Did you think that Beijing would be selective in its rare earth trade embargo, wielding its market position against Japan (alone, among all the countries of the world) as a weapon of last-resort?
American trade officials announced last Friday that they would investigate whether China was violating international trade rules by subsidizing its clean energy industries. The inquiry includes whether China’s steady reductions in rare earth export quotas since 2005, along with steep export taxes on rare earths, are illegal efforts to force multinational companies to produce more of their high-technology goods in China.
[…]
Hours later, according to industry officials, Chinese customs officials began singling out and delaying rare earth shipments to the West. [emphasis added]
Earlier this year, Taiwan's Chinese Nationalist Party signed a free trade agreement with China, all the while insisting that the Benevolent Butchers of Beijing would never abuse their economic power over Taiwan.
That proposition of theirs appears more divorced from reality with each passing day.
UPDATE (Oct 20/2010): Daniel Drezner on China's rare earth embargo against the West —
"[This is] going to encourage some obvious policy responses by the rest of the world. Non-Chinese production of rare earths will explode over the next five years as countries throw subsidy after subsidy at spurring production. Given China's behavior, not even the most ardent free-market advocate will be in a position to argue otherwise." [emphasis added]