I fundamentally disagree with your assessment of software. You can’t just rip out a phone’s (or PC's) operating system and its entire ecosystem over night. Huawei tried and even with the amount of resources at its disposal it was not able to replicate Google’s ecosystem, consequently HarmonyOS gained little traction outside of China.
I know the common consensus here is that hardware > software, and I agree that hardware and infrastructure are more difficult to replicate. But software monopolies are, in fact, notoriously difficult to break. Consider the Android or iOS app system. Google and Apple charge a 30% commission for use of their app stores - just for hosting the app for download, handling some basic payment, and providing a searchable platform. Yet nobody has been able to challenge their global monopoly. App developers would rather pay them the 30% tax.
The key here is ecosystem - the millions of apps that rely on each other and Google apps & features that aren’t open source. Most countries do not have the resources to do what China / Huawei did, they cannot create their own versions of everything. They'd need to entirely switch over to a Chinese ecosystem. This will be a hard sell to countries that aren’t already in China’s orbit as it is a highly disruptive political move that could be very unpopular with the population that are already invested in the Western software ecosystem, not to mention companies that rely on Western enterprise software like AutoCAD, Slack, ADP, etc. Contrary to your claim, people & companies don’t just choose what software they use - most of the times they are forced into it by dependencies.
Of course if the alternative is no trade with China, then countries with high Chinese trade will weight the benefits against the costs and go from there. But we should not pretend software ecosystem is low cost to switch, it takes a year+ for large companies to migrate just its cloud stack, now imagine that for every piece of software and their dependencies.
IMO, the US does have a card here, even if it is a nuclear one that could back fire & destroy one of the two industries that is the backbone of its economy. China’s main advantage is what Glenn mentioned - rare earths contribute little to its overall economy so even if the industry’s exports are wiped out it is no big loss. The biggest blind spot to the US gambit on the other hand is that countries could operate TWO software ecosystems, and such a move incentivizes the adoption of a second ecosystem of Chinese software for making products to sell to China, which has long term ramifications for US software monopolies. If the US embargo has no stipulations for enforcing mono ecosystem rules, then it will be catastrophic for the US.
