China escalated trade tensions with Japan by investigating semiconductor chemicals after banning dual-use military goods, citing price drops amid tensions over Taiwan.

China has banned exports of some rare earth elements and other items to Japan that could be used for military purposes, straining already tense relations between the two countries following the Japanese prime minister’s recent remarks on Taiwan.

A week in which longtime tensions between neighbors China and Japan ratcheted up economically and politically drew to a close with no sign of improvements Friday as the Chinese ambassador in Tokyo reb...