A new report says that suppliers delivering rare-earth materials to semiconductor manufacturers are facing limited supply, despite the U.S. and China agreeing to a truce on the escalating trade war between the two nations in October 2025. According to Reuters, U.S. firms are having trouble securing export licenses from China for scandium, which is essential for making 5G chips found on smartphones and cellular base stations. Although most of this particular material is sourced through third-party suppliers, Beijing requires exporters to declare their end-users to acquire a license. In fact, it’s not just scandium that’s affected by this requirement, but nearly every Chinese-origin rare earth that can be used to manufacture logic chips at 14nm or smaller or memory chips with 256 layers or more.

China first applied restrictions to critical minerals in December 2024, but the most impactful export control came in April 2025 in response to President Donald Trump’s tariffs. And it’s not just the actual materials that Beijing has limited for export; instead, it also includes processing tools and methods, ensuring that countries that want to take over from the shortfall caused by the export controls cannot just easily buy the tech and other items needed to achieve that.

Nearly a month after the truce between Washington and Beijing, China has issued its first batch of rare-earth export licenses. However, these are attached to specific buyers and not the general industry, meaning it can take time for some clients to gain access to these resources. Because of this, some U.S. chip manufacturers have reached out to the federal government for assistance, with one U.S. official telling Reuters, “Our thesis is that it is precisely the semi industry being targeted.” This will likely become one of the key issues that Trump and Xi will discuss as the latter is set to visit Beijing in late March and early April 2026.

The recent geopolitical events happening across the world have revealed the weakness of the U.S. dependence on a single source for the majority of its rare earth needs. Because of this, the Trump administration is planning to build a strategic reserve for critical minerals, similar to the oil reserves that the U.S. built in 1975 after the price shocks that were brought by the OPEC oil embargo from 1973 to 1974. It also founded the Pax Silica initiative designed to pivot the global semiconductor supply chain away from China, with India officially joining the effort this month. The Pentagon also announced a plan to use AI to set reference prices on rare earths as a way to counter supposed Chinese pricing manipulation.

This just shows how rare earths have taken center stage in global geopolitics, becoming a strategically important resource alongside oil. China had a headstart in extracting, processing, and refining these materials, meaning it has an edge on almost every other country on earth and provides nearly 61% of the global supply. This has got the U.S. and its allies, like Canada and Australia, scrambling to find and develop alternatives — but doing so will likely take several years, if not decades, before they catch up.

The Trump administration plans to use a Pentagon-developed AI program to set reference prices for critical minerals, including gallium and germanium, as part of a broader effort to build a global metals trading bloc, Reuters reported on February 24, citing three sources with direct knowledge of the effort.

The program in question is DARPA's Open Price Exploration for National Security (OPEN), launched in 2023 to calculate what a metal should cost once labor, processing, and other inputs are factored in and alleged Chinese market manipulation is stripped out.

According to Reuters' sources, the administration intends to use OPEN's pricing model as the backbone for the reference price system that Vice President JD Vance proposed at a Critical Minerals Ministerial in Washington on February 4, where more than 50 countries were represented. Vance proposed that member nations adopt reference prices for critical minerals "at each stage of production," enforced by adjustable tariffs.

Trump officials are initially focusing OPEN's model on four minerals: germanium, gallium, antimony, and tungsten, with S&P Global and Finnish data firm Rovjok supplying data and technical assistance, the sources said. Gallium, in compounds such as gallium nitride (GaN) and gallium arsenide (GaAs), is used in compound semiconductors found in RF chips and power electronics, while germanium is used in chip doping, fiber optics, and high-speed microelectronics.

China controls an estimated 60% to 80% of global germanium production and the U.S. Department of Energy has reported that the United States relies on China for roughly 95% of its gallium supply. Beijing imposed export licensing requirements on both metals in August 2023, then escalated to an outright ban on shipments to the U.S. in December 2024, before partially suspending that ban in November 2025 amid broader trade negotiations.

OPEN has been focused from its inception on metals that are thinly traded or not actively exchange-traded, where manufacturers struggle to determine whether quoted prices reflect actual supply-and-demand conditions rather than subsidized Chinese output. The program is scheduled to be transferred to the non-profit Critical Minerals Forum next year.

Not everyone is convinced the tariff-backed pricing model will hold. "You can try to set something approximating a price floor, but ultimately the trade barriers aren't going to guarantee someone on the other side of that tariff wall an actual price floor because multiple producers are still going to compete on price," Nathaniel Horadam, a former U.S. Department of Energy staffer who managed critical minerals lending programs across both the Biden and Trump administrations, told Reuters.

The plan also raises questions around scope, particularly because current tariff structures could potentially apply to finished products containing these minerals, though the administration has not clarified that. In any case, whether introducing AI-powered analysis to the already tumultuous climate for international trade can help level the playing field remains to be seen.

The Trump administration will soon launch a $12 billion critical minerals stockpile designed to insulate U.S. manufacturing from supply disruptions tied to China’s dominance of mining and refining. According to sources cited by Bloomberg, the initiative, known as Project Vault, will provide a roughly 60-day emergency buffer for key minerals used across electronics, automotive, aerospace, and energy supply chains.

Procurement of the stockpile will primarily be financed through a $10 billion, 15-year loan from the U.S. Export-Import Bank, supplemented by around $1.67 billion in private capital. The bank is expected to vote later today on whether to authorize the 15-year loan, which is more than double the net-largest deal it has ever issued, while President Trump is scheduled to meet with General Motors CEO Mary Barra and mining magnate Robert Friedland.

Commodity traders Hartree Partners, Traxys North America, and Mercuria are understood to be managing procurement and inventory, while participation is open to manufacturers that are willing to commit to fixed-price purchase and repurchase agreements. According to a senior administration official, the project is already “oversubscribed because investors are attracted by a credit-worthy group of manufacturers.”

Based on what we know so far, Project Vault seems like it will function similarly to the existing U.S. Strategic Petroleum Reserve, but instead focusing on minerals and other strategically important elements with high price volatility. Under Project Vault, materials could be drawn down during periods of acute disruption, subject to the understanding that participating companies will be required to replenish inventories as supplies recover, thereby keeping the stockpile intact. In the case of a major supply disruption, the officials say that manufacturers will be able to access the full inventory.

Although the U.S. already has a national stockpile of minerals for the defense-industrial sector, it doesn’t have one for civilian needs. Gallium and germanium, for example, are critical inputs for semiconductors used in the likes of power electronics and RF components, while rare earth elements are found in the magnets that appear in everything from hard drives to industrial motors.

China has repeatedly tightened controls on exports of gallium, germanium, graphite, and other dual-use materials, using licensing regimes and approvals as leverage in broader trade disputes. While some restrictions were eased late last year, the underlying concentration of mining and processing capacity has not changed, leaving U.S. manufacturers heavily exposed to Chinese policy shifts.

Last month, a bipartisan group of legislators introduced a bill to create a $2.5 billion stockpile of critical minerals in a bid to stabilize market prices and encourage domestic mining and refining. According to the bill, China has moved to “weaponize its influence over prices and volumes in the contest for access to critical minerals."

Texas-based rare-earth magnet company, Noveon Magnetics, has raised $215 million from investors to expand its U.S. operations in an effort to improve American access to these highly important magnets, WSJ reports. Although this investment is designed to increase America’s home-grown supply of magnets, which are critical to a number of manufacturing industries, scaling up production can take years, so this is unlikely to solve the U.S. constricted supply of magnets overnight.

Over the past year, as trade relationships between the United States and China have waxed and waned as trade negotiations were conducted, tariff salvos were fired at one another, and the U.S. found itself unable to access the critical materials many of its manufacturing industries, including semiconductors, relied upon. Rare-earth magnets are most commonly found in HDD production, with companies like Western Digital and Seagate relying upon Chinese-origin magnets for production.

While China placed export restrictions on rare earth minerals to America, the U.S. administration went looking for alternatives. Deals with Korean firms brought increased Zinc supply when new facilities come online, with the U.S. and Japan inking a deal in October to fund alternative sources of critical materials.

In total, venture capitalists invested around $630 million in U.S. rare mineral startup companies in 2025, a new record for annual investment in the space, as reshoring efforts become clear. This goes hand-in-hand with $670 million of private and public loans and equity investment in North Carolina-based Vulkan Elements, which plans to develop a magnet manufacturing facility in the state (in return for the U.S. government receiving a $50 million stake in the company).

A further $80 million was invested in Indiana-based ReElement Technologies and its magnet recycling industry. The Pentagon has also received a 15% stake in rare-earth mining company MP Materials, which is developing its own new magnet factory in Texas.

Concentrated control

The big driver behind all these investments is bringing the magnet and rare-earth mineral supply chain entirely under U.S. control, and ideally, on U.S. shores. The current administration has made a major deal of hegemony over industries that it considers critical for strategic defence, as well as independence from allies and adversarial countries alike.

In many cases of industrial support, the U.S. government itself received stock stakes and profit-sharing agreements in return, creating a tit-for-tat arrangement, but also tying the revenues and ultimate profits of these companies to individuals within Trump’s orbit.

This latest investment in Noveon isn’t entirely different. Of the $215 billion being invested, $200 billion comes from a singular investment firm: One Investment Management. This is the investment firm of Rajeev Misra, the former leader of SoftBank Group’s Vision Fund. This investment makes it the largest shareholder and grants it two seats on the board.

Strategic resilience, rather than market control

Although the investment strategies of the U.S. government and its encouraged private investment may focus control of key industries on a few key players, that may be by design. Even if Noveon and its contemporaries can scale up production of rare earth minerals and magnets, they are unlikely to make much of a dent in these Chinese-dominated industries, where up to 90% of global production still runs through Chinese firms.

Instead, what the U.S. is doing is building redundancy. Just as the U.S. has flexed its supply-side muscle over the past year to restrict Chinese access to the latest cutting-edge silicon from companies like Nvidia, China has been able to return the favor by restricting access to rare earth minerals and materials required for the manufacture of those same high-end electronics and technologies, with the second round of controls suspended until November 2026.

Although the U.S. will need to continue to rely on its international partners, including China, for the supply of rare earth minerals for many years to come, its latest moves suggest it is building resilience to future trade embargoes and export blocks, which would otherwise stall industries that are important to the U.S. both for economics and strategic defense.

As WSJ highlights, just last week, a group of U.S. lawmakers proposed developing a $2.5 billion stockpile of supplies of critical minerals and materials, including rare earth magnets, to stave off any future supply shocks caused by restrictions from international trading partners.

Alongside shortages of critical rare earth minerals, many U.S. companies are also facing other component shortages, driven by the AI industry acquiring large majorities of DRAM and NAND supplies.

A court in China has convicted 27 people for illegal shipment of antimony ingots out of the country without mandatory export licenses. The ruling was delivered by the Shenzhen Intermediate People’s Court, which sentenced the main defendant, Wang Wubin, to 12 years in prison and a fine of 1 million Yuan ($141,899).

According to a court statement, the crimes took place in February and March, during which more than 166 metric tons of antimony were smuggled; Chinese customs have seized over 96 tons. Investigators found that Wang conspired with overseas smugglers and local accomplices to buy antimony ingots and smuggle them out of China using concealment, mislabeling, and false customs declarations. The remaining 26 defendants were penalized with fines and prison sentences ranging from four months to five years, based on the volume of the metal smuggled and the degree of involvement.

Antimony is a strategic mineral used in the manufacturing of semiconductors, electronic chips, batteries, flame retardants, and defense-related applications. It is primarily used as a dopant in silicon for diodes and transistors or alloyed with Indium or Gallium for high-mobility infrared detectors, Hall-effect sensors, and solar cells.

China lifted the ban on exports of various strategic minerals, including gallium, germanium, and antimony, to the United States last month. The decision was part of the recent bilateral talks between Presidents Xi Jinping and Donald Trump, which were enforced on November 9, 2025, and is set to expire on November 27, 2026.

While the decision covered several important materials, including certain graphite products and rare-earth technologies, which were part of China’s export control list, it did not eliminate the requirement for licenses. Exporters still had to obtain government approvals before shipping these materials, allowing China to maintain control over supply chains.

The smuggling case is reportedly linked to recent developments, including the seizure of a large consignment of antimony ingots by Hong Kong authorities in April. However, no arrests were made during that time. Similarly, an ‘unusually large’ volume of antimony had reportedly entered the United States via Thailand and Mexico in July, after China had suspended direct shipments to the US last year.

U.S. Commerce Secretary Howard Lutnick has released a statement praising U.S. President Donald Trump for securing a deal that will see a critical minerals processing facility built in the United States. According to the X post, Korea Zinc will build the facility in Tennessee, which will have an annual output capacity of 540,000 tons of various materials, including gallium, germanium, indium, and other resources that are crucial for Washington’s push to bring back semiconductor manufacturing within its borders.

The U.S. is mostly dependent on China for its rare earth materials, especially as the East Asian nation supplies the majority of both raw and processed resources across the globe. However, the rivalry between the two powers has highlighted the United States’ vulnerability to decisions made in Beijing, especially as its export controls in retaliation to Trump’s tariffs have impacted the semiconductor industry. While China has eased some of its restrictions and have started issuing export licenses, the White House knows that it remains at the mercy of its rival.

Because of this, the U.S. is keen on developing its own sources for rare earth minerals. Despite being called rare earths, these minerals are actually abundant in the Earth’s crust. However, their concentration is usually pretty low, meaning they’re often not economically viable to extract unless mined alongside other materials that have higher levels. But because China has invested heavily in the mining and processing of these elements, it’s able to dominate the industry today, supplying nearly 90% of the processed and refined rare earths in the world while everyone else plays catch-up.

Aside from this announced investment, Trump is also considering allocating $2 billion of the CHIPS Act funds to bolster its critical mineral supply chain. These moves will help ensure that the U.S. will always have its own supply of these resources. These materials are used beyond chips and semiconductors — they’re also needed for defense systems, jet engines, satellites, and other forms of advanced manufacturing.

Besides rare earths, the U.S. is also looking for lithium, which is the current basis of modern battery technology. A $1.5 trillion deposit has been found on the Nevada – Oregon border, which should be enough to supply the country’s battery needs for the next several decades. Much like how oil became a strategic asset in the 20th century, these minerals are now one of the major resources that countries are fighting for to gain access to, as they serve as the backbone for advanced technology.

China has issued the first round of streamlined rare-earth export licences to at least three permanent-magnet manufacturers, allowing them to accelerate shipments to selected overseas clients after months of stricter controls.

Reuters reports that JL Mag Rare Earth, Ningbo Yunsheng, and Beijing Zhong Ke San Huan High-Tech received approvals tied to individual customers on December 2. Beijing began designing the new system following the October 30 meeting between Donald Trump and Xi Jinping, which aimed to ease trade tensions after a year marked by successive layers of export restrictions.

The approvals represent the first use of what China is calling “general licences”, a shift from the case-by-case permissions that slowed exports throughout 2025. These licences run for a year and attach to specific downstream clients rather than entire product lines. JL Mag, one of the world’s largest sintered-magnet producers, can reportedly ship to nearly all of its customers. Ningbo Yunsheng and Zhong Ke San Huan, meanwhile, obtained narrower permissions covering part of their client lists. China’s Ministry of Commerce and the companies involved did not respond to requests for comment, according to Reuters.

The development comes after Beijing tightened its oversight over both rare-earth materials and finished magnet products in recent months. Those measures heightened scrutiny of technologies used in magnet fabrication and expanded categories requiring explicit approval. It also increased lead times as licensing evaluations grew more complex. The introduction of a standing, customer-specific licence is intended to shorten those timelines without dismantling the broader control structure that has built up around the sector.

Permanent magnets remain one of the most internationally exposed segments of China’s rare-earth industry. The country dominates global production, particularly in high-performance parts used in things like motors and generators. Year-to-date export data released in October showed that Chinese exports of rare-earth magnets totaled 45,290 tons, a 5.2% decline compared to the previous year.

What happens next depends on how many customers are added to the approved lists over the coming months. Because the licences are assigned to specific buyers, relief will arrive unevenly both across sectors and within them. Some larger manufacturers may see faster turnaround immediately, while others remain subject to slower reviews.

It’s also important to remember that while licenses are being granted, the underlying export-control framework remains intact. The first approvals provide a new track through it rather than an exemption from it, and any wider easing will become visible only as additional firms are granted licenses.

The price of the rare earth element Yttrium has jumped through the roof, with a kilogram of the material currently sitting at $126 per kilogram. According to Bloomberg, this resource cost less than $8 at the end of 2024, meaning its price has increased by nearly 1, 500% in the past 12 months. This is an all-time high for Yttrium, with the trade war between the U.S. and China fueling the price hikes. This material is crucial for semiconductor manufacturing, where it’s used in various processes, including thin-film deposition and wafer polishing.

While there has already been some brewing rivalry between Washington, D.C., and Beijing, it came to a head in April when U.S. President Donald Trump imposed tariffs on all of the U.S.’s trading partners. This has led to an escalation between the East and the West, culminating in a 145% tariff on Chinese goods entering the United States and a reciprocal 125% import levy for American products landing on China’s shores.

The two parties eventually started trade negotiations, which resulted in the lifting of these threats. It seemed that progress was being made at the negotiating table, but China suddenly put strict export controls on rare-earth materials in early October. This move could gravely impact the global semiconductor supply chain, and Trump responded by threatening a 100% tariff on all Chinese goods and a far more devastating critical software ban. The two parties eventually realized that such a move would not do anyone good, so they agreed to a one-year tariff truce, resulting in China suspending its more recent rare-earth export control measures. However, the April ban on some rare earth exports to the U.S. remains, meaning supply remains tight.

Because of this, Yttrium prices continue to creep higher, even as the U.S. and its allies seek alternative sources. At the moment, more than 90% of the rare earth metals that the U.S. needs are sourced from China, but it’s working on expanding its own domestic source from the Mountain Pass project in California. Trump is also considering allocating $2 billion in CHIPS Act funds to the critical minerals supply chain to help bolster its resiliency. Australia is also working on extracting more rare earths from its mining waste, while Canada is looking to open a new rare earths mine in its Critical Mineral Strategy Annual Report 2024.

China has lifted its ban on exports of gallium, germanium, and antimony to the United States, temporarily halting restrictions that had reshaped global materials markets over the past year. The decision, effective November 9, comes as part of a broader de-escalation package reached by Presidents Xi and Trump during recent bilateral talks, and is currently set to expire on November 27, 2026.

While the suspension covers a wide range of materials, including certain graphite products and rare-earth technologies previously added to China’s export control list, it does not eliminate licensing requirements. Exporters must still secure government approval before shipping these materials abroad, preserving Beijing’s discretionary leverage over supply chains.

Gallium and germanium were the first high-tech metals targeted in China’s escalating tit-for-tat with the U.S. and EU over semiconductor controls. Gallium, essential in gallium arsenide (GaAs) and gallium nitride (GaN) production for power electronics and RF, saw sharp price spikes and a scramble for non-Chinese sources after restrictions took effect in August 2023.

Germanium, used in infrared optics, fiber, and silicon-germanium processes, followed soon after. Antimony, which serves both as a flame retardant and a compound semiconductor material, was added to China’s export control list soon after.

Together, these materials represent a key vulnerability in global electronics and photonics manufacturing. China accounted for 99% of global gallium supply in 2024, according to USGS figures, and remained the dominant producer of refined germanium and mined antimony. Though western nations have launched funding programs to onshore refining and restart dormant production sites, none are expected to scale within the next 12 months.

The pause is unlikely to fully reset pricing or restore confidence among buyers, but it provides near-term relief to sectors dependent on China for things like GaN power devices and high-frequency RF modules. Some enforcement friction will remain, especially if exporters face delays in receiving approvals.

Meanwhile, Western governments are still pursuing long-term supply diversification, though these efforts are likely years away from any meaningful output. For now, the year-long window gives manufacturers some breathing room. Whether it holds will depend on the political temperature between Washington and Beijing heading into 2026.

Beijing just announced that it will suspend the expanded rare-earth export controls it announced in early October. The Chinese Ministry of Commerce (MOFCOM) and the General Administration of Customs said that it will delay its implementation for a year, according to a report from Digitimes. The original expanded rule covers China-sourced rare-earth minerals, as well as any technology in which these materials account for at least 0.1% of the item’s value.

The suspension will give companies that rely on these resources and components some breathing room to stockpile them and find alternative sources. It will also reduce the pressure at the negotiating table, as bureaucrats will have more time to iron out agreements between their rivals without pressure from the top to get something hammered out fast.

Although MOFCOM did not state why it’s delaying the implementation of these export controls, it comes a little over a week after U.S. President Donald Trump and Chinese President Xi Jinping agreed on a tariff truce. The two world leaders met in Busan, along the sidelines of the 2025 APEC Summit in South Korea, where they held a two-hour closed-door meeting. Before this, Trump responded to Beijing’s expanded export controls by threatening a 100% import duty on Chinese goods, as well as a complete ban on critical software, which could have been more devastating than additional taxes.

But despite the softening of the trade war between China and the U.S., Trump says that the latest Blackwell chips will still not be sold to China. Aside from this, Beijing itself has banned its biggest tech companies from acquiring Nvidia AI GPUs, which is why its CEO, Jensen Huang, has confirmed that the company has no plans to ship its GPUs into the country as of now.

This will likely be a blow to the world’s most valuable company, especially as its China market share has essentially fallen to zero from a high of 95% just a few years ago. While other experts argue that giving the United States' biggest rival in the AI race the latest hardware will only be to its own detriment, Huang contends that the spread of U.S. chips is vital for Washington to retain its competitive advantage, especially in a country that is estimated to have about half of the world’s AI developers in its talent pool. However, Huang's position as the chief of the biggest AI chip manufacturer means that he will also benefit from Nvidia’s sales to both the U.S. and China, as the two rivals race for global AI supremacy.

The US and Japan have signed a rare earths and energy cooperation agreement aimed squarely at China’s chokehold on critical tech supply chains. Announced on October 28 in Tokyo, the agreement commits both governments to securing mineral flows and accelerating the deployment of advanced nuclear power.

The timing of this is obviously no accident. President Trump is set to meet Chinese President Xi Jinping later this week, and today’s announcement served as a pointed signal that the US is actively building alternative pathways around China’s resource leverage. This is the first major bilateral engagement of Japan’s new Prime Minister Sanae Takaichi, who took office on October 21.

While specifics surrounding the cooperation agreement are not yet known, it’ll likely include pathways for accessing neodymium and praseodymium, two rare earths essential to producing the permanent magnets used in everything from EV motors to consumer hard drives. For now, this is a sector China still dominates. Despite holding around half of the world’s total rare earth oxides, it controls over 85% of the global refining and magnet-making capacity.

That grip has tightened recently through export controls on key processing technologies, sending neodymium prices into another volatility cycle. Any US-Japan move to de-risk magnet supply could help blunt cost shocks before they ripple downstream into PC hardware.

But minerals are only part of the story. According to Reuters, Japan’s factsheet for the talks noted a mutual interest to cooperate in the construction of next-gen nuclear power, with specific emphasis on “small modular reactors.” This overlaps with the BWRX-300 design being commercialized by GE Vernova and Hitachi, already approved for construction in North America. It aligns with a broader tech push: Google, Amazon, and Microsoft are all pursuing nuclear options as a long-term solution to rising energy needs for AI inference.

With projects like OpenAI’s Stargate and xAI’s Memphis facility well underway, and US fabs like TSMC Arizona already lobbying for dedicated power capacity, nuclear power is becoming a hardware issue. If the US-Japan partnership succeeds in fast-tracking advanced reactors, it could influence where, and how affordably, next-gen GPUs and AI servers are built and deployed.

Taiwan Semiconductor Industry Association (TSIA) chairman and Taiwan Semiconductor Manufacturing Company (TSMC) senior vice president and co-COO Cliff Hou said during a question-and-answer session that TSMC has enough rare-earth supply from its sources that it is not concerned about the short-term direct impact of any rare-earth export controls from China. Digitimes reports that TSIA has been monitoring the situation and that it does not expect any significant impact within the next couple of years. However, the primary issue lies in the transition to suppliers from Australia and other regions, should China completely stop rare-earth exports, which he says will take time.

Despite the name, rare-earth materials aren’t rare at all, at least geologically speaking. However, the limited infrastructure required to extract and refine them is what makes them quite difficult to attain, with China owning over 85% of global processing capacity. The country has used this advantage in global trade negotiations, with Beijing declaring in 2024 that all its rare earth resources are now state-owned. It then banned some rare earth exports in April 2025, when President Donald Trump announced his far-reaching tariffs on all imports into the United States. This export ban was lifted in July in exchange for the White House removing export licenses for EDA software, but was reinstated with far more implications in October.

All this instability had the semiconductor industry reeling, especially as it affects chips that are 14nm and smaller or those that have more than 256 layers. There are other sources of rare-earth minerals, but they lag sorely behind China in output. Australia, one of the second-largest producers of rare-earth raw materials, is looking to capture more of it out of its mining waste. Canada is also making plans to expand its mining industry to include the crucial elements, while the U.S. is considering investing $2 billion to boost the rare-earth supply chain.

As for processing and refining, Malaysia hosts the largest non-Chinese refining facility in the Lynas Advanced Materials Plant, owned by the Australian Lynas Rare Earths Ltd. Incidentally, China has also been in talks with Kuala Lumpur, offering it assistance to develop so that it can tap its own rare earth reserves, which some estimates say are worth approximately $175 billion.

According to Hou, TSMC has one to two years of rare-earth supplies, allowing it to operate even if China turns off the taps. Its main concern at the moment is that it will take time for the company to pivot away from Chinese sources for medium- and long-term, with the shift expected to “take time.” But the bigger question that looms is whether there would be enough supply for the company and the entire industry to pivot to if Beijing decides to cut off the world from its rich rare-earth reserves.

The chief financial officer of ASML has told Bloomberg that the lithography giant is well prepared for China's export controls regime on rare earth elements and technologies for their mining and refining. The company has long lead times for its advanced tools, so it has plenty of raw materials in stock to support short-term demand from its clients. What happens after the company's reserves deplete is something unclear, though.

"We have long lead times, and therefore, also in our supply chain, we make sure that we have the materials in that we that we need for the next couple of months," said Roger Dassen, CFO of ASML, in a conversation with Bloomberg.

Under the new export control rules China imposed last week, companies have to get an export license to ship such rare earth materials as holmium, thulium, or ytterbium, or products based on these materials, from China's Ministry of Commerce. Furthermore, China imposed its export controls beyond its own borders on products containing rare earth materials originating from China if their value content within that product is more than 0.1% starting December 1, 2025.

This decision of the Chinese government could essentially stop all the supplies of all rare earth materials and products containing them across the world, something that could harm ASML, which uses a number of them inside its DUV and EUV lithography systems, metrology tools, and inspection tools.

However, Dassen downplayed the possibility of halting production after December 1, saying that the company's supply planning and long production cycles give it enough flexibility to absorb temporary disruptions. Meanwhile, the company now has over a month to buy rare earth materials or components containing them before the new export controls regime is enacted.

Speaking of China, ASML re-emphasized that it expects demand from its customers in the People's Republic to drop in 2026 due to the revocation of fast-track VEU license exemptions for Micron, Samsung, SK hynix, and TSMC, as well as softening demand from local chipmakers.

"When we look at China, we believe that the demand of our Chinese customers is going to be significantly lower in 2026 than it has been in 2024 and 2025 when we had very strong business there," said Christophe Fouquet, chief executive of ASML, during the company's earnings call with investors and analysts.

China has responded to President Donald Trump’s threats of a 100% tariff on Chinese goods, plus a ban on critical software, because of its expanded rare-earth export controls. According to Newsweek, China is ready to face Washington’s ultimatums, urging it to resolve the issue at the negotiating table instead of making statements on social media.

“If the U.S. persists in acting unilaterally, China will resolutely take corresponding measures to safeguard its legitimate rights and interests,” the Ministry of Commerce of the People’s Republic of China said in a statement. “Our position on a tariff war remains consistent — we do not want one, but we are not afraid of one.”

The current trade war with China kicked off in April of this year, when Trump pushed tariffs on all the U.S.’s trade partners, including a 54% total tariff on Chinese goods. It responded to this with counter-tariffs of its own, plus restrictions on some rare-earth exports that threaten global chipmaking supply chains. Things have seemingly settled down in the past months as both parties negotiated over trade, but China’s recent expansion of rare-earth controls threatens advanced semiconductors up to 14nm, which were first released in 2014.

China is the leading supplier of rare-earth minerals, with the country supplying 70% of the raw materials needed to produce them and 90% of the processing capability across the globe. Because of this, it can potentially strangle the global chip-making supply chain, especially as many companies that make chips are based in the U.S. or in countries that are closely aligned with it.

Interestingly, China used the same language that the U.S. used to block exports to the country in its rare-earth export controls, saying that the restrictions are meant to “safeguard national security” and prevent their use by foreign militaries. However, you can also see that it’s using this as a bargaining chip, as Beijing has previously shown in July 2025, when it eased some of the restrictions in exchange for Washington lifting the export ban on EDA software.

Trump said on his social media platform that he will put the tariff into effect on November 1, meaning the U.S. and China still have some time to talk things through. China likely enacted the expansion of its rare-earth export controls to get something out of the U.S. in negotiations, but we will only know this if it lifts or reduces restrictions after getting a concession from the White House.

Taiwan’s Ministry of Economic Affairs says the island’s chip sector will see “no significant impact” from China’s newly expanded rare-earth export controls, in comments first reported by Reuters on October 12. Those reassuring words come just days after Beijing added a fresh batch of heavy rare earths to its licensing regime — including holmium, erbium, thulium, europium, and ytterbium — and widened the scope to cover associated materials and processing tech.

Officials in Taipei were quick to note that these specific metals aren’t used by TSMC in wafer production, and that Taiwan already sources most of its rare-earth derivatives from allies in Europe, Japan, and the United States.

But while fabs like TSMC may not rely on holmium or thulium, rare-earth elements remain deeply embedded in the wider tech stack, particularly in high-performance magnets. That’s where the ripple effects could begin to show, even if the core fab process escapes unscathed.

The new rules, which took effect on October 9, are part of an ongoing campaign to tighten China’s grip on rare-earth supply chains. Beijing’s Ministry of Commerce said the controls are designed to safeguard national security and interests, but the language mirrors past moves aimed at weaponizing materials dominance in retaliation for U.S. export restrictions.

Unlike previous rounds of restrictions that focused on neodymium and dysprosium, this wave targets elements with niche but strategic uses. Europium, for instance, is still used in some high-efficiency display phosphors. Others, like ytterbium, play a role in specialty lasers and cooling systems.

More importantly, the new licensing rules can apply not just to raw exports, but to any derivative products or technical documentation, and to any end use flagged as sensitive. That includes AI chips, quantum tech, and advanced defense hardware. And while China says licenses will still be granted, the added paperwork and discretionary enforcement slow things down.

Taiwan’s economic ministry isn’t wrong to downplay the threat to semiconductor front-ends. But the PC space runs on more than silicon. Hard drives, for example, depend on voice-coil actuators and spindle motors built around high-performance magnets. Those magnets often rely on heavy rare-earth dopants to retain coercivity at elevated temperatures. The more China turns the screws on exports, the more likely it is that HDD and component vendors begin feeling the squeeze.

So, while there’s no immediate sign that fabs in Taiwan will suffer under this specific round of Chinese export controls, China doesn’t need to hit chipmakers directly to shake up supply chains. As licensing delays accumulate and enforcement expands, friction will continue to build downstream.

Just hours after U.S. President Donald Trump threatened to impose tariffs on China-made goods in retaliation for unprecedented export controls on rare earth materials, he actually did so, increasing import tariffs on Chinese goods to 100% starting November 1. In addition, the U.S. will impose export controls on 'critical software,' something that may be more crippling than the tariffs.

A 100% tariff

"Based on the fact that China has taken this unprecedented position, and speaking only for the U.S.A., and not other Nations who were similarly threatened, starting November 1st, 2025 (or sooner, depending on any further actions or changes taken by China), the United States of America will impose a Tariff of 100% on China, over and above any Tariff that they are currently paying," Trump wrote over at Truth Social. "Also on November 1st, we will impose Export Controls on any and all critical software."

China's new policy requires companies to obtain government approval before exporting any product containing more than 0.1% of rare earths that originate from or are processed in the country. The list of materials includes seven rare-earth families, including samarium, terbium, dysprosium, and lutetium, as well as their magnet and sputtering-target forms. Assuming that the list is accurate, China expands its 'Tier 3' restrictions introduced this April, which means no critical hit to foundation materials, but precisely crippling hits along the way of devices and industries worldwide.

Given that the lion's share of the global rare earth supply is under China's control, the export control decision has raised alarms in multiple sectors, including automotive, consumer electronics, and chip manufacturing. How exactly this could hurt the industries is something that remains to be seen, but China's plan to impose additional control globally is already evident.

Critical software

In response, the U.S. will not only double tariffs (which is set to hit American businesses first), but also introduce export restrictions on 'critical software,' which is perhaps the most crippling sanction. The U.S. government does not define what 'critical software' is, which leaves the door open to misunderstanding. So, let us speculate.

Earlier this year, the Trump administration restricted shipments of chip design and simulation tools to China while the president was negotiating with the Chinese leader. That helped resolve some of the fundamental issues with rare-earth exports from China and made life easier for Cadence and Synopsys.

What happens if the Trump administration broadens the definition of 'critical software' beyond EDA tools? The following targets are likely to include AI development frameworks such as PyTorch, TensorFlow, and JAX, as well as distributed-training software that enables large-scale model training on advanced accelerators. Limiting access to this software would directly constrain China's ability to develop advanced AI systems, even if it manages to procure the necessary hardware.

Another area likely to come under scrutiny is compilers, firmware, and embedded software that control the operation of hardware. This includes CPU and GPU microcode, as well as FPGA configuration tools, which could potentially harm American and European companies with production operations in China, but will also impact Chinese companies.

Controls could also reach manufacturing and infrastructure software, which will include everything from network management (unless already replaced by modern, closed-source Linux from a China-based company) to wafer fab equipment (WFE) tools that tend to run customized versions of Linux and Windows. It will not collapse them overnight, but will introduce a new set of operational difficulties.

Then again, without a precise definition, this is all speculation.

Heads of state from the U.S. and China had planned to convene next week in South Korea, amid prolonged and ongoing trade tensions between the two nations. It seems like this meeting is now off the table, as President Trump has just posted a scathing message on his Truth Social platform, accusing China of monopolizing every element of the rare earth mineral pipeline. In retaliation, "massive increases of tariffs" are being mulled for Chinese products entering America, among other moves that would appear to chart a new, more hostile era in the China-U.S. trade war.

The move comes in response to yesterday's surprise move, which saw China's commerce ministry mandate new government licenses for advanced chips made using Chinese-origin rare earths, directly or indirectly. The criteria for advanced chips are logic fabricated at 14nm or below and memory at 256 layers or above. The new rules would require companies to essentially acquire permission from Beijing to "export" out of China, even if the product using their rare earths was never manufactured there. This is what Trump is largely referring to in his post, highlighting how such a trade curb is unprecedented.

Rare earth minerals are crucial in various industries, including semiconductors and other computer hardware, and China controls most of the world's supply. The U.S. government has already considered allocating $2 billion worth of CHIPS Act funds toward rare earths development in a bid to reduce foreign reliance. President Trump is claiming that China is contacting countries around the globe to expand its dominance in this sector, using it as a powerful bargaining chip in this trade war. Malaysia has already been in talks with Beijing, which is interested in helping the country extract its newly-found mineral reserves.

China initially imposed export controls on rare earths back in April of this year, which have only tightened since, with yesterday's order serving as a red line for the White House, which now sees this as grounds enough for proper retaliation. President Trump's message states that he'll be "forced to counter" China's every move, almost warning Americans that such actions could be painful in the short term, but necessary in the long term. The U.S. already heavily sanctions China, barring it from receiving high-end AI GPUs, citing national security concerns — which is what Beijing is echoing now.

Interestingly, Trump openly admits that the U.S. also has a monopoly, which is generally considered anti-competitive; however, the tables turn when sovereignty is involved. Trump says that America has two elements for every one that China tries to monopolize, which could refer to the aforementioned GPUs. Today, the U.S. Senate passed a bill that seeks to prioritize AI chip sales for domestic companies over those of foreign entities. China, however, has previously banned its biggest tech companies from acquiring Nvidia GPUs entirely, with crackdowns at customs intensifying to enforce the usage of homegrown solutions.

The potential increased tariffs that might follow as a consequence of this growing intensity will ultimately hurt American citizens (and companies) the most. Like we said, lots of computer hardware uses rare earth minerals, and the U.S. is largely dependent on China for these, going so far as to ink bipartisan deals. Pakistan has recently sent its first shipment of rare earths to America, but it won't be enough to fill the pool. Chips fabricated in America, like Intel's new Panther Lake, can also be caught in the aftermath, a potentially detrimental notion in the face of resurgent domestic chipmaking ambitions.

China has quietly extended its rare-earth export controls into the heart of the semiconductor supply chain.

Based on a machine translation of a new notice published October 9, the Ministry of Commerce (MOFCOM) said that exports of Chinese-origin rare earths or products made with them will now require government licenses if they’re linked to the development or manufacture of advanced chips — defined as logic at 14 nanometers or below, or memory with 256 layers or more.

The new measure builds on rules introduced in April, which imposed licensing requirements on seven rare-earth families, including samarium, terbium, dysprosium, and lutetium, as well as their magnet and sputtering-target forms. Those elements are central to chip fabrication and data storage, used in thin-film deposition, polishing compounds, and high-performance HDD motors, but the expansion goes further by introducing an end-use test tied directly to semiconductor thresholds and extending China’s jurisdiction beyond its borders.

Under MOFCOM’s updated framework, any item containing amounts of Chinese-origin rare earths, or produced using Chinese rare-earth technologies, can be subject to Beijing’s export licensing regime if its value contribution exceeds 0.1%. That means foreign companies handling downstream materials or components could find themselves caught in China’s compliance net, even when the transaction involves no Chinese entity. Officials say the policy is meant to “safeguard national security” and ensure that exports do not “enhance military potential” of any recipient.

This phrasing mirrors the language used by the U.S. Commerce Department when Washington set its own semiconductor export thresholds — 14/16nm for logic, 18nm for DRAM, and 128-layer for NAND — under rules aimed at preventing Chinese access to military-use AI hardware. China’s policy effectively flips that logic back outward, targeting the upstream materials needed to make such chips in the first place.

The new controls could slow approvals for polishing media and other rare-earth-based consumables used in front-end processes. It could also complicate global HDD production. TrendForce noted in April that rare earth restrictions may affect Seagate and Western Digital, both of which rely on Chinese-origin magnets, as well as other semiconductor and storage firms.

These latest restrictions illustrate just how far export enforcement has spread across both sides of the tech divide. In the space of a year, the U.S. has tightened controls on advanced GPUs, while China has moved upstream to the raw materials, processing technologies, and metallurgical know-how that enable chip production. Both cite the same rationale of preventing their technologies from aiding foreign militaries.

Malaysian Minister of Natural Resources and Environment Sustainability Johari Ambud Ghani revealed that Chinese President Xi Jinping offered the country technical assistance to develop its rare-earth processing capabilities. Digitimes reported that the leader of the Communist Party of China proposed this deal during his visit in 2024, but it came with one key condition: the cooperation will be limited to state-owned companies only, citing technology protection concerns.

Rare-earth elements are crucial ingredients for many modern technologies, especially in semiconductor and chip manufacturing. China is one of the biggest exporters of these materials, and its control over the market has allowed it to use it as a bargaining chip in its negotiations with the U.S. So, Beijing’s offer to essentially develop a competitor for its own industry raises strategic questions, especially given Kuala Lumpur’s close ties with Washington.

The Southeast Asian nation is in a good position when it comes to rare earth raw materials, especially as it has just discovered a massive reserve within its borders. A 2025 preliminary study by the Malaysian Department of Mineral and Geoscience revealed at least 16.2 million metric tons of these elements, meaning more can be found through sampling and surveys. At the moment, the reserves are estimated to be worth around US$175 billion; tapping into them would also add another 4,000 jobs, giving the country a massive economic windfall.

However, Malaysia still lacks the expertise and technology needed to process all these minerals. So, it would make sense for the country to partner with an expert, like China. But given the geopolitical climate between the East and the West, it’s natural that Beijing would be leery of having its technology accessed by Western companies.

At the moment, the Australian mining and materials company Lynas operates two rare-earth processing facilities in Malaysia. It would import rare-earth concentrates from Australia, which are then processed into intermediate materials ready to be used in advanced manufacturing. This is what China is likely pointing at with its request to partner with state-owned companies only for the deal.

Nevertheless, it seems that China isn’t the only one putting something on the table for Malaysia to consider. Malaysian Minister of Investment, Trade, and Industry Zafrul Aziz said that the country is also holding talks regarding rare earths with the U.S., and that it’s promising “equal and non-discriminatory application of relevant policies” to the two rivals.

Malaysia is likely using its newfound resources as a way to secure better deals with the U.S. It currently has a 19% tariff when importing goods to the States; more than that, Malaysian firms must purchase around US$150 billion worth of tech from American companies — including the purchase of Boeing jets and liquefied natural gas. Bringing in Chinese expertise to process its rare-earth resources would likely alarm many U.S. officials, allowing Kuala Lumpur to use the threat of Chinese influence as a bargaining chip for current and future talks with Washington, D.C.

The White House is reportedly considering using $2 billion of CHIPS Act funds for investments in rare-earth mining and processing within the U.S. According to Reuters, the Trump administration wants to use the already existing funds that the Biden administration has allocated for semiconductor investments so that it doesn’t have to request additional funding from Congress for this initiative.

Although not exactly directly related to chip manufacturing or research and development, these critical minerals are crucial to the electronics and defense industries. For example, you can find dysprosium in hard drives and EVs, while scandium is often used in Wi-Fi modules. There’s also germanium, gallium, and several more elements — all of which are used in various applications, from semiconductor and wireless communication to medical imaging and nuclear power.

China is the biggest producer of rare earths at the moment, producing around 270,000 metric tons in 2024. Given the reliance of nearly every modern device on these resources, many industries were severely impacted when the country applied export restrictions on critical minerals. This has got the U.S. and its allies scrambling to find alternatives, with Australia making an effort to scavenge them from mining waste, and Canada planning to expand its mining industry. Even private companies are getting into the mix, with Western Digital launching a new recycling process that reclaims rare earth minerals from old HDDs.

These efforts may still be insufficient to meet the accelerating demand for chips and semiconductors worldwide. This is especially true as the AI race between the U.S. and China heats up, with many organizations ordering hundreds of thousands of GPUs — Elon Musk is even targeting to deploy 50 million H100-equivalent AI GPUs in the next five years. So, to help it gain independence in chip making, Washington must also ensure that it has the minerals it needs to make them available locally or at least readily accessible from allies that aren’t threatened by its adversaries.

Out of the nearly $39 billion earmarked for chip manufacturing and R&D in the CHIPs Act, over $8 billion is still unallocated. So, by moving $2 billion from this fund to rare earth mining and refining, the White House aims to help increase American production of critical minerals without requesting additional funding from taxpayers.

The Chinese government has decided to ease export curbs affecting companies that trade in rare earth metals and goods based on these resources. The change of policy was signaled by state media, reports Reuters. However, this change is only being implemented to the benefit of Chinese and European semiconductor companies, whose supply chains have been adversely impacted by the curbs that were introduced in April. Semiconductor players based in countries like the U.S., Taiwan, and South Korea aren’t going to directly benefit from this change.

Since China implemented the new curbs, only a few licenses have been granted for those wishing to export rare earth magnets, for example. The complex process to export these vital materials for certain semiconductor, auto, and defense production processes is known to take months. Moreover, there has been confusion at customs due to the freshness of the shift in policy. Organizations need time to adapt and get used to new rules.

European Union Chamber of Commerce meeting

The headline change of the rare earths export policy seems to have been precipitated by a meeting between Chinese officials and members of the European Union Chamber of Commerce. This meeting took place on Tuesday, according to local media reports.

Reuters quotes Jens Esklund, president of the European Union Chamber of Commerce in China, who said, “The meeting provided European Chamber members the opportunity to express in person the urgent need to accelerate approval processes, to ensure the stability of their supply chains.”

What will China get from the EU for the favor?

China has introduced new export restrictions on materials containing key materials for RF and storage applications — scandium and dysprosium — which may hurt key players in these industries, including Broadcom, GF, Qualcomm, TSMC, Samsung, Seagate, and Western Digital. China's new restrictions follow two prior rounds of rare earth export rules that are slowly tightening the supply of these critical minerals, especially those used in several chipmaking applications.

Scandium is widely used for RF front-end modules found in smartphones, Wi-Fi modules, and base stations, whereas dysprosium is used for HDD heads and electric vehicles.

This is not the first time China's Ministry of Economy has restricted exports of rare-earth materials. The restriction on rare earth materials export has been made in response to the 54% tariffs imposed on goods produced in China by the Trump administration, complemented by a 34% import duty on all products made in the U.S.

Effective immediately, exporters of products containing Scandium, Dysprosium, Gadolinium, Terbium, Lutetium, Samarium, and Yttrium must apply for an export license from the China Ministry of Economy. The application requires customers to detail the final use of the material.

The new rules cover various products containing the previously listed rare earth metals, including raw ore, metal, compounds, and finished goods. While not an outright ban, this is the third round of China's export restrictions that raises supply concerns among manufacturers worldwide and deepens tensions between the U.S. and China.

These export restrictions reflect a calculated escalation strategy that targets the entire supply chain of high-tech manufacturing, from foundational wafer-level materials to fabrication-critical metals, in addition to rare earth materials used in other use-cases.

But is the third round of export restrictions from China more impactful on the industry than the first two?

The third round of China's rare earth restrictions explained

As the image above illustrates, two of the key materials restricted in this round are Scandium and Dysprosium, both of which hold significant importance for the telecom and storage industries, which are difficult to overstate.

Scandium is primarily used in RF applications through its role in Scandium Aluminum Nitride (ScAlN). This material is used for high-performance wave filters like BAW (Bulk Acoustic Wave) and SAW (Surface Acoustic Wave).

By introducing (doping) Scandium to Aluminum Nitride at levels of around 10% to 40%, ScAlN achieves higher piezoelectric response and electromechanical coupling (compared to AlN alone), which is critical for improving signal strength, bandwidth, and power efficiency in high-frequency telecom applications.

These filters are essential components in the front-end modules of 5G smartphones and base stations and Wi-Fi 6 and Wi-Fi 7 modules. While scandium is ubiquitous, one 200-mm or 300-mm wafer with chips featuring ScAlN only needs a few grams of Scandium.

Dysprosium is an even more widely used material as it is used for storage, electric vehicles, and even radiation-hardened applications. In HDDs, dysprosium is added to permanent neodymium-iron-boron (NdFeB) magnets used in voice coil motors, which control the read/write head as it improves the magnet's coercivity under high temperatures. NdFeB magnets are also used for motors in electric vehicles, so dysprosium is used for the same purpose.

In MRAM (Magnetoresistive Random Access Memory), Dysprosium is used in the free or pinned magnetic layers of GMR (Giant Magnetoresistance) or TMR (Tunneling Magnetoresistance) stacks to maintain stability of magnetic orientation. In addition, radiation-shielding components, such as those used in nuclear reactors, spacecraft, and satellites, also use Dysprosium.

Other materials in the list, namely Gadolinium, Terbium, Yttrium, Lutetium, and Aamarium, are also widely used and cannot be substituted without tradeoffs and at enhanced costs (including those associated with changes of production flows), characteristics, and risks.

But there is good news, too. While rare earth metals are called 'rare' and China supplies the lion's share of the world's rare earth materials, these elements are actually not rare. In fact, these metals are pretty widespread well beyond China.

They are hard to get; as in many cases, rare earth metals are obtained by mining other materials and subsequent separation of rare earths. The key reason why China is the dominant supplier of these materials and products on their base is because Chinese companies have managed to build an efficient ecosystem to mine, extract, and refine rare earth elements.

Some say China subsidizes its rare earth industry to control the supply of critical materials by making it unprofitable to produce them in other parts of the world. However, once China began to 'weaponize' its rare earth prowess, companies in other countries rejoiced, as their potential to supply rare earth materials in volume just became a real business opportunity. Few companies would try to save on strategically important items, such as rare earth materials, so companies would likely be willing to switch suppliers following the restrictions.

This isn't the first time we've seen restrictions

As noted above, this isn't the first round of China's restrictions of rare earth supplies. Moreover, this is not the most 'impressive' one, either. China's rare earth export curbs escalate from foundational materials (Antimony, Gallium, and Germanium) to fabrication-critical metals, then to rare earths used in RF, storage, and precision components.

In the initial round, China restricted Antimony, Gallium, and Germanium. Germanium is crucial for producing wafers featuring strained silicon and the most high-performance chips made by Intel, TSMC, and Samsung. These companies have used strained silicon for a couple of decades. Meanwhile, a 300-mm wafer uses around a gram of Germanium.

Antimony is used as a dopant to make n-type regions in transistors, so again, requirements per wafer are limited. As for Gallium, it is a key element to power semiconductors, RF electronics, infrared sensing, and compound semiconductors (such as ScAlN/AlGaN/GaN). However, when it comes to usage in applications like radars and telecommunications, Gallium and Germanium are inseparable.

Without any doubt, these materials support industries ranging from telecommunications to defense and data centers. That makes the restrictions highly disruptive at the early stage of the semiconductor value and manufacturing chain.

The second round expanded pressure to include Tungsten, Indium, Molybdenum, Bismuth, and Tellurium, materials tied directly to semiconductor fabrication. Tungsten and Molybdenum are used in transistor contacts, gates, and interconnects in advanced nodes where extreme thermal and electrical reliability are necessary. Indium is crucial for 5G mmWave front-end modules, satellite communications, and photonic chips.

Restricting these materials strikes at the core of modern semiconductor production, though we have yet to see any actual disruption of chip supply due to China's export curbs.

What's next?

With its export restrictions, China leverages its dominance not only in resource extraction, but also in processing and material science. Thus, creating widespread uncertainty across the global semiconductor ecosystem, which now spans from smartphones, to PCs, self-driving vehicles, and sophisticated defense systems.

On one hand, this means that China's approach to export curbs indicates a deliberate, phased control strategy, targeting the entire vertical stack of semiconductor and high-tech production, including niche but irreplaceable elements. On the other hand, it means that the impact of China's curbs could decrease over time as the industry adapts its supply chains to the new reality.

Will there be further rounds? Without a doubt. We can only wonder what materials they will target, but keep in mind that China does not want to ruin the whole semiconductor or high-tech supply chain and instead wants to thrive on it. Stay tuned, as it's unlikely that this will be the last time we'll hear from the country about rare earth export restrictions.

China has enacted a new regulation, effective October 1, asserting state ownership over its rare-earth materials required in semiconductor production, reports Nikkei. This move aims to secure national and industrial interests, though outside of China the move is considered to be leverage in the ongoing trade war with the U.S.

The new regulation prohibits any individual or organization from unlawfully accessing or damaging rare-earth resources. We could interpret the rule as basically an explicit declaration of state ownership of important rare earth metals, such as gallium and germanium. Notably, the statement of state ownership was not part of the initial draft but was included in the final version to emphasize control over these strategic materials.

China's action could be a response to U.S. export rules restricting Chinese access to advanced wafer fab equipment required to make chips at sub 14nm/16nm process technologies. While by tightening control over rare-earth elements, China says it aims to safeguard its industrial interests against international pressures, industry observers from outside of China believe that the country can use export controls as a lever in negotiations with the U.S., Europe, and Japan. 

The regulation covers the entire supply chain of rare-earth elements, from mining and smelting to processing, distribution, and export. It stresses safety, innovation, and sustainable development as guiding principles for managing these resources. 

In 2023, China produced about 70% of the world's rare-earth elements, essential for various devices. When it comes to gallium, which is used for power ICs, China produces approximately 94% of the world's supply, so its restrictions are very likely to impact various industries.  While the production of high-performance components like CPUs, GPUs, and memory may not be heavily impacted, gallium nitride (GaN) and gallium arsenide (GaAs) are critical for power chips, radio frequency amplifiers, LEDs, and other applications.

Both gallium and germanium are crucial for high-tech industries, but while these metals are not exactly scarce, China has kept their prices low, making mining them elsewhere relatively unprofitable. China's restrictions have affected the prices of these metals, but this incentivized companies in other countries to start extracting them, which will eventually potentially diminish China's dominance in the market. For now, despite efforts to increase domestic production, the U.S. still depends on China for processing these materials, according to Nikkei.

By asserting state control, China aims to maintain its dominance in the rare-earth metals sector. The question is, will it work out?

Laptop makers are having trouble leaving the shores of China, according to a report by DigiTimes. Dell is singled out as one manufacturer encountering difficulties moving mass production from China to Vietnam after experiencing lower-than-expected production output. Due to these difficulties, which span workforce knowledge, skill, logistics and supply chains, Dell had to delay its plans to start mass production outside China by an entire quarter.

The decision to move production from one place to another isn't taken lightly. The immense costs of infrastructure and relocation pale in comparison to the effort of securing a new supply chain. Because most of the world's trading and fabrication operates close to its maximum output (and contracts are usually multi-year), it's difficult for a new client to secure the required materials while entrenching an already-settled supply chain. Of course, offering more money for the same resources is one sure way of achieving this -- but passing costs on to consumers can impact market share. And there are simply some elements of strategic relocation, such as workforce expertise, that are hard to replicate. 

Despite that, it's a fact that the current geopolitical picture isn't one conducive to trust. The US and China levying economic weapons on each other brings uncertainty to any operations on Chinese soil (especially for US-based companies). Things get especially risky when a country like China can tighten the flow of rare-earth materials and other resources to foreign companies.

This tension and the subsequent lack of confidence in business conditions have been leading the West to try and cement its semiconductor business through new or revised Western-centric supply chains. The push - the idea - is that only a new supply chain beyond the control of China can ensure that materials will keep flowing for businesses. This could cause a new dualistic supply chain: an Eastern and a Western, competing and feeding the same materials through wildly different fabrication specifications. In the end, however, it'll always be a multi-year push: it takes time for even billions of dollars in funding to materialize into new fabrication facilities and their dependencies. We'll do our best to monitor how this evolving strategy pans out.

The semiconductor industry is one of the most complex ventures on the planet, with a supply chain relying heavily on natural resources. Nikkei reports that we are at an inflection point for the semiconductor industry - mostly due to its most basic prime matter, rare earth metals (such as copper, lithium, or tin), which are used as elements for the manufacturing of semiconductors, having seen tremendous price increases in the last year. An interplay between COVID-19-weakened supply chains, soaring demand, and political tensions between the US and China are being pointed as major forces behind the increases.

A look at the yearly price action for some such rare-earth metals showcases just how much more expensive any sort of manufacturing that uses them has become in the past year. The fact that lithium dioxide has increased around 150% YoY can be identified in the increasing popularity of electric cars. However, lithium isn't alone in its upwards price run; copper (one of the most common conductors) has seen price increases to the tune of 37%; aluminium, which enables lightweight metals and is commonly found on computing's cases, has increased by 55%; and tin has increased 82%. Even relatively niche rare earth metals such as neodymium (commonly found in audio drivers and related electronics) and praseodymium (used as an alloying agent for magnesium in aircraft engines and other applications), have increased by almost 74 percent YoY. Several other rare-earth metals have also increased in pricing.

The price increase for these most elementary elements in almost anything technologically-related will (and likely already is) leading to increased end-user pricing. There is only so much that the manufacturing and supply chains can absorb before they hit the red zone. However, as is always the case, it's the small players being affected first. Electronics suppliers for hardware assembly and manufacturing giants such as Lenovo, HP, Apple and Samsung face a notoriously unforgiving competitive landscape, and they can't easily transfer the increased component costs to their global clients.

A perfect storm of COVID-19 and its interaction with supply chain logistics is one of the reasons for this price increase, as well as the currently ongoing (and seemingly never-ending) component shortages. Coupled with soaring demand from multiple technological inflection points (such as vehicle electrification and machine learning as well as the increasing demands for data volume processing) also led to supply-chain management problems and skyrocketing prices for some of the major industry players' products, as we've extensively reported.

However, another major element is also a part of the equation: geopolitics. China currently stands as the only country with a fully integrated, in-territory supply chain that covers everything in the production of rare earth metals, from extraction to refinement and eventual processing. As of last year, China was responsible for around 55% of global rare earth mining output, and 85% of all rare earth minerals have to go through China in one way or another throughout their manufacturing process. This gives China powerful leverage in its relationship to the global economy.  Potential tightening when it comes to China's export controls was enough to partly fuel price increases.

Angela Chang, an analyst with the Industry, Science and Technology International Strategy Center (ISTI) at the Industrial Technology Research Institute broached the subject with Nikkei Asia.

"China has the upper hand and dominated production and refining of global key rare earth materials, and it also controls some other key metals that are all needed for building not only civilian, and industrial devices but military and aerospace equipment," she told the publication. "The Chinese advantage has become a key bargaining chip for Beijing to negotiate with Washington." 

Even as both superpowers vie for economic supremacy, with China's control of the rare metal earths and the US' blacklisting of several China-based companies and even China-bound exports, the escalating tension between them likely will only push prices of those key materials higher in the long term, Chang added.