In this paper, we analyze China's export restrictions on rare earth elements and Japan's responses after the Diaoyu Islands dispute in 2010. We consider the rare earths trade dispute between China and Japan as a case study, where China pressured Japan by its informal economic sanctions and Japan demonstrated an effective counter-attack. Japan was cautious about its dependence on China’s rare earths and previously prepared strategies for their stable supply. When China embargoed rare earths, the Japanese government and companies immediately put their strategies into practice; meanwhile, Japan cooperated with other countries to sue China as its restrictions had violated WTO rules. These measures successfully forced China to amend its export limitations.