications and video surveillance hardware approvals. Does not function as a broad export control tool, freeze corporate assets, or block non-RF commercial financial transactions.

OFAC Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List)

• Governing Agency: Department of the Treasury, Office of Foreign Assets Control (OFAC)

• Established: 2020 & 2021 | Executive Orders 13959 and 14032

• Application: Targets the PRC military-industrial complex without applying full Specially Designated Nationals (SDN) sanctions.

• Impact: Prohibits U.S. persons from purchasing or selling publicly traded securities (or derivatives) of listed companies, restricting their access to U.S. investment capital.

• Limitations: Strictly an investment/financing ban. As a Non-SDN list, it does not freeze U.S. assets, close operational banking channels, or prevent U.S. citizens from purchasing physical consumer products or conducting routine commercial trade.

BIS Entity List

• Governing Agency: Department of Commerce, Bureau of Industry and Security (BIS)

• Established: 1997 (Expanded in 2016, 2020, and 2025)

• Application: Identifies foreign entities engaging in activities contrary to U.S. national security or foreign policy interests (originally focused on WMD proliferation).

• Impact: Requires export licenses for items subject to the Export Administration Regulations (EAR), reviewed under a “presumption of denial.” Under the 2025 Affiliates Rule, restrictions extend to entities 50% or more owned by a listed party, requiring mandatory ownership checks by U.S. firms.

• Limitations: Strictly applies to items “subject to the EAR” (U.S.-origin goods/tech). It is not an import embargo and does not prohibit purchasing standard commercial items from listed entities or conducting purely financial transactions.

DHS UFLPA Entity List

• Governing Agency: Department of Homeland Security (DHS) / U.S. Customs and Border Protection (CBP)

• Established: 2021 as part of the Uyghur Forced Labor Prevention Act (Enforcement began June 2022)

• Application: Identifies entities connected to forced labor in Xinjiang, including miners/manufacturers using forced labor, entities working with the Xinjiang government to traffic labor, and suppliers sourcing materials from Xinjiang or the Xinjiang Production and Construction Corps.

• Impact: Establishes a legal, rebuttable presumption that all goods produced in Xinjiang or by listed entities involve forced labor and are barred from entry into the U.S. Importers must supply “clear and convincing evidence” to CBP to clear supply chains.

• Limitations: Strictly an import-control enforcement mechanism at the U.S. border. Does not regulate U.S. dual-use exports, freeze financial assets, or impose corporate ownership liabilities.

BIS Unverified List (UVL)

• Governing Agency: Department of Commerce, Bureau of Industry and Security (BIS)

• Established: 2002 (Expanded multiple times, including policy updates in 2022)

• Application: Identifies foreign entities whose end-user legitimacy cannot be verified due to failed pre-license or post-shipment checks (often caused by host-government non-cooperation).

• Impact: Flags entities as high-risk compliance “red flags.” Exporters cannot use license exceptions and must secure a signed “UVL Statement” from the party before non-licensed exports proceed. If verification is delayed by a host government for 60 days, the entity is transferred to the Entity List.

• Limitations: Acts as an intermediate risk indicator rather than a complete export ban. Exports can proceed if exporters suspend license exceptions, execute deep due diligence, and secure proper UVL documentation.

Federal Acquisition Supply Chain Security Act (FASC) List

• Governing Agency: Federal Acquisition Security Council (DoW, DHS, ODNI, GSA)

• Established: 2018 as part of the Federal Acquisition Supply Chain Security Act

• Application: Evaluates technology products/services for cyber or national security risks to establish removal or exclusion orders across federal procurement networks. Incorporates the International Trade Administration’s Consolidated Screening List.

• Impact: Generates binding removal/exclusion orders barring federal executive agencies, contractors, and grant recipients from procuring or deploying covered products. Federal contractors must report banned products found anywhere in their supply chain within 3 business days. First public order issued September 18, 2025.

• Limitations: Confined exclusively to federal procurement, contractors, and federal grant funding channels. Does not have statutory authority to restrict broader commercial private-sector or non-federally funded state/local systems.

DOJ PAFACA List

• Governing Agency: Department of Justice (DOJ), National Security Division

• Established: 2024 as part of the Protecting Americans from Foreign Adversary Controlled Applications Act (15 U.S.C. § 9901)

• Application: Identifies public-facing digital applications, platforms, or websites controlled by designated foreign adversaries (China, Russia, North Korea, Iran). Explicitly designated ByteDance Ltd. and TikTok as initial entities.

• Impact: Prohibits U.S. entities (e.g., app stores, web-hosting services) from distributing, maintaining, or hosting listed applications. Forces listed entities to execute a complete divestiture of U.S. operations to an approved buyer to avoid operational shutdown.

• Limitations: Limited to high-active-user, public-facing digital applications posing data harvesting or algorithmic manipulation risks. Does not regulate enterprise B2B software, general international commercial websites, or applications outside foreign adversary control.

DOJ Bulk Data Rule (BDR) List

• Governing Agency: Department of Justice (DOJ), National Security Division (28 CFR Part 202)

• Established: 2025 under Executive Order 14117; DOJ Final Rule effective April 8, 2025

• Application: Maintains a list/registry of entities and covered persons subject to the control of “countries of concern” (China, Russia, Iran, North Korea, Cuba, Venezuela) to block adversarial access to mass personal and sensitive government data.

• Impact: Establishes data-export controls based on volume thresholds (e.g., geolocation, health, financial, biometric, genomic data). Bans commercial data brokerage and raw ‘omic data transfers outright. Requires strict CISA cybersecurity safeguards, data masking, and audits for restricted transactions (e.g., employment, cloud vendor agreements).

• Limitations: Applies specifically to bulk sensitive personal data or target government dataset transactions. Does not apply to generalized financial services, cross-border internal corporate HR processing, standard academic research communications, or basic telecommunications routing.

DoW Section 5949 List

• Governing Agency: Department of War (DoW) & Department of Commerce (DoC)

• Established: 2022 as part of the FY2023 National Defense Authorization Act (Full implementation December 23, 2027)

• Application: Identifies entities owned, controlled by, or connected to the governments of “semiconductor foreign countries of concern.”

• Impact: Prohibits executive agencies from procuring or obtaining products and services that incorporate covered semiconductor products or services from listed entities once fully effective.

• Limitations: Governs executive agency procurement and federal system integrations involving covered semiconductor products and services.

COINS Act Covered Person List

• Governing Agency: Department of the Treasury

• Established: (in process) authority created as part of the FY2026 National Defense Authorization Act (Codifying E.O. 14105 Outbound Investment rules; regulations due by March 2027)

• Application: Publishes a non-exhaustive list of foreign persons engaged in sensitive technology sectors targeted for outbound U.S. investment bans or restrictions.

• Impact: Restricts or prohibits U.S. outbound capital/investment in key sectors: Semiconductors & Microelectronics, Quantum Information Tech, AI Systems, High-Performance/Supercomputing, and Hypersonic Systems. Treasury may add categories via rulemaking.

• Limitations: Applies specifically to outbound financial investments and capital flows in designated key technology sectors.

The global industrial scoreboard is shifting, but is not fixed. Policies that the U.S. and key partners put in place now can shift the trajectory. Four takeaways from Silverado’s recent supply chain research across a range of industries are discussed below.

Note: Updates to Silverado’s rare earth and vehicle dashboards will be released later this month.

1. China was the leading producer of humanoid robots in 2025, but there is still time for U.S. producers to lead in this industry

China supplied most of the global humanoid robot market in 2025, though most of those Chinese robots went into applications like entertainment, research, education, and guided tours, not advanced manufacturing or logistics. U.S. manufacturers are also competing in humanoid robotics and some have major plans to ramp up production. With significant additional technological improvements needed before humanoids’ use in many applications, China’s early lead in production is not yet an inevitable end result. The industry is, however, at a crucial period where U.S. firms need to be able to bring their technology to the market, iterate and improve their designs, and achieve economies of scale.

2. China’s share of electric and plug-in hybrid passenger vehicle exports is continuing to grow

China’s exports of electric and plug-in hybrid passenger vehicles (EVs and PHEVs) increased in the first part of 2026 (data through May), according to Silverado’s latest dashboard, with China significantly increasing its share of global exports of these products. The share of imports accounted for by China also increased across China’s top five export destinations–the European Union, Brazil, United Kingdom, Australia, and Korea.

3. China’s semiconductor silicon wafer industry continues to grow

Chinese firms are rapidly increasing production of semiconductor silicon wafers (which are the substrate used in most semiconductor wafer fabrication). This is leading to large market share gains within China for Chinese producers, with Chinese firms’ market share likely to continue to grow as the Chinese government pushes purchasers to use domestic suppliers. Chinese wafer producers are also increasing exports.

4. China continues to restrict exports of rare earths

China continues to limit exports of rare earths, according to the latest Silverado dashboard. China’s exports of rare earth compounds and metals covered by China’s April 2025 export controls remained well below historical levels in June 2026. U.S.-bound exports—which fell to zero in May 2026— only marginally increased in June 2026. Further, China’s shipments of export-controlled compounds and metals to Japan fell to zero in June 2026, continuing the trend of limited exports to Japan since China imposed additional export controls on shipments to Japan starting in January.

China’s exports of rare earth magnets, which are only partially covered by China’s April 2025 export controls, have largely returned to pre-export control levels. However, among major export destinations, only the United States received a smaller volume of rare earth magnets in the first half of 2026 than in the first half of 2024.

Historically, the global competition for fusion energy has been framed almost exclusively as a quest for scientific milestones. The narrative is beginning to change.

As confidence in the underlying science has grown and commercialization timelines draw closer, the focus has shifted from solely proving the physics to building the industrial capacity needed to deploy at scale and to eventually deploy fusion-generated power to the wider economy. The policy work now underway to shape fusion supply chains, long-term investments, workforce, and regulatory pathways may end up having nearly as much influence over who leads the industry as the reactor designs themselves. Should fusion fulfill its promise, it has the potential to define the next industrial era by powering advanced computing, precision manufacturing, and other energy intensive industries with clean and inexhaustible fuel.

In June, the Fusion Industry Association hosted its inaugural Fusion Supply Chain Trade Show in Santa Fe New Mexico, bringing together fusion companies, policymakers, investors, and suppliers around the sector’s emerging industrial base.2 The convening demonstrated a new phase for the industry: moving beyond proving fusion’s feasibility toward building the global industrial base needed to deliver it.

Recent Legal, Regulatory, and Commercial Developments

• On July 9, 2024, the bipartisan Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE) Act, was signed into law. The ADVANCE Act modifies the Atomic Energy Act of 1954, as amended (AEA), to add the definition of “fusion machine” and amend the definition of “byproduct material” to include fusion machine generated radioactive material. These changes are important because they are viewed as a path towards accelerating new nuclear energy technologies including fusion, as well as advancing overall U.S. nuclear energy leadership.

• In February 2026, to implement the ADVANCE Act, the U.S. Nuclear Regulatory Commission issued a proposed rule detailing a dedicated fusion framework that treats fusion plants as byproduct material facilities rather than under the framework applicable to nuclear reactors.3 A final rulemaking is still being developed.

• The Department of Energy released its Fusion Science & Technology Roadmap which lays out a “Build, Innovate, Grow” strategy through the mid 2030s.4

• The Genesis Mission, announced in 2026, is a DOE-led national initiative to build an AI-enabled discovery platform that connects supercomputers, AI models, experimental facilities, and federal datasets to accelerate breakthroughs in energy and national security.5

• Fusion developers are increasing supply chain spend, while large tech firms are signing early offtake agreements and exploring fusion as a future power source for data centers and advanced manufacturing.6

Policy Recommendations and Requests from the Fusion Industry

• Ensure regulatory certainty. Move quickly from high level decisions to finalized regulations and guidance so companies can design and finance projects against clear licensing pathways instead of case by case improvisation.

• Expand and clarify which fusion materials are eligible for Section 45X tax credits or related incentives, ensuring projects and suppliers can access predictable financial support.7

• Use federal grants, loans, loan guarantees, and purchase or offtake agreements to de-risk first of a kind plants and bridge the gap between technical readiness and purely private project financing.

• Consider targeted use of Defense Production Act authorities to accelerate domestic capacity in critical fusion related materials, components and manufacturing capabilities. Reducing exposure to foreign chokepoints before fusion deployment scales.8

As fusion gains its place on industrial strategy agendas, Silverado Policy Accelerator will be examining how access to this transformative power source could reshape geoeconomic and strategic leverage. These implications for global competitiveness are one reason fusion is being viewed as a national security priority. Across recent reports and expert commentary, it is understood that countries that lead in fusion are likely to gain advantages in energy security, advanced industry, and critical infrastructure, while countries who rely on externally controlled supply chains may be exposed to a new strategic dependency.

Fusion is already testing more than physics. As commercial signals build and scientific milestones are reached, the evidence would suggest that new bottlenecks, funding needs and market dynamics may emerge. The countries who treat those as policy problems now, rather than after the reactors are commercialized, will be best positioned to set industrial terms of the future.

Rather than rely on the official Xinhua translation available online, I’ve pasted a serviceable complete Claude translation of MOFCOM’s Mandarin version below. This translation reads more naturally than the Xinhua version.

You are welcome to read the full document. I did, and identified some old narratives, some new, and many that are verifiably false, e.g. honoring WTO commitments in transparent reporting of industrial subsidies.

Two tip-of-the-iceberg points, based on stated Chinese policy promulgated over years, undermine the narrative.

First, China’s stated policy intent to capture market share on zero-sum terms in many industries requires state-supported development of overcapacity to crowd out firms elsewhere that operate under hard budget constraints. Development and retention of overcapacity is the model.

Second, internally-directed Chinese policy documents acknowledge the problem of overcapacity in various industries. The internal vs. external policy messaging is irreconcilable.

China’s Position on the So-Called “Overcapacity” Issue

Ministry of Commerce of the People’s Republic of China

July 2026

Released by the MOFCOM Press Office on July 28, 2026; distributed via Xinhua News Agency, Beijing.

Unofficial working translation from the Chinese original. Source: https://www.mofcom.gov.cn/syxwfb/art/2026/art_9484491dee094b25bb54656fdef72a93.html

Contents

Preface

I. Viewing Global Capacity and So-Called “Overcapacity” Comprehensively and Objectively

1. The continuous evolution of the global capacity landscape is the result of international industrial division of labor and cooperation

2. Understanding the “overcapacity” phenomenon in global economic development objectively

3. “Overcapacity” in different economies and industries should be measured according to their different stages and levels of development

II. Views and Positions on Four Sets of Relationships Concerning “Overcapacity”

1. The relationship between industrial subsidies and overcapacity

2. The relationship between trade surpluses and overcapacity

3. The relationship between economic imbalance and overcapacity

4. The relationship between market competition and overcapacity

III. China Is Committed to Building a Modern Industrial System Through Openness and Cooperation

1. China’s rapid modern industrial development is driven by innovation

2. The consistently stable and healthy operation of China’s industry rests on continuously deepening reform

3. China’s modern industrial development is not “China Shock 2.0” for the world but “China Opportunity 2.0”

IV. Jointly Building an Open and Inclusive Framework for Global Industrial and Supply Chain Cooperation

1. Promote mutual benefit and win-win outcomes, and advance common development

2. Respect the laws of the market and advance economic globalization

3. Strengthen industrial policy coordination and maintain a sound cooperative environment

4. Expand market opening and create cooperative opportunities together

5. Uphold multilateralism and build a more just and reasonable international economic order

Conclusion

Preface

Economic globalization has provided powerful momentum for world economic growth, facilitated the flow of goods and capital, advanced science, technology and civilization, and promoted exchanges among the peoples of all countries. It is an unstoppable historical trend. Industrial cooperation is an important component of economic globalization and an important path toward sustained global economic recovery and the common development of all countries.

In recent years, the international economic and trade landscape has undergone profound changes, competition among major powers has intensified, and global industrial and supply chains have been reshaped at an accelerating pace. Certain countries and economies have grown increasingly anxious about their own industrial competitiveness and market position. They have politicized economic and trade issues, hyped up the so-called “overcapacity” problem in China, accused China of flooding world markets with capacity, and used this as a pretext to continually escalate restrictive measures against China, with protectionism intensifying.

China has consistently held that capacity issues must be approached in a comprehensive, objective and fair manner — viewed both historically and dialectically — and that contradictions and differences should be resolved together in a spirit of openness, cooperation and mutual benefit. Protectionism will only disrupt the global economic and trade order, harm the security and stability of global industrial and supply chains and the sound and orderly development of industrial cooperation, and bring long-term risks to world economic growth.

This document is issued in order to clarify the relevant facts and to set out China’s policy positions on issues related to so-called “overcapacity.”

I. Viewing Global Capacity and So-Called “Overcapacity” Comprehensively and Objectively

(1) The continuous evolution of the global capacity landscape is the result of international industrial division of labor and cooperation

The historical evolution of the global capacity landscape. Since the First Industrial Revolution, as productive forces have developed and economic globalization has deepened, all types of factors of production have flowed across the world at an accelerating pace. The centers of global output and demand are not fixed in any single country or region; the distribution of industrial capacity among different countries and regions shifts continuously, and the global shares of industrial output of major economies change accordingly. In 1880, the United Kingdom’s share of global industrial output reached a high point of 22.9%. Around the time of the First World War, the United States succeeded the United Kingdom as the world’s industrial center, and by 1953 its share of global industrial output reached 44.7%.

After the Second World War, the global industrial landscape gradually shifted from a single center to multiple centers. With the rapid development of economic globalization and the continuous deepening of the international division of labor, the world has undergone successive rounds of industrial transfer: from the United States to Europe, from Europe and the United States to Japan, then to East Asia and to China, and at present the transfer of some Chinese industries to Southeast Asia and other regions. This has produced three major regional production and manufacturing centers — North America, Europe and East Asia — whose shares of global manufacturing value added are 17%, 17% and 38% respectively. China’s emergence as the “world’s factory” is the result of actively integrating into economic globalization and participating in the international industrial division of labor, and China is an important component of the global production and manufacturing network.

(2) Understanding the “overcapacity” phenomenon in global economic development objectively

“Overcapacity” is a dynamic phenomenon in a market economy. Under a market economy, capacity supply and demand are always in a dynamic cycle of “balance — imbalance — rebalance”; no permanently equilibrated state of capacity exists. Whether capacity is excessive depends on the relationship between supply and demand and is dynamically adjusted over the course of the industrial life cycle. Supply-demand balance is relative; imbalance is universal. In an era of globalization, increases and decreases in international capacity are also interrelated with changes in global supply and demand. In the course of technological change, emerging capacity creates new supply while older capacity becomes redundant, producing phased and structural supply-demand imbalances. Through adjustment by market mechanisms, the supply-demand pattern converges toward a new state of equilibrium.

Understandings of the concept of “overcapacity” differ, and no broad global consensus has formed. The “overcapacity” question has always been contested, and no major international organization has issued an official definition. The World Trade Organization (WTO) agreements neither define “overcapacity” nor contain any provision addressing it. The International Monetary Fund (IMF) regards “overcapacity” as a complex concept that needs to be understood in its macroeconomic context. Economists have largely described “overcapacity” along macro and micro dimensions: at the macro level, it is used to describe a phenomenon in which an entire industry’s production capacity significantly exceeds total effective market demand; at the micro level, it describes a state in which firms’ actual output falls short of optimal output as a result of monopolistic competition in the market. In the economic practice of all countries, owing to business cycle fluctuations, a state in which the productive capacity for goods in the market exceeds effective demand is common. The criteria and perspectives applied by different countries and different industries in judging the economic phenomenon of whether capacity is excessive vary greatly. Some economies, for specific geopolitical or trade-protectionist purposes, have fabricated all manner of new standards, defining so-called “overcapacity” in simplistic, mechanical or over-generalized ways, and have attempted to impose these on others. Such so-called concepts and standards neither accord with the laws of development nor reflect the actual circumstances of countries, and they do not hold up.

(3) “Overcapacity” in different economies and industries should be measured according to their different stages and levels of development

The capacity utilization rate is often used to measure “overcapacity,” but it must be viewed differentially in light of each country’s actual circumstances. In economics, the capacity utilization rate is the ratio of actual output to potential output. The reasonable range of capacity utilization differs across economies, and there is no universally applicable global standard of judgment. Data from relevant institutions show that median capacity utilization rates in developed and fast-growing economies mostly fall within the 75%–80% range, while in less developed countries capacity utilization generally ranges from 50% to 64%. This is because less developed countries are constrained by a variety of factors including infrastructure and capital, which prevent capacity from being fully released.

Capacity utilization rates vary considerably across industries. According to the latest published capacity utilization data for 725 industries across the 27 EU member states, 169 are below 70%. Some traditional industries have capacity utilization rates markedly below the average. For example, in certain countries capacity utilization is around 65% in industries such as beverages and furniture, and only 40%–50% in rubber, chemicals and plastics. The latest data from the U.S. Federal Reserve show U.S. manufacturing capacity utilization at 75.7%, but with considerable variation by industry: computers and peripheral equipment reach 83.2%, while textiles and leather manufacturing, motor vehicles and parts, primary metals, furniture and related products, and communications equipment are all below 70%. Judging from the economic practice of various countries, the capacity utilization rate has a degree of objectivity as a measure of the state of capacity use, but it cannot be used to make absolute judgments about whether overcapacity exists in different economies or different industries.

II. Views and Positions on Four Sets of Relationships Concerning “Overcapacity”

(1) The relationship between industrial subsidies and overcapacity

There is no necessary connection between industrial subsidies and overcapacity. Reasonable industrial subsidy policies help correct market failures, advance technological innovation and environmental protection, reduce poverty and promote balanced development; they do not cause so-called “overcapacity.” Many countries adopt industrial policies with differing emphases in light of their own national conditions and industrial development needs — such as providing research and development subsidies for emerging industries and risk subsidies for agriculture — and these are also lawful industrial policy and trade policy instruments for WTO members. Multiple reports by the United Nations Conference on Trade and Development note that the number of industrial policies worldwide has grown rapidly over the past five years, and that providing R&D subsidies to emerging industries, granting tax preferences and offering low-interest loans have become common international practice.

WTO members broadly pursue subsidies that are fair, inclusive and transparent, and major powers should set an example on subsidy compliance. Subsidies are not themselves the problem, but they should be used reasonably under WTO principles such as openness, fairness and compliance. Major powers are the bellwethers of global industrial development, and their industrial policies have strong spillover and demonstration effects; they should take the lead in opposing the abuse of subsidies and opposing discriminatory subsidy policies. The U.S. Inflation Reduction Act plans to provide $750 billion in various subsidies between 2022 and 2031, under which subsidized electric vehicles must satisfy conditions such as domestic or North American production and sale, excluding other WTO members. U.S. industrial subsidies in the field of artificial intelligence far exceed those of all other countries. According to incomplete statistics, the European Commission will provide more than €1.44 trillion in various subsidies between 2021 and 2030. The EU’s Industrial Accelerator Act directly links local content to financial support through “EU origin” requirements. All countries should focus on enlarging the pie of global development and introduce industrial policies, including subsidies, in a reasonable and compliant manner, rather than using them as tools to restrict the development of others. China is willing to discuss subsidy policies with all parties within the WTO framework and to jointly bring related practices into good order.

China has always strictly observed WTO rules and is committed to establishing and improving a subsidy system consistent with international practice. Over many years, China has continuously regularized and improved relevant policies with respect to the compliance, soundness and transparency of subsidies. It has specifically cleaned up and regularized certain irregular practices at the local level and established mechanisms such as a unified negative list for local fiscal subsidies. The Chinese government earnestly, promptly and comprehensively fulfills its transparency obligations; the most recent notification of Chinese central and sub-central government subsidy policies for 2023–2024, submitted in June 2025, achieved nationwide coverage. China’s subsidies apply equally to all types of market entities and are directed mainly at scientific and technological research and development, breakthroughs in the industrialization of technology, and market consumption. Greater use is made of market-based, guiding and indirect instruments such as public services, technical standards and skills training, with support focused on technological R&D and innovation, the development of small and medium-sized enterprises, and green and energy-saving fields. For example, in the consumer goods trade-in program, China maintains consistency between domestic and foreign entities: the trade-in policies for automobiles and home appliances and the purchase subsidy policies for digital and smart products all apply without discrimination, and foreign-invested enterprises have actively participated and benefited equally.

(2) The relationship between trade surpluses and overcapacity

High exports and large surpluses do not equal overcapacity. A surplus mainly reflects the gap between total domestic saving and total investment, and consists principally of surpluses in trade in goods and in services. Looking at the history of global economic development, manufacturing powers such as the United Kingdom, the United States, Japan and Germany all maintained surpluses over long periods, and it was not uncommon for German and Japanese current account surpluses to exceed 6% of GDP. Emerging markets have seen rapid export growth, with Indonesia and Mexico also becoming surplus countries, and Brazil and Vietnam recording trade surpluses for ten consecutive years. Looking at industries and products: 80% of U.S. chips are exported, and roughly two-thirds of the commercial aircraft delivered by Boeing go to customers outside North America. The EU’s surpluses in automobiles, pharmaceuticals and cosmetics in 2025 were $92.2 billion, $214.6 billion and $11.6 billion respectively. If one follows the logic that a large surplus necessarily means overcapacity, should these high-export, large-surplus industries and products also be regarded as cases of “overcapacity”? Trade surpluses are the joint product of the global industrial division of labor and supply-demand structures; they do not signify overcapacity.

China has never deliberately pursued trade surpluses. China’s export growth stems both from economies of scale and improved innovation capacity and from the demand of various countries for green transition and industrial development. For example, the growth of China’s exports to Europe has been concentrated mainly in photovoltaics, new energy vehicles, lithium batteries and chemical products, reflecting largely the demand for energy products driven by the green transition, as well as the higher production costs in European industries such as chemicals caused by the energy crisis. China has likewise never deliberately pursued a share of labor-intensive product exports; the share of such products in its exports fell from 20.7% in 2012 to 15.1% in 2025. In terms of the distribution of trade benefits, “the surplus is in China, the benefits are shared by all parties”: in 2025, foreign-invested enterprises accounted for 27% of China’s exports and 16% of its surplus, with both surplus growth and profit growth outpacing that of domestic firms. Looking at the balance of payments as a whole, although China has a sizable surplus in trade in goods, it runs deficits in services trade and investment income; overall, the current account surplus is about 3.7% of GDP, which is within the range internationally recognized as reasonable.

China actively promotes the balanced development of imports and exports. China has ranked second in the world in import volume for 17 consecutive years and is the principal export destination for nearly 80 countries. It has implemented zero-tariff policies for 63 countries and is the first major economy to extend full zero-tariff treatment to all African countries with which it has diplomatic relations and to all least developed countries with which it has diplomatic relations. It is the only country to host an international import expo, which has been successfully held eight times with cumulative intended transaction value exceeding $580 billion. China is carrying out a series of “Export to China” events, continuing to expand its “buy global” efforts and supporting the entry of more high-quality products and services from around the world into China. During the 14th Five-Year Plan period, China’s cumulative imports exceeded 90 trillion yuan, amply demonstrating that China is not only the “world’s factory” but also the “world’s market.”

At present, unilateralism and protectionism are on the rise. Various trade-protectionist measures are suppressing global economic growth, seriously disrupting normal trade exchanges and the trade order, and undermining the reasonable flow and distribution of global capacity. All parties, especially major trading powers, need to move toward one another, uphold free trade, do more to keep channels open and convenient and less to build walls and erect barriers, promote balanced and sustainable development of global trade, and keep global industrial and supply chains stable and unobstructed.

(3) The relationship between economic imbalance and overcapacity

Global economic imbalance is a historical norm with complex roots. Under the international division of labor and the economic and financial order formed after the Second World War, the global economy enters a cycle of accumulating and releasing imbalance risks roughly every ten years, sometimes even triggering global economic and financial crises. The focus of international discussion of the causes of global economic imbalance has also shifted continually, encompassing both market factors — such as savings and investment structures and the industrial and supply chain division of labor — and institutional factors such as the international financial system and the resonance of macroeconomic policies. In recent years, global imbalance has taken on new characteristics. Institutions including the International Monetary Fund hold that countries’ macroeconomic policies, especially fiscal policy, play a key role in producing global imbalance; that the United States has accumulated enormous debt imbalances and needs to improve its fiscal position; that Europe underinvests and needs to raise productivity; and that China needs to expand domestic demand. These views also reflect the systemic and complex nature of global imbalance. Views that link global imbalance to “overcapacity” and attribute it simplistically deliberately confuse concepts, rest on logical fallacies, and in some cases have ulterior motives.

The claim that “insufficient Chinese domestic demand causes overcapacity” does not accord with the facts. China is not only a major manufacturing country but also a major consuming country. Domestic demand has consistently been the main engine of the Chinese economy: from 2013 to 2024, domestic demand contributed an average of 93% of China’s economic growth, with consumption and investment contributing an average of 55% and 38% respectively. China’s total retail sales of consumer goods grew from 23.8 trillion yuan in 2013 to 50.1 trillion yuan in 2025, doubling in scale. Converted at World Bank purchasing power parity, China’s total retail sales in 2025 were equivalent to 1.7 times those of the United States, making it in fact the world’s largest market for goods consumption. At present China ranks first globally in the volume of physical consumption, and per capita annual consumption of some industrial products already approaches the levels of developed countries. In recent years, the slowdown in the growth rate of China’s total retail sales is consistent with the shift of the Chinese economy from high-speed growth to high-quality development, and also reflects the trend of upgrading in China’s consumption structure: goods consumption is relatively stable while services consumption is developing rapidly, with per capita services consumption expenditure growing at an average annual rate of 8.5% over the past five years. Treating the slowdown in retail sales growth as insufficient domestic demand is neither objective nor comprehensive. The argument that “insufficient Chinese domestic demand causes overcapacity” goes further still in substituting one concept for another, applying a micro-level market phenomenon to the macro-structural level.

China continues to expand domestic demand and is committed to supply-demand balance at a higher level. A strong domestic market is the strategic underpinning of Chinese modernization. Domestic demand comprises both investment demand and consumption demand. The outline of China’s 15th Five-Year Plan devotes a dedicated chapter to building a strong domestic market, emphasizing adherence to the expansion of domestic demand as a strategic anchor, expanding effective investment, thoroughly implementing special initiatives to boost consumption, promoting the expansion and upgrading of goods consumption, unleashing the potential of services consumption, strengthening the foundations of household consumption, continuously improving the consumption environment, leading new supply with new demand and creating new demand with new supply, and promoting a virtuous interaction between consumption and investment and between supply and demand. Over the next decade and more, the middle-income group will exceed 800 million people and per capita GDP will reach the level of moderately developed countries. Consumption offers vast space and ample potential and vitality, and remains the main engine of China’s economic development; it will also continue to inject strong momentum into world economic growth.

(4) The relationship between market competition and overcapacity

Competition is an important safeguard for the optimization and adjustment of capacity and for healthy industrial development. Every industrial and technological revolution has been accompanied by increases in capacity — even “excess” capacity — and by a process in which market competition drives technological upgrading and industrial iteration. Firms invest and expand capacity in pursuit of profit and market share; market adjustment then compels them to reduce costs and raise efficiency, bringing technological progress and efficiency gains. Market competition is itself the most effective mechanism for preventing the disorderly expansion of capacity; otherwise firms face unsold inventory, losses and elimination by the market. The role of government should be to safeguard competitive order and a fair environment, allowing the market to play its role more fully so that backward capacity exits naturally through competition.

All parties should safeguard fair competition and reduce undue interference in the global division of labor and cooperation on capacity. The WTO’s fair-competition principles and related rules are the most widely accepted norms of conduct in the world. In recent years, some economies have placed their own priorities above international rules, violating the principle of fair competition and even practicing protectionism in the name of fair competition, making extensive use of unfair means. The United States has implemented non-compliant tariff measures, adopted targeted investment restrictions, and abused export controls and sanctions, seriously undermining fair competition. The EU has adopted a series of economic and trade laws and measures; for instance, the Industrial Accelerator Act imposes restrictive requirements on foreign investment in four major emerging strategic sectors — batteries, electric vehicles, photovoltaics and critical raw materials — constituting serious investment barriers. Accusing China of “unfair competition” and “non-market policies and practices” is a textbook double standard, and is what is truly unfair. China resolutely upholds the basic principles of the WTO, firmly promotes fair competition, and fosters mutual benefit and win-win outcomes. China has announced that it will not seek new special and differential treatment in current and future WTO negotiations; WTO Director-General Okonjo-Iweala noted that China’s decision demonstrates a commitment to a more balanced and fairer global trading system.

China is actively fostering a first-class business environment of fair competition. The number of market entities in China has surpassed 200 million, the highest in the world. This vast number of market entities creates an environment of full competition in which enterprises confront challenges head-on and compete on strength, refining products and optimizing services amid the survival of the fittest. McKinsey has described China as “the world’s toughest gym,” which has forged highly competitive enterprises, noting that there is now no “second China” to be found anywhere in the world. The outline of China’s 15th Five-Year Plan explicitly calls for advancing in depth the construction of a unified national market, eliminating barriers in areas such as access to factors of production, qualification certification, tendering and bidding, and government procurement; fully implementing national treatment for foreign-invested enterprises; comprehensively rectifying “involutionary” competition; building a first-class business environment that is market-oriented, law-based and internationalized; and safeguarding a market order of fair competition. The US-China Business Council’s 2026 China Business Environment Survey reports that 92% of surveyed American companies were profitable in their China operations in 2025. The European Union Chamber of Commerce in China’s Business Confidence Survey 2026shows that 75% of firms consider their production efficiency in China higher than in other parts of the world.

III. China Is Committed to Building a Modern Industrial System Through Openness and Cooperation

(1) China’s rapid modern industrial development is driven by innovation

China adheres to innovation-driven development and has forged an effective path in which scientific and technological innovation leads industrial innovation and industrial upgrading promotes technological iteration. Innovation-driven development is a major national strategy for China and the key code to the long-term soundness and steady progress of the Chinese economy. During the 14th Five-Year Plan period, society-wide R&D expenditure grew at an average annual rate of 10%, ranking second in the world by scale, and in 2025 the share of basic research funding exceeded 7%, a record high. Technological breakthroughs and leadership achieved in many industries were the product of long-cycle, high-investment research and development and hard-won effort in overcoming difficulties. This is the key to the competitiveness of Chinese products — not government subsidies. In recent years, the vigorous development of China’s new energy and intelligent connected vehicle industries has rested precisely on technological breakthroughs in new materials, power batteries and communications. Chinese new energy vehicle enterprises began sustained R&D investment and industrial positioning more than two decades ago, forming distinctive technological advantages: power battery energy density has risen by more than 50% since 2018 while production costs have fallen by more than 60%. A Morgan Stanley report notes that the center of gravity of China’s electric vehicle industry has shifted from price advantage to technological advantage, with artificial intelligence applications such as intelligent driving systems further consolidating its industrial edge.

China adheres to innovation empowerment, and the green content and intelligent content of traditional industries have risen markedly. China supports enterprises in using digital-intelligent and green technologies to lead industrial optimization and upgrading, promoting high-end, intelligent and green development. In recent years the green content of industry has continued to rise: China has cultivated more than 8,000 national-level green factories and over 600 green industrial parks, and half of the electricity used by 246 national green data centers is green power. The proportion of industrial enterprises above designated size undertaking digital transformation has reached 89.6%, and the penetration rate of digital equipment has reached 57.7%. China has 109 lighthouse factories, close to half of the global total.

China is strengthening innovation application and continuing to build a vast “training ground” for new industries and new tracks. China has a complete industrial system, and with the support of Chinese manufacturing any valuable scientific or technological achievement can be rapidly translated into an actual product. From the one-hour electronics and information innovation circle in the Yangtze River Delta, to the half-hour supporting-supply circle of Shenzhen’s Robot Valley, to the highly developed new energy industrial cluster in which an electric vehicle assembly plant can obtain the components it needs within a four-hour drive. With a super-large market of more than 1.4 billion people, China sees new business forms, new models and new scenarios emerging constantly, and can provide the best testing ground for “zero to one” validation and “one to N” scaling of all kinds of new products and new services. The rise of industries such as the export “new three” (new energy vehicles, lithium batteries and photovoltaic products) and the information consumption “new three” (intelligent connected new energy vehicles, smartphones and computers, and intelligent robots) is closely linked to this vast array of application scenarios.

(2) The consistently stable and healthy operation of China’s industry rests on continuously deepening reform

China continues to advance supply-side structural reform, and industrial capacity utilization remains within a reasonable range. In recent years, through measures including the elimination of backward capacity in the course of supply-side structural reform, China has continuously improved the state of industrial capacity utilization; overall supply and demand are basically balanced and operations are stable. In 2025 the capacity utilization rate of Chinese industrial enterprises above designated size was 74.4%, with fuller capacity utilization in high-technology manufacturing, high-end equipment manufacturing and strategic emerging industries. By segment, over the past three years average capacity utilization reached 78.9% in general equipment manufacturing, 74.8% in electrical machinery and equipment, 73.3% in automobile manufacturing, and 76.9% in computers, communications and other electronic equipment. Capacity utilization is temporarily on the low side in some traditional raw-material industries, mainly owing to the adaptive adjustment brought about by structural adjustment and green transition, which is a normal phenomenon in the process of industrial quality improvement and upgrading.

China continues to improve the institutional mechanisms for the market-based allocation of factors of production and to foster a sound ecosystem for industrial development. In recent years China has continuously strengthened resource and factor support, building a diversified investment system led by enterprises, guided by government and joined by society, and constructing a number of major research facilities and research infrastructure, while training around 7 million university graduates annually in science, engineering, agriculture and medicine. China has advanced institutional reform in depth, introducing a series of new policies and measures in areas such as intellectual property protection, risk sharing and innovation incentives. China continues to optimize the institutional mechanisms for factor support in new business forms and new fields, accelerating construction of new types of infrastructure such as new power grids, computing power networks and next-generation communications networks, effectively removing the barriers and obstacles that impede the optimal allocation of resources, further raising total factor productivity, accelerating the transition from old to new growth drivers, and promoting healthy and sustainable industrial development.

(3) China’s modern industrial development is not “China Shock 2.0” for the world but “China Opportunity 2.0”

The United States and other Western countries wrongly claim that China’s industrial development threatens the monopoly position of Western countries and squeezes the development space of countries of the Global South, advancing the so-called “China Shock 2.0” narrative. This does not accord with the facts and does not hold up. Over the past decade and more, China has consistently contributed around 30% of global economic growth and is an important engine of the world economy. In the past, China mainly provided the world with a “market dividend” through its own large-scale market and low-cost factors of production. Today, while providing an even greater “market dividend,” China — through industrial development — serves as a stabilizing anchor and important hub for global industrial cooperation, creating a “development dividend.” Through technological progress it also provides the world with an ever-greater “innovation dividend.” These dividends blend and compound with one another, bringing the world more development opportunities and greater development space — what the international community increasingly refers to as “China Opportunity 2.0.” This is reflected concretely in four areas:

Promoting global innovation cooperation and technological progress. China pursues innovation with its doors open. Many innovations, such as artificial intelligence large models, follow an open-source path, enabling more countries — especially developing countries — to access and afford new technologies and enhancing their development capacity. Cumulative global downloads of China’s open-source AI large models have surpassed 10 billion, and major scientific facilities in areas such as controllable nuclear fusion and quantum technology are open to the world. Fast-growing Chinese innovative enterprises have also delivered returns of several times, and even several dozen times, for investors from many countries. Enterprises from all countries can quickly find partners in China across the full process from research and development to trial production to mass production, making innovation more efficient — succeeding not only in the Chinese market but also enhancing their competitiveness in global markets. The facts powerfully demonstrate that China’s technologies and products in emerging fields bring the world not shock but opportunity, not threat but empowerment.

Accelerating the global green and low-carbon transition. Climate change is a global challenge, and achieving a green and low-carbon transition is a common aspiration and development need of all countries. High-quality Chinese new energy products have enriched global supply, advanced the green and low-carbon process, and helped achieve the goals of the Paris Agreement. A report by the International Renewable Energy Agency (IRENA) states that over the past decade the average levelized cost of electricity of global wind power and photovoltaic projects has fallen cumulatively by more than 60% and 80% respectively, a large part of which is attributable to Chinese innovation, Chinese manufacturing and Chinese capacity. The U.S. journal Science ranked “China leading the rapid global development of renewable energy” first among the world’s top ten scientific breakthroughs of 2025. Against a backdrop of global energy tightness and rising electricity demand driven by artificial intelligence, the green transition is becoming an important direction for international cooperation. The International Energy Agency (IEA) projects that by 2030 global data center electricity consumption will approach 1 trillion kilowatt-hours, with 40% of the incremental power depending on renewable energy. China possesses significant scale and technological advantages in solar energy, energy storage and electrification, and is capable of providing green energy equipment and solutions.

Further improving the livelihoods and wellbeing of people in all countries. In recent years, as the global economy has been mired in weak growth and high inflation, high-quality, high-efficiency, high-value-for-money Chinese products have enriched global supply, lowered living costs and eased global inflationary pressure. Chinese exports of textiles and home furnishings, daily consumer goods, smart terminals, home appliances and medical supplies cover more than 200 countries and regions, providing global consumers with stable, reliable and diverse product choices. Australian media have reported that the phenomenon of Chinese goods restraining inflation has already extended from daily necessities to high-technology equipment such as solar panels, with American and European consumers enjoying substantial benefits. A report released by the European Central Bank estimates that if EU imports from China increase by 10% in 2026, overall EU import prices will fall by 1.6%. Brazilian media have reported that against a background of continuously rising global costs, China has maintained relatively moderate inflation by virtue of the advantages of its manufacturing system, helping emerging markets including Brazil ease inflationary pressure.

Supporting industrialization in developing countries. Chinese exports have lowered the barriers to entry into manufacturing for developing countries, supplying high-quality, competitively priced production equipment and components ranging from sewing machines and textile machinery to industrial machine tools. From 2012 to 2024, China exported more than $30 billion in textile machinery to developing countries, helping Vietnam, Pakistan, Bangladesh and others become important producers and exporters of textiles. Chinese imports have also created opportunities for developing countries’ exports: from 2010 to 2025, China’s imports of labor-intensive products from developing countries and from least developed countries grew 3.5-fold and 16-fold respectively. Chinese investment has raised the industrial production capacity of developing countries: China has established more than 50,000 enterprises overseas with an investment stock exceeding $3 trillion, nearly 90% of it distributed in developing economies, driving a large number of projects in light industry, textiles, home appliances and other fields, promoting development in new areas such as digital and green industries, and helping numerous developing countries in Southeast Asia, the Middle East, Africa and elsewhere rise from the periphery of supply chains to become important nodes in the global manufacturing network.

IV. Jointly Building an Open and Inclusive Framework for Global Industrial and Supply Chain Cooperation

(1) Promote mutual benefit and win-win outcomes, and advance common development

Against the backdrop of globalization, countries’ economies are deeply intertwined and their industries mutually integrated. Enlarging the “pie” of global development through mutually beneficial and pragmatic industrial and supply chain cooperation is where the common interests of all countries lie.

Create new demand through industrial iteration. All parties should jointly seize the opportunities of the new round of industrial revolution and technological transformation, strengthen international cooperation in fields such as green and low-carbon development, artificial intelligence and biomanufacturing, give full play to the advantages of frontier and emerging industries — rapid growth and great potential — and break through growth bottlenecks by sharing the dividends of science and technology, providing new momentum and injecting new vitality into the sustained recovery of the global economy.

Expand new space through balanced development. All parties should attach greater importance to the problem of “real imbalance” that exists between developed and developing economies, strengthen industrial, trade and investment cooperation, help more developing countries and regions integrate into the international division of labor, accelerate the process of industrialization and modernization, and promote economic development and market expansion, providing a “new blue ocean” for global industrial cooperation. When the pie of the world economy is enlarged, conflicts over the distribution of benefits diminish.

(2) Respect the laws of the market and advance economic globalization

Global industrial and supply chains are the joint product of market forces, enterprise development and technological progress; they were not formed overnight, and forcible artificial intervention will only be counterproductive.

Promote factor flows through openness and connectivity. All parties should promote a virtuous global cycle in industrial and supply chains, advance trade and investment facilitation and liberalization, raise the efficiency of factor and resource allocation, and prevent market fragmentation, investment restrictions and the raising of barriers from creating chokepoints in industrial and supply chains. Adhering to complementarity of strengths and to equality and mutual benefit, all parties should jointly build and safeguard a globally open innovation ecosystem, so that international industrial cooperation delivers greater benefits.

Oppose the politicization and over-securitization of economic issues. It is a normal aspiration for countries to enhance their own industrial influence and resilience through competition and cooperation, and this should not be subject to artificial political interference that distorts the underlying market logic of the rational global flow of resources and factors. Broadening and politicizing “reducing dependence” and “de-risking” will only mean missing more development opportunities. All parties should respect business entities’ autonomy in investment decisions and commercial arrangements, build a fair, stable and predictable business environment, and allow enterprises to return to their market essence and act in accordance with economic laws.

(3) Strengthen industrial policy coordination and maintain a sound cooperative environment

Major economies participate deeply in and exert great influence over global industrial and supply chain cooperation, and their industrial policies have spillover effects; they should strengthen communication and coordination, build mutual trust, and lead by example.

Jointly keep global industrial and supply chains stable and unobstructed. Major economies should adhere to consultation on an equal footing, properly manage and control differences, abandon unilateralism and protectionism, oppose discriminatory and exclusionary practices, and avoid closure and restrictions and races to the bottom that create further obstacles and destabilizing factors for global industrial cooperation. European and American economic and trade restrictions against China seriously damage mutual trust and cooperation between the two sides, seriously harm Europe’s and America’s own interests, and have an adverse impact on global economic development and industrial cooperation.

Strengthen multilateral and bilateral dialogue on industrial policy. All parties should draw on multilateral and bilateral platforms to improve regular mechanisms for communication on industrial policy, uphold openness and transparency, clarify policy objectives, and dispel misunderstandings and respond to concerns through constructive dialogue. Within the WTO framework, they should strengthen exchanges on subsidy transparency, properly handle differences through consultation on an equal footing, submit subsidy notifications on schedule and respond proactively to members’ concerns, and jointly foster a stable and predictable institutional environment.

(4) Expand market opening and create cooperative opportunities together

Openness brings progress; closure inevitably brings backwardness. All parties should dismantle barriers, expand opening, and continuously tap market potential to provide greater space for industrial cooperation.

Reduce barriers to trade exchanges. The larger the scale of trade, the harder it is to avoid differences and frictions. Focusing one’s attention solely on “building walls” will only aggravate contradictions and will not help resolve problems. All parties should adhere to openness and cooperation, facilitate the cross-border flow of domestic and foreign factors, promote full market competition, stimulate enterprise vitality, and continuously enrich new supply and create new demand. The result of closure can only be markets without a source of fresh vitality, and greater obstruction of innovation and development.

Reduce obstacles to investment cooperation. Investment cooperation is an important means of enlarging the pie, tightening bonds and enhancing mutual benefit; it both meets local needs and drives the development of host countries. All parties should relax access restrictions in investment fields, simplify procedures, remove barriers, provide foreign investors with a fair, transparent and predictable environment, and better protect the legitimate rights and interests of investors. We oppose welcoming investment in words while being selective and fault-finding in deeds, and still more the use of foreign investment screening regulations and foreign subsidy regulations as weapons to conduct discriminatory investigations of enterprises and impose coercive requirements.

(5) Uphold multilateralism and build a more just and reasonable international economic order

Multilateralism is a precious asset that human society gained from the bitter lessons of two world wars, and the international community needs to cherish it all the more.

Uphold the basic principles and rules of the WTO. The WTO rules system, founded on the basic principles of fairness, transparency, non-discrimination and openness, has for many years been the cornerstone of the stable development of the global economy and trade. The concept of multilateral trade is deeply rooted in people’s minds, and no one wants to return to a jungle era in which the strong prey upon the weak. All parties should advance WTO reform in keeping with the times, revitalize the WTO’s authority, promote the updating of WTO rules, and rebuild trust among WTO members; uphold the most-favored-nation principle; and work together to keep global trade stable within a multilateral framework and under rules commonly accepted by all parties, so as to safeguard to the greatest extent the legitimate rights and interests of different economies in international economic and trade exchanges.

Make the global governance system more just and reasonable. In economic and trade exchanges, all parties should adhere to equality and mutual benefit, respect one another’s development stage and national conditions, and jointly resist the bullying of the small by the large and of the weak by the strong — in particular, no party should trade away the interests of a third country in order to reach an accommodation with power. All parties should adhere to genuine fair competition, striving to run faster themselves rather than tripping others up; they must not say one thing and do another, nor permit only themselves to act while forbidding others to do so. The roles of multilateral and regional cooperation mechanisms such as the G20, BRICS and APEC should be better leveraged to jointly safeguard fairness and justice and improve the global economic governance system.

Conclusion

Capacity issues are a normal phenomenon arising in the course of world economic development, accompanying industrial iteration, market fluctuations and the evolution of the division of labor. Countries should adopt a market perspective and a global outlook, proceed from economic laws, view the so-called capacity “disputes” objectively and dialectically, explore cooperation rather than manufacture confrontation, and work together to clear the chokepoints in global supply and demand, optimize the global allocation of resources, and promote the healthy and sustainable development of global industry.

Where countries’ economies are connected, they advance together; where they are closed off, each falls back. China’s development cannot be separated from the world, and the world’s prosperity also needs China. China stands ready to work with all parties to uphold the global free trade system, keep global industrial and supply chains stable and unobstructed, safeguard an international environment of openness and cooperation, promote the development of the global economy in a more sustainable and more inclusive direction, foster common prosperity in the world, and ensure that the benefits of development reach the people of all countries.

China’s export restrictions on yttrium continue to significantly limit global yttrium supply. While there was some improvement in Chinese exports in late 2025, the more stringent restrictions on shipments to Japan (introduced in early 2026) led to a renewed curtailment in global trade flows. The most consistent post-export control shipment volumes were to the European Union and Korea, though exports to those destinations were not enough to offset the decline in shipments to other regions.

Introduction

China’s exports of rare earth compounds and metals subject to export controls fell substantially following the implementation of China’s export controls in April 2025 and remain low by historical standards, as detailed by Silverado in its monthly rare earth dashboard. Yttrium exports accounted for the largest volume of exports (in Chinese tariff lines fully covered by export controls) prior to April 2025 and were significantly impacted by Chinese export controls. This post, a supplement to the monthly rare earth dashboard, provides additional analysis on China’s yttrium exports.

The data in this post differs from the monthly rare earth dashboard in a few ways:

• The dashboard provides more long-term historical data.

• The data are aggregated on a quarterly basis, making it easier to identify long-term trends.

• Unlike the Silverado rare earth dashboard, all data are also converted to yttrium oxide equivalent, allowing for comparison of the yttrium content of exported products (see note below).

• One additional yttrium product, other yttrium compounds, is included in the data here, but is not included in the yttrium breakout in the monthly dashboard since it is only partially covered by export controls. (There is only a small volume of trade in this product.)

Note: Rare earths are produced and sold in various forms, such as metals, oxides, and carbonates, as well as combined with other rare earths or chemical compounds. These different forms have varying concentrations of the specific rare earth element. For example, yttrium accounts for 79 percent of the weight of yttrium oxide, but only 50 percent of the weight of yttrium carbonate. In order to measure mineral volumes on a comparable basis, therefore, they are often converted to the rare earth oxide equivalent (in this case yttrium oxide equivalent). While it is not possible to do this conversion in Silverado’s monthly dashboard due to basket categories that contain more than one product, for this yttrium-specific analysis the data are converted to yttrium oxide equivalent to better compared the amount of yttrium traded.

Export trend

China’s yttrium exports—as measured by metric tons of yttrium oxide equivalent—significantly declined following China’s implementation of export controls in April 2025 (figure 1). China’s yttrium exports increased from Q2 2025 to close to typical historical levels by Q4 2025.1 In early 2026, however, China imposed additional restrictions on exports of dual-use goods to Japan and reportedly slowed approvals of new export licenses.2 This led to a sharp decline in exports to Japan and a fall in overall exports, since Japan was the largest export destination in the second half of 2025.3

Figure 1: China’s yttrium exports, by destination, metric tons of yttrium oxide equivalent

Exports by country

China’s yttrium exports historically went primarily to four destinations: Japan, the United States, the European Union, and Korea (figures 1 and 2). After April 2025, shipments to the United States were very limited, while there was significant recovery in the supply to the other three major partners in the third and fourth quarters of 2025. In 2026, with the implementation of more stringent controls on exports to Japan, shipments to Japan fell sharply. Exports to the United States also remained low in the first half of 2026, with the exception of a brief one-month uptick in exports in March 2026. On the other hand, the European Union and Korea received the most volume in the first half of 2026. In the second quarter of 2026, there was also an increase in exports to Vietnam and Russia.4

Figure 2: China’s yttrium exports to top pre-export control destinations, metric tons of yttrium oxide equivalent

Exports by product

Yttrium oxide historically accounted for the largest share of yttrium exports, followed by yttrium carbonate (figure 3). Following the implementation of export controls, China primarily exported yttrium oxide, with unalloyed yttrium metal accounting for the second largest volume of yttrium exports. China only exported a minimal amount of yttrium carbonate following the implementation of export controls.5

Figure 3: China’s yttrium exports, metric tons of yttrium oxide equivalent

1. China continued to ship minimal amounts of rare earth compounds and metals covered by the April 2025 export controls to the United States in June 2026, with only shipments of lutetium oxide around typical historical levels.

China’s shipments of rare earth compounds and metals covered by the April 2025 export controls to the United States remained near historic lows in June 2026. Shipments of yttrium, dysprosium, and terbium remained at zero for the second consecutive month, while exports of lutetium oxide rose to 8 metric tons, approaching historical levels. The two-month absence of shipments for three of the four rare earth elements came just three months after China recorded its largest monthly shipment of rare earth compounds and metals covered by the April 2025 export controls since the controls took effect, with exports across all four categories having reached pre-export control levels in March 2026.

2. China’s exports to Japan fell to zero in June 2026, continuing the trend of limited exports to Japan since China imposed additional export controls on shipments to Japan in January.

China’s exports of export-controlled rare earth compounds and metals to Japan have been heavily restricted since January 2026. China didn’t ship any export-controlled rare-earth compounds and metals to Japan in June 2026, the third month this year where there were no shipments to Japan. The average monthly exports from China to Japan decreased from 137.6 metric tons in 2024 to 2.5 metric tons in 2026, a 98 percent decrease. The almost complete halt in exports to Japan is particularly significant as Japan had been one of the few countries that was able to import significant volumes of export-controlled rare earth compounds and metals after China’s April 2025 export controls.

3. China is shipping large volumes of rare earth magnets–except to the United States

China’s exports of rare earth magnets, which are partially covered by the April 2025 export controls, have been strong since July 2025 and in many months have been above 2024 levels. Among the top eight export destinations in 2024, exports to seven of the eight destinations were higher in the first half of 2026 than in the first half of 2024. In many cases, the increase in exports was fairly substantial. For example, China’s exports to the EU rose by 21 percent from the first half of 2024 to the first half of 2026, while exports to Korea were up by 23 percent, exports to Vietnam were up by 19 percent, and exports to India were up by 44 percent.

The exception is the United States. China’s exports to the United States declined by more than 21 percent from the first half of 2024 to the first half of 2026, falling from 3,600 mt to 2,900 mt.

1. China’s shipments of export-controlled rare earth compounds and metals to the United States—which had briefly recovered in March and April—fell to zero in May.

China’s exports of rare earth compounds and metals to the United States have been very limited since China implemented its April 2025 export controls. U.S.-bound exports briefly recovered in March 2026, declined again in April, and fell to zero in May—the first time U.S.-bound exports of these products have fallen to zero since September 2025.

China’s shipments of export-controlled rare earth compounds and metals to the United States were historically concentrated in yttrium and lutetium. In March, Chinese exports of both products were strong. By May, both had fallen back to zero, indicating that the March rebound was not a return to increased exports but rather a short-lived resumption in trade flows that did not signal a broader easing of restrictions on U.S.-bound shipments.

2. Japan continues to receive few rare earth compounds and metals due to new limits imposed by China in January 2026.

In May 2026, shipments of export-controlled rare earth compounds and metals to Japan remained minimal, continuing the pattern that followed China’s January controls. Exports of rare earth permanent magnets to Japan also declined in May, though it remains to be seen whether this is the start of a longer-term trend.

3. China’s global exports of yttrium, terbium, and lutetium oxide remained constrained in May. Dysprosium exports, however, were around historical levels.

China’s May exports of individual export-controlled rare earth elements show that restrictions continue to affect most of these products. Key product trends include:

• Yttrium exports remained well below typical pre-export control levels in May, with exports to Japan, historically a major destination for Chinese yttrium exports, near zero.

• Terbium exports were even more constrained, remaining less than 1 metric ton in May.

• Lutetium oxide exports also weakened, falling to near zero after strong exports in five of the last six months. However, February exports were zero and then bounced back, so it remains to be seen if this is the start of a long-term trend.

• Dysprosium exports were the main exception, remaining within the range of pre-export control levels in May, with most shipments going to South Korea.

1. Chinese firms continue to make major investments in semiconductor silicon wafer production capacity.

2. Chinese silicon wafer production substantially increased in the last few years.

3. Chinese silicon wafer producers supply a growing share of the domestic Chinese market.

4. Chinese silicon wafer exports are likely to continue to grow and will be aided by policies that support their growth within China.

5. The impacts will extend upstream, with U.S. semiconductor-grade polysilicon producers likely losing sales.

Share of semiconductor silicon wafer production capacity, by company headquarters location

Silicon wafers are the substrate used in most semiconductor wafer fabrication and are a critical input for semiconductor manufacturing.1 Wafer sizes have increased over time, with 300 mm (12-inch) wafers the largest size currently used in semiconductor production.

Introduction

China’s semiconductor silicon wafer industry is often viewed as a small player in an industry dominated by large Japanese and other multinationals. This was the case only a few years ago, with five non-Chinese firms accounting for more than 85 percent of 200 mm wafer output in 2020 and 98 percent of 300 mm wafer production in 2021 (figure 1).2 However, Nikkei Asia reported in early May 2026 that China’s efforts to increase domestic semiconductor wafer use have “become an unspoken mandate among chipmakers to use locally made 12-inch wafers.” This follows reporting from October 2025 that “[g]overnment agencies have also urged the country’s top chipmakers…to use local-made silicon wafers as much as possible.” The effort to increase domestic wafer sourcing shows the extent to which Chinese production capabilities have grown and lays the groundwork for the Chinese industry to become even more globally competitive.3 The remainder of this post provides context on the Chinese wafer industry and examines some of the potential impacts from the further localization of silicon wafer production in China.

Figure 1: Historical market share, 200 mm (2020) and 300 mm (2021) semiconductor silicon wafers

1. Chinese producers continue to make major investments in production capacity.

Chinese silicon wafer manufacturing firms made major investments in semiconductor wafer production capacity in the last few years, particularly focused on 300 mm wafers. National Silicon Industry Group, for example, announced major new investments in 300 mm capacity at multiple plants in 2024, and the firm has now brought online substantial new capacity.4 ESWIN’s capacity will reach 1.2 million wafers per month (wpm) in 2026, up from 0.65 million wpm in 2024. In December 2025, ESWIN announced plans for another plant that will increase capacity to 1.7 million wpm.5

Global silicon wafer production was historically dominated by five non-Chinese companies (as discussed above), but Chinese firms are starting to account for a significant share of global production capacity. Chinese firms’ share of global semiconductor silicon wafer capacity rose from 3 percent in 2020 to 28 percent in 2025 (figure 2). China’s share of capacity is expected to reach 32 percent in 2026.6

Figure 2: Share of semiconductor silicon wafer capacity, by company headquarters location

2. Chinese production substantially increased in the last few years.

China’s silicon wafer production is rapidly growing, with revenue for nine wafer companies (publicly traded or with a planned IPO) increasing from $2.0 billion in 2022 to $2.7 billion in 2025 (up 37 percent) (figure 3).7 China’s production increased even faster in volume terms. For example, Zhonghuan Advanced’s sales, in volume terms, increased by 64 percent and ESWIN’s rose by 244 percent during the same time period. National Silicon Industry Group’s sales of 300 mm wafers rose by 111 percent, though sales of smaller wafer sizes declined (by number of wafers).8

Figure 3: Semiconductor silicon wafer revenue of publicly traded Chinese firms

The sales gains for Chinese firms contrast with market data reported by SEMI, which is mostly data for non-Chinese producers. SEMI market data indicate that the value of global shipments totaled $11.4 billion in 2025, the lowest level since 2020 (figure 4). By volume, shipments were up in 2025 from 2023 and 2024 levels but were only modestly above 2017 and 2019 levels.9

Figure 4: SEMI shipment data for semiconductor silicon wafers

3. Chinese producers supply a growing share of the domestic Chinese market.

China remains a major importer of silicon wafers, with imports totaling 839 metric tons during January to April 2026.10 However, this is likely the lowest first quarter level since 2018.11 Further, China’s downstream semiconductor production substantially increased from 2018 to 2026, so this indicates that domestic wafer producers are supplying a larger share of the market.12

The share of the Chinese 300 mm wafer market supplied by production in China increased from 25 percent in 2022 to 45 percent in 2025 (according to a forecast published in October 2025). The share of the Chinese 200 mm market supplied by domestic production is even higher.13 These data include wafer demand in China from both China-headquartered firms and foreign-invested enterprises. China-headquartered firms use an even higher percent of domestic Chinese wafers.14

Figure 5: Share of the Chinese semiconductor silicon wafer market supplied by wafer production in China

4. Chinese wafer exports are likely to continue to grow and will be aided by policies that support their growth within China.

China’s silicon wafer exports totaled almost 1,000 metric tons in the first four months of 2026.15 This volume is likely enough to make China one of the leading global exporters of silicon wafers. By comparison, Japan—the leading exporter of wafers—exported 2,500 metric tons in the first four months of 2026.16 For China’s exports, Taiwan was the leading export destination by value, followed by Japan, Korea, the European Union, and the United States (figure 6).17

Figure 6: China’s exports of semiconductor silicon wafers, by value and destination, Jan to Apr 2026

As Chinese producers add capacity and continue to gain experience in the domestic market, they are likely to substantially increase exports. Chinese firms are already selling at prices that are lower than foreign competitors. According to one company operating in China cited by Nikkei Asia, for example, Chinese wafer producers sell products in China at half to two-thirds of the typical global price.18 Chinese wafer producers also already have a substantial number of non-Chinese semiconductor manufacturers as their customers.19

5. The impacts will extend upstream, with U.S. polysilicon producers likely losing sales.

The United States has three semiconductor-grade polysilicon production plants, including plants owned by the two largest global producers—Wacker (which also produces in Germany) and Hemlock Semiconductor. These firms are already facing significant headwinds due to low Chinese prices for solar-grade polysilicon and a growing competitive threat from the growth in Chinese semiconductor-grade polysilicon production capacity.20 (Wacker and Hemlock produce both solar-grade (lower purity) and semiconductor-grade (higher purity) polysilicon in the United States, and they rely on the revenue from both products to cover the high fixed costs associated with their polysilicon plants.)

Chinese semiconductor wafer producers use a larger share of Chinese semiconductor-grade polysilicon than producers outside of China (which primarily use polysilicon produced in the United States, Germany, and Japan).21 China’s growth in domestic wafer production, initially for the domestic market and then likely for exports, will probably lead to fewer sales for the non-Chinese wafer producers that use U.S. polysilicon and, therefore, lower sales for U.S. polysilicon producers.

The author would like to thank Paige Graham for her assistance with this post

It wasn’t that long ago, in the early- to mid-2010s, when discussion of U.S.-China economic competition centered around U.S. competitive advantages in automation that would offset China’s advantage in low-cost labor. Today, a common narrative is the opposite—the United States has fallen far behind China in the level of factory automation. An examination of industrial robot use indicates that the situation today is more complex and requires a sector-by-sector analysis rather than economy-wide data that may overstate China’s advantage. A case study of the auto sector, for example, indicates that the level of industrial robot use in U.S. and Chinese vehicle factories—which is a critical factor underlying auto industry competitiveness—is at similar levels or even slightly higher in the United States.1

Definition of industrial robots

An industrial robot is defined by the International Organization for Standardization as an “automatically controlled, reprogrammable multipurpose manipulator, programmable in three or more axes, which can be either fixed in place or fixed to a mobile platform for use in automation applications in an industrial environment” (figure 1).2 Industrial robots are primarily used in manufacturing, with the automotive and electrical/electronics sectors typically accounting for the most industrial robot installations.3 They are used in applications such as assembly, cutting, material removal, material and parts handling, packing and palletizing, painting, and welding.4 The use of service robots and humanoid robots will be covered in a separate analysis.

Figure 1: Example of industrial robots

China Leads the World in Industrial Robot Installations and Operational Robot Stock, When Measured by Economy-Wide Metrics

China is far outpacing the United States and the rest of the world in annual domestic robot installations (number of new robots shipped to or installed at businesses). In 2024, the latest available year, China installed more than six times as many robots as Japan (the second largest market) and more than eight times as many as the United States (the third largest market), according to data from the International Federation of Robotics (IFR) (figure 2).5 Though there can be differences in the capabilities of industrial robots, China also had the largest market in 2024 when measured by the value of installations.6

Figure 2: Annual installations of industrial robots, top three markets

China also leads the world in operational robot stock (estimated number of robots currently in operation), accounting for more than 40 percent of the global operational stock of industrial robots at the end of 2024 (figure 3).7 The United States ranked third in the world in the stock of industrial robots—also behind Japan and slightly ahead of Korea—but only accounted for 8 percent of global stock.8

Figure 3: Share of operational stock of industrial robots, by country, end of 2024

The United States fares even worse when comparing the operational stock of industrial robots to value added in the manufacturing sector,9 ranking behind all of the top 10 countries (by operational stock) except India (figure 4).10 China is high on this list, but trails significantly behind Korea and slightly behind Japan.11 These economy-wide metrics, however, don’t account for differences in industry composition or whether output tends to be high or low value added products.

Figure 4: Stock (number) of industrial robots per million $ of manufacturing value added, select countries

However, a case study of the U.S. auto industry indicates a more complex reality

China’s auto industry also made large investments in industrial robots in recent years, with the magnitude of that investment significantly higher than U.S. investment.12 In 2024, for example, China’s auto sector installed 57,200 industrial robots (including for parts production), while the United States installed 13,600.13

However, China’s investment in industrial robots for vehicle production (excluding parts) has, so far, only resulted in China catching up to the level of automation of the U.S. industry—if even that—rather than surpassing the United States. Comparing the stock of industrial robots in vehicle production (excluding parts) to production capacity and to production indicates that the U.S. stock per 1,000 vehicles was at the high end of the estimated range in China (and China’s robot use is unlikely to be at the upper end of the range, as explained in the footnote) (figure 5).14

Figure 5: Ratio of end of year 2024 operational stock in the United States and China to 2024 production capacity and 2025 production

Conclusions

The pace at which China is investing in industrial robots and the level of automation in China is often cited as a significant Chinese competitive advantage. Manufacturing-wide metrics reinforce this concern but may be impacted by differences in industry composition and other factors. A case study of the auto industry—though only one manufacturing sector and an industry that is highly automated globally—indicates that the level of industrial robot use in U.S. and Chinese vehicle factories—which is a critical factor underlying auto industry competitiveness—is at similar levels or even slightly higher in the United States. Though factory automation is only one factor of industrial competitiveness, on this factor the U.S. industry remains highly competitive with China.

This case study also points to the need for careful sector-by-sector analysis before drawing conclusions on industry automation and competitive advantages. Future research will examine other aspects of automation and other industries to provide a more complete picture of the relative competitiveness of the United States and China as it relates to manufacturing automation.

1. China continued to restrict exports of rare earth compounds and metals

China’s exports of export-controlled rare earth compounds and metals remained below historical levels in April 2026. Examining some of the export-controlled minerals broken out in China’s export data, China’s exports of yttrium and terbium were below typical historical levels in April 2026, while exports of dysprosium and lutetium oxide were within the levels of typical historical norms. Yttrium exports represented the highest volume of the four rare earths, making the reduced level of yttrium exports a driving factor in the overall reduction of export-controlled rare earth exports and pushing export-controlled exports of rare earths to well below historical levels.

2. Exports to the United States are among the most impacted trade flows

China’s exports of rare earth compounds and metals to the United States have been very limited since China implemented export controls. Exports briefly recovered in March 2026 but fell again in April. China’s exports of yttrium, critical in the production of turbines for aerospace and power generation applications, were low in April 2026. On the other hand, the United States received an amount of lutetium oxide, critical for U.S. medical device manufacturers, that was within the range of typical historical exports.

While China’s exports of rare earth magnets to the world have largely normalized (at least the level of exports, information on the composition is not available), China’s exports to the United States remain weak. China’s exports (not all of which are subject to export controls) to the United States declined steadily from October 2025 through March 2026 before increasing in April. However, April 2026 magnet exports to the United States remained below the 2024 average.

3. Japan has received few rare earth compounds and metals since China imposed new limits on exports to the country

China imposed restrictions on exports of dual-use goods to Japan in January 2026 and reportedly slowed or halted approvals of new export licenses. This led to a sharp drop in exports to Japan, which had been one of the few countries able to get access to these products from China after the implementation of the April 2025 export controls. Exports to Korea, on the other hand, reached record levels in April 2026. Vietnam and Austria were also significant export destinations for compounds and metals in April.

It is my personal opinion that currently AI is a technology that transforms efficiency, but it isn’t a replacement for human creativity and innovation. It can run through scenarios faster than a human, but it doesn’t create novel ideas without a prompt.

I have been observing the reactions to the blog by Anthropic of the Mythos Preview. The media noise around Anthropic’s Mythos model often leverages “FUD”—Fear, Uncertainty, and Doubt—to make it seem like an existential mystery.

But let’s be clear: While leveraging AI to increase the speed, and in some cases find unknown vulnerabilities - to me Mythos is highlighting years of vulnerabilities that have not been addressed. This information is not new —not the missing patches, the lack of MFA, or the unsecured, internet-facing infrastructure. Mythos is just proving cybersecurity professionals were right – except it is way faster, and offers a distinct warning about what could come in the future.

The Speed of Adaptation What Mythos has highlighted is the incredible speed at which the industry now needs to adapt and adopt cybersecurity principles. We have moved into a world where the time between a vulnerability existing and causing disruption has collapsed from hours to minutes.

Per the blog - Mythos can autonomously find critical vulnerabilities across every major operating system and browser, generating working exploits without human guidance. It identifies complex, “chained” vulnerabilities that were previously too expensive or skill-intensive to execute. This isn’t just a temporary spike; it is a permanent acceleration of the threat landscape.

Project Glasswing: A Defensive Head Start To address this, Anthropic launched Project Glasswing, a multi-party vulnerability coordination effort. By providing early access to Mythos, Anthropic is allowing selected critical infrastructure providers and open-source maintainers to patch their products before adversaries gain similar capabilities. While this coordination is a vital defensive step, its impact depends on whether the patch and disclosure pipeline can keep pace with the speed of AI progress.

Principles at Machine Speed This isn’t about the industry scrambling; it’s about finally executing on principles we’ve established over two decades. The new “Mythos-ready” Security Program authored by the Cloud Security Alliance (CSA) focuses on moving from reactive cycles to a permanent Vulnerability Operations (VulnOps) function. This means using LLM-powered agents to find our own weaknesses before attackers do.

The National Institute of Standards and Technology (NIST) has also spent considerable time and effort developing frameworks and guidance around the implementation and use of AI over the past 5 years.

The Bottom Line: Accountability to the Basics We can build coalitions like Project Glasswing all day, but they are only as effective as our willingness to adopt the fundamentals as the CSA has highlighted.

The principles haven’t changed, but our timeline to implement them has. If we are not willing to adopt and enforce basic cybersecurity principles with the same urgency that attackers are adopting AI, then we are simply waiting for the next wave of a storm we already know how to survive.

Mythos isn’t a myth. It’s a reality check. The game is the same, but it’s being played at machine speed.

Silverado’s latest data dashboard shows that China has continued to weaponize global supply chains for rare earths using its export control regime, with a strategy that largely withholds exports of processed rare earth metals and compounds while allowing the export of further downstream magnets.

Read more below and check out the full data dashboard on our website.

China continues to significantly restrict export-controlled compounds and metals

China continues to restrict exports of export-controlled compounds and metals. China’s combined exports to the world in January and February 2026 were less than one-third of their export levels in the same period in 2024 and 2025. Prior to the implementation of China’s April 2025 export controls, compounds and metals primarily went to four destinations–Japan, the United States, the European Union, and Korea. China restricted exports to all destinations, but impacts have differed by country and economy.2

Source: Global Trade Tracker database.

Exports of rare earth compounds and metals to the United States remained low in January and February 2026, with China shipping only lutetium to the United States in January and a small amount of yttrium in February. In total, China’s exports of rare earth compounds and metals to the United States from May 2025 to February 2026 totaled only 56 metric tons, compared to 792 metric tons from May 2024 to February 2025–a 93 percent decline.3 This decline in U.S. imports of rare earth compounds and metals is having a significant impact on some U.S. industries. For example, Reuters recently reported that shortages of yttrium caused some aerospace suppliers to temporarily stop production.4

Source: Global Trade Tracker database.

China imposed restrictions on exports of dual-use goods to Japan in January 2026 and reportedly slowed or halted approvals of new export licenses.5 As a result, shipments of export-controlled rare earths to Japan fell sharply, a significant blow to global supply since Japan was one of the leading export destinations following the implementation of export controls. China exported no export-controlled compounds and metals to Japan in January 2026 and only 7.1 metric tons in February, a steep decline from the July to December 2025 average of over 100 metric tons and even higher levels prior to the implementation of export controls. Shipments of rare earth magnets to Japan continued at relatively strong levels, though magnets are not substitutes for all of the end use applications that rely on imported compounds and metals.6

Shipments of export-controlled rare earth compounds and metals to Korea declined in January and February 2026 from prior months, but were close to the range for normal monthly fluctuations. Exports to the European Union fluctuated on a monthly basis, with it difficult to draw any conclusions about patterns given the high variability in typical monthly import levels and significant exports from November 2025 to January 2026.7

China’s rare earth magnet exports were at normal levels in early 2026, except exports to the United States

China’s combined January and February 2026 exports of rare earth magnets were above levels in the prior two years. The European Union was the largest export destination (accounting for 44 percent of exports), followed by Korea (9 percent), the United States (9 percent), Vietnam (8 percent), India (5 percent), and Japan (4 percent). China’s rare earth magnet exports to the United States in January and February 2026, however, were down 22 percent from 2025 levels and down 11 percent from 2024 levels.8

Source: Global Trade Tracker database.

China implemented export controls on bismuth in February 2025, requiring export licenses for bismuth metal and certain other bismuth products. These export controls led to less availability of bismuth metal outside of China and higher prices. At the same time, other countries continued to ship bismuth products and China continued to export goods not subject to export controls. This post highlights the findings from an analysis of recent bismuth production and trade data to assess the impact of China’s export controls.

What is bismuth and where does it come from?

Bismuth is primarily a byproduct of mining other products, such as lead ore, tungsten, zinc, and other minerals, though there is some mining that is focused on bismuth. There is also secondary production (production from recycled materials) of bismuth. The largest application for bismuth is in chemical production for use in the cosmetic, pharmaceutical, industrial, and laboratory sectors (based on data for the United States and Europe). Other key applications include bismuth alloys and metallurgical additives.

When did China announce export controls and what did they cover?

On February 4, 2025, China announced export licensing requirements for bismuth metal products not covered by existing export controls and certain other bismuth products. The export licensing requirements did not cover bismuth oxides and hydroxides (including bismuth trioxide), bismuth nitrates, and bismuth carbonates.

What are Silverado’s nine takeaways on bismuth production and trade?

1. Global bismuth refinery production was flat from 2024 to 2025, with the share of production in China and other countries remaining generally the same, indicating that production patterns did not substantially change following China’s implementation of export controls.

2. China’s exports of bismuth metal products fell sharply due to export controls and remained low throughout the year. Exports of bismuth trioxide, which is not subject to export controls, initially increased and then returned to more typical levels.

3. Other global exporters have not filled the gap left by the decline in Chinese exports of bismuth metal.

4. Global prices for high purity bismuth metal substantially increased following the implementation of China’s export controls.

5. China did not ship export-controlled bismuth to the United States after the implementation of export controls, though it did ship bismuth trioxide.

6. U.S. imports of export-controlled bismuth metal fell after the implementation of export licensing requirements and have not returned to prior levels. U.S. importers are still able to access supply in other Asian countries and Europe.

7. U.S. imports of certain other bismuth products not subject to export controls (nitrates, carbonates, and certain mixtures) increased in 2025.

8. China replaced Germany as the top source of U.S. bismuth nitrate imports in 2025, with Belgium also supplying the U.S. market.

9. The impact of China’s export controls on the prices of U.S. imports varied by product, with the highest impact on the prices of high purity bismuth metal.

Data analysis by: Andrew David, Meagan Reid, and Andrew Knipe.

Notes/Sources: High purity bismuth is bismuth with a purity level >99.99 percent, based on the breakout in the Harmonized System. The trade data include bismuth scrap and waste as these goods are not broken out in global trade data. U.S. import data are imports for consumption and do not include tariffs. U.S. Geological Survey, Mineral Commodity Summaries and Minerals Yearbook, https://www.usgs.gov/centers/national-minerals-information-center/bismuth-statistics-and-information; Global Trade Tracker database, https://www.globaltradetracker.com/; USITC DataWeb, https://dataweb.usitc.gov/; Eurostat, https://ec.europa.eu/eurostat/web/main/data/database; SCCRREEN, “Bismuth,” https://scrreen.eu/wp-content/uploads/2023/12/SCRREEN2_factsheets_BISMUTH_V1.pdf.

Critical Minerals

• China highlighted its rare earth dominance, vowing to sustain leadership and modernize the sector while tightening the export controls the CCP has used to disrupt overseas mineral supplies.

  • Clean energy expansion effort meant to increase copper and aluminum demand via grid projects. Due to China remaining import-dependence on copper and iron ore, Beijing targets more domestic mining.

  • Beijing recommitted - yet again - to curbing overcapacity in steel, petrochemicals, and copper smelting without output cuts or targets.

Energy

• Domestic oil output holds at 200 million tons/year, with gas production and oil stockpiles rising.

• Reduced reliance on imported fossil fuels by increasing alternate fuel sources in the total share of energy consumption.

Agriculture

• Beijing announces grain output targets of 725 million metric tons by 2030 via tech and yield efficiencies, as farmland shrinks.

• China also plans to secure more overseas food imports while regulating hog overcapacity and aiding dairy/beef industries behind tariffs.

• Initial report calls for strengthening “supply guarantees for grain and other important agricultural products,” improving agricultural productivity, and building a “diversified food supply system. Beijing also stresses “absolute security” in staple foods.

Artificial Intelligence

• Plan prominently features an “AI+” action to rapidly integrate AI across industry, governance, culture, and social services, with a goal to dominate AI industry applications globally.

• China explains AI governance as needed for a “beneficial, safe, and fair” environment.

Advanced/Emerging Technologies (including quantum)

• Specific technologies like quantum and semiconductors aren’t specifically named in the Working Report summary, but there are repeated descriptions of “strategic frontier technology” and plans to tackle and develop “key core technologies,” and “new quality productive forces”. This is standard Chinese policy language to include areas like semiconductors and quantum.

China’s rapid expansion of its foundational (also referred to as mature or legacy) semiconductor manufacturing capacity is raising concerns outside China of overcapacity, pricing pressures, and a loss of competitiveness for non-Chinese producers that will ultimately lead to more dependence on China. The effects of China’s rapid ramp up in capacity are already being felt outside of China, as Silverado detailed in its Foundational Fabs report. The latest Chinese import data indicate that China imported a record amount of semiconductor manufacturing equipment (SME) in 2025. Combined with likely increases in domestic production of SME by firms in China (according to estimates and partial year data from firms like Yole, Global Net, and MIR Databank), these data indicate that China continued to ramp up foundation semiconductor capacity in 2025.

Background

China is steadily increasing production capacity and global market share in foundational semiconductors. This trend continued in 2025, with China accounting for about 37 percent of the global SME market in the first three quarters of 2025, according to SEMIdata. This expansion will lead to China accounting for more than 40 percent of global foundational semiconductor manufacturing capacity by the early 2030s, according to estimates from Bloomberg.

Record 2025 Chinese Imports

China’s imports of semiconductor manufacturing equipment reached a record high of $51.1 billion in 2025, up 4 percent from 2024 levels according to official Chinese import statistics sourced from Global Trade Tracker. Japan and the Netherlands were the two largest import sources, followed by Singapore and the United States. The share of imports from the United States significantly declined over the last decade, falling from 23 percent in 2016 to 9 percent in 2025. China’s imports from countries that were not among the top five suppliers in the last three years grew substantially, rising by 28 percent from 2024 to 2025. Lithography continued to account for the largest share of equipment imports in 2025.

Silverado’s Recommendations

The United States should use policy flexibility created through the recent affirmative finding in the Section 232 investigation to develop a menu of remedial actions, such as component tariffs and export controls on SME, against semiconductors imported directly or indirectly from the PRC. Allies and partners should be incorporated into remedial actions to the maximum extent possible to prevent the PRC from undermining production that is essential to each partner’s national security interests.

The Stakes Are Huge

If the Court rules against the administration’s use of the International Emergency Economic Powers Act (IEEPA) for tariffs, we’re not just talking about the future of trade policy. The government may be forced to refund substantial tariff revenues already collected—potentially over a hundred billion dollars flowing back to importers.

But Here’s the Twist

The Trump administration isn’t without options. Sarah and John walk through the alternative tariff authorities available, including some lesser-known but powerful tools:

• Section 338 tariffs - A new weapon that could give the administration significant leverage

• Multiple alternative pathways that don’t rely on IEEPA authority

The Bottom Line?

Celebrating a potential SCOTUS ruling against IEEPA tariffs may be premature. As our experts explain, the end of one tariff regime could trigger the activation of others.

Watch the full analysis

Topics covered:

• U.S. objectives for the meeting

• The rare earth deal

• Why this is a temporary truce that is unlikely to last, given China’s historical record of failing to deliver on its commitments

• Strategic implications of the Malaysia trade agreement and other trade deals the U.S. is striking with the rest of the world, and

• Why it’s a good thing that the leaders did not discuss AI chips at the meeting!

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Keynote Remarks as Prepared for Delivery: Why Cyber Offense is Not Escalatory

By: Dmitri Alperovitch

There are many in our industry that have said for many years now that it is dangerous to engage in cyber offense because it is inherently escalatory. It would encourage, their argument goes, a tit-for-tat response from our adversaries, one which we can’t possibly win since we - in this country and the broader West, live in a glass house, given the overall reliance of our society on networks and computer systems. They say, we are more vulnerable than our enemies and, thus, cannot achieve escalation dominance.

Let me offer you a proposition that this argument is utter nonsense. In fact, the complete opposite is true. It is passive defense that encourages escalation on the part of our adversaries. Imagine living in a physical world without consequences. Where there is no investigation of crimes, no punishments are being feted out.

In fact, we don’t have to imagine it - there are plenty of places like this that exist around the world, many in failed states, where criminal and terrorist enterprises run amok, and innocent civilians live in perpetual fear of having their life and property seized from them at any moment. Those places tend to be true hellholes, where life only gets more lawless and dangerous by the day. Where there is no accountability, there is no peace and stability.

The same has been true in cyber. For decades now, we have had very limited accountability for malicious acts online - due to the challenges of prosecuting offenders - be they criminals, hacktivists or nation-state personnel acting on their country’s orders - operating out of hostile legal jurisdictions. As a result of the effective impunity that had been created, it is INDISPUTABLE that attacks have only gotten worse.

Whereas in the early era of the Internet - the 90s and early 2000s, we had to mostly worry about various online scams trying to steal your bank and credit card account information or peddle you Viagra pills, today we are dealing with much more dangerous actors that target our hospitals and school districts with ransomware, publish stolen psychiatric diagnoses, attempt to manipulate the Human-Machine Interfaces of our water utilities, and even collaborate with vicious gangs like MS-13 and use threats and actions of physical violence against employees working in telecommunications to clone SIM cards to bypass two-factor authentication. On virtually every metric of severity, damage to our society, and impact to livelihoods, and, even indeed, human life itself - things are much worse today than they were 10, 20, or 30 years ago.

And at the same time, our adversaries have only gotten stronger and more capable. In the late 1800s in Sicily, rich landowners would hire local small-time thugs - mafiosi as they were called - to protect their orchards from theft and sabotage in the lawlessness of weak post-unification Italy, thugs that, in the absence of any counterforce, would later emerge into a parallel system of power that a century later would rise to challenge the Italian state itself - a top 5 global economy and a NATO member. Similarly over the last 30 years, small time cybercriminals operating with near total legal impunity out of Russia would build sophisticated criminal syndicates, enabled by global reach of innovative affiliate network business model, that would keep evolving and design more and more complex illicit schemes that would bring enormous financial benefits to them and their associates.

Even when their operations haven’t been successful due to good defenses or been disrupted by law enforcement or private sector action, as opposed to being deterred from further criminal activity, they would almost always double down their efforts and pursue their innocent prey with even more innovation and persistence.

Similarly in the nation state realm, absolutely nothing that we have done to name and shame, indict and, on VERY rare occasions, even prosecute foreign intelligence operatives for perpetrating economic espionage, theft of national secrets, targeting of critical infrastructure for the purposes of preparing the military battlefield for future conflict, political system interference, crypto and other financial asset theft, as well as intimidation and blackmail - has made a dent in reducing any of these activities against us. To the contrary, the attacks are becoming more brazen, more careless and dangerous and more and more of our unannounced redlines keep falling by the wayside.

So the very idea that in this current bleak state of affairs engaging in cyber offense is escalatory is laughable, ladies and gentlemen. After all, what are our adversaries going to escalate to in response - ransom MORE of our hospitals, penetrate MORE of our water and electric utilities, steal even MORE of our IP and financial assets? It’s hard to believe that it is even possible - and if it is, trust me - it’s not for the lack of effort on their part.

One could argue, of course, that they could resort to more intentionally vindictive and destructive action - beyond just ransomware. For example, they could do immediate damage to our cyber-physical systems, not just infiltrate them for the purposes of espionage or prepositions for attacks at a later, more opportune time, as they do today.

Sure, I concede, that is entirely possible. But here is what’s interesting. It is actually remarkable how few truly destructive cyber-physical attacks we have seen in the entire history of this domain - Stuxnet, attacks on power grid in Ukraine, attempted Triton attack on a Saudi refinery, attacks on industrial control systems at Iranian steel companies. These are perhaps the most prominent examples and it is striking how small this list is. I would propose to you that this is not an accident and is not due to the lack of capability on the part of our adversaries to execute such attacks on a wider scale and with much greater frequency but because deterrence we practice in other non-cyber domains has actually been effective at stopping our adversaries from engaging in these attacks against us.

The reason for their scarcity leads me to the debunking of the other myth often perpetuated by what we might call the ‘cyber peacenik crowd’ - the idea that we here in the United States live in a uniquely vulnerable glass house and, thus, are much more exposed than our adversaries to cyber disruption. This was certainly true 20-30 years ago, it was even partially true a decade ago - it is absolutely not the case today.

Today, with the possible and, partial at that, exception of North Korea, ALL of our nation-state adversaries are just as reliant on modern IT systems and communications. Their banks, factories, critical infrastructure and even militaries are all being run on Western software and hardware and are often extensively connected to the Internet. And compared to our networks, whose security certainly more often than not does need to be considerably better, the cyber defense posture of many of our adversaries’ networks is virtually universally atrocious or even nonexistent. So the most likely reason why we don’t see more overtly destructive attacks being conducted against us today and our own OT systems is due to deterrence - the fear that we might retaliate - in cyber or in other ways - in ways so devastating that our adversaries don’t attempt to try.

Thus, I would pose to you, ladies and gentlemen, that not only is engaging in thoughtful and careful cyber offense is not escalatory but NOT doing so IS.

Now, not all cyber offense ideas are smart and effective - indeed, most probably aren’t. And who - government or private sector, under what authorities, and how - should practice it is a topic that deserves much careful consideration. Most cyber offense ideas I’ve seen floated in public and even private conversations are likely not going to create deterrent effects for our adversaries who are driven by greed or strategic national priorities. To change the dynamic of the ever worsening landscape that we currently face in the digital domain, we have to think about smart ways to combine all of the toolkits of our power - including but not limited to cyber - for a coordinated combined arms effect.

In warfare, every unit and weapons system - infantry, minefields, artillery, EW, long-range strikes, air support, drones - have to be synchronized as a perfect orchestra to achieve success. There is no single wunderwaffe or tactic that can achieve victory. It is the smart use of these combined capabilities that brings about success. The same is true in the digital domain. We can’t succeed in stabilizing this virtual battlefield with reliance only on singular capabilities like cyber offense or indictments. We need to be thinking about ways to achieve the effects that we want with the right strategies and balance of offense, economic pressures, diplomacy, law enforcement action, covert action and threat of military retaliation, if appropriate.

I hope that over the course of the day here at the beautiful offices of Venable you will explore some of them.

I want to leave you with one last thought and I’ll, perhaps uncharacteristically, now offer a word of caution. Too often, especially in this town, decision makers look at an issue they need to address and ask the wrong question.

They don’t ask ‘How SHOULD we respond to this problem?’

Instead, they ask ‘How CAN we respond to it?’

As the saying goes, to a hammer everything looks like a nail. We should not jump at the chance to pull out our latest nifty cyberweapon out of our toolbox and drop it on our adversaries with great excitement of having done something that makes us feel good. That’s not how you fight winning battles and wars - in the physical world or in cyberspace.

Instead, we should think about the effects we want to achieve - against criminal actors or even nation states that might alter their decision calculus and behavior and THEN ask what tools we have that might bring about that outcome and in what targeting sequence and strike package they should be employed. Some of them might be cyber, most likely will not. But starting with an objective and a goal vs jumping to the means and capabilities is ALWAYS going to lead you to more fruitful outcomes.

Thank you.