Export curbs are often touted as powerful tools of economic coercion—a means to gain strategic leverage over real or perceived adversaries. However, more often than not, such curbs undermine the very goals they seek to achieve or advance.
The recent experiences of both the U.S. and China illustrate this paradox: Restrictions on outbound shipments of critical inputs and intermediates tend to accelerate efforts toward self-reliance in target countries, while inflicting costly collateral damage on the exporters themselves. Export controls may play well in domestic politics, rallying nationalist sentiment and scoring rhetorical points, but they fail miserably as commercial policy.
An unintended consequence
When the U.S. clamped down on advanced semiconductor exports to China, the intent was to slow Beijing’s technological ascent. Instead, it accelerated it. Cut off from critical chips, China doubled down on its domestic semiconductor ecosystem, costing American firms over $33 billion in sales to Huawei alone between 2021 and 2024.
It’s no wonder that the Trump Administration has begun to reverse course, allowing Nvidia to export its H200 semiconductor chips to China. The key reason behind this unexpected shift in policy is the realisation that allowing exports will keep China dependent on U.S. technology, whereas blocking them only pushes it to accelerate its efforts to achieve self-reliance, risking billions of dollars in lost sales revenue for American companies, given the sheer size and scale of the Chinese market.
What was sold as a masterstroke of economic statecraft has instead handed China a roadmap to innovation through adversity.
Even if the country initiating curbs changes, the result doesn’t
That is not all. In direct retaliation to U.S. chip curbs, China imposed its own export restrictions on rare earth elements—vital for everything from electric vehicle motors to defence. Beijing expanded these controls in October 2025, explicitly targeting semiconductors and defence users. However, intended as leverage against Western tech manufacturers, these measures only spurred importing nations to ramp up domestic production, search for substitutes, and invest heavily in recycling technologies.
Japan, Europe, and the U.S. accelerated efforts to diversify: American firm MP Materials scaled domestic output to 15% of global supply. As a result, demand for China’s rare earths has declined, demonstrating once again that export controls don’t work. Instead, they leave lasting dents on the exporting nation’s market dominance and credibility as a supplier.
Boomerang effect is inevitable
The pattern is unambiguous: export curbs almost always invite retaliation by importing countries. Restrictions on exports of critical inputs and intermediates leads to a surge in their prices. That forces import-dependent countries to economise on their use, seek alternative suppliers, develop substitutes, or invest in recycling, as in the case of rare earth metals.
Over time, these adjustments lower global demand for the restricted products, eroding the pricing power, market share, and credibility of the very countries that impose the curbs. Whatever the original motive, such measures eventually hurt the exporters themselves. In sum, they backfire.
India’s response to Chinese export curbs
India has moved on multiple fronts to reduce its vulnerability to Chinese export curbs on rare earth magnets and other critical inputs. To respond directly to China’s tightening rare earth export controls, the Indian government has approved a ₹7,280-crore incentive scheme to create domestic capacity of about 6,000 tonnes per year of rare earth permanent magnets used in EVs, defence, and renewables. The scheme offers sales-linked incentives and capital support to firms investing in extraction, processing, and magnet production, aiming to reduce reliance on imports.
India has launched the National Critical Mineral Mission (NCMM), approved in early 2025 with an outlay of around ₹16,300 crore, to secure supplies of 30 identified critical minerals—including rare earth elements, lithium, cobalt, and nickel—and build domestic value chains. A dedicated seven-year national initiative is rolling out to develop the full rare earth value chain—from exploration and mining to processing, separation, and magnet manufacturing—with subsidies, tax incentives, R&D grants, and fast-track clearances.
Recycling and efficiency pushes will further reduce exposure, especially for batteries and magnets, as part of a broader strategy to cut exposure to Chinese supply disruptions. Together, these measures hedge against Chinese export controls while positioning India as a credible alternative node in global critical-mineral and magnet supply chains. All these steps will lower demand for Chinese exporters going forward.
Key lessons
India should take note. While its export restrictions have often been motivated by domestic concerns—such as controlling inflation in key industrial inputs such as steel or food staples like rice, wheat, or sugar—they risk triggering the same chain reaction.
When import-dependent countries face export bans by India, for instance in the case of rice or sugar, they are incentivised to boost domestic output through subsidies, altering crop patterns, or even erecting import barriers. Affected importers also seek alternative suppliers—for instance, when India imposed restrictions on sugar export, Bangladesh started buying sugar from Pakistan. Over time, this can chip away at India’s export potential and erodes its reputation as a reliable supplier.
Moreover, stringent export curbs with respect to essential items can be self-defeating domestically. They signal serious supply shortages, triggering hoarding and speculation, and in turn, make export curbs ineffective in controlling domestic prices. Frequent and unpredictable bans only deepen the problem, discouraging long-term export contracts and investments in sectors affected by such curbs.
In an interconnected global economy, nations cannot micromanage supply chains without consequence. Export controls may feel like an easy policy lever, but history shows they almost always boomerang. Instead of curbing exports to manage short-term shocks, India would be wiser to strengthen supply chains, build reserves, and rely on transparent market mechanisms. In trade, as in technology, openness tends to pay greater dividends than control.
(Ritesh Kumar Singh is a business economist and CEO, Indonomics Consulting Private Limited, a policy research and advisory startup. X id: @RiteshEconomist.)
(Views are personal and do not represent the stand of this publication.)
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