Businesses Prepare for Disruptions Due to China’s Rare Earth Export Controls
Companies in the global semiconductor supply chain are on high alert following China’s recent measures to restrict exports of rare-earth materials. This move is seen as a significant escalation in the trade tensions between China and the U.S.
Sources indicate that ASML Holding NV, the unique manufacturer of machinery essential for producing cutting-edge semiconductors, is bracing for shipment delays. A key clause in China’s new regulations requires foreign companies to gain approval for re-exporting products that contain their rare-earth materials. ASML is reportedly lobbying for alternative solutions but has not made any formal comments on the situation.
A senior manager from a leading U.S. chip manufacturer revealed that they are evaluating the potential implications of these restrictions. The immediate concern is rising prices for magnets made from rare earths, which are crucial in the chip-making process. Another official from a different U.S. chip company expressed urgency in identifying products that rely on Chinese rare earths, citing fears that licensing requirements could severely disrupt their supply chains.
These restrictions mark China’s first significant attempt to exert control over foreign firms in the semiconductor industry, posing a threat to the development of chips that drive advancements in artificial intelligence. In response, U.S. President Donald Trump announced plans to impose a further 100% tariff on China and export controls on vital software.
Under the new rules, foreign companies must seek permission for any shipment containing even tiny amounts of Chinese rare earths, especially those related to certain semiconductor components and military-related AI research. Gracelin Baskaran, a director at the Center for Strategic and International Studies, noted that these are some of the strictest export controls ever implemented by China.
Semiconductor manufacturing equipment, like those produced by ASML and Applied Materials, heavily depends on rare earths due to their use in precise lasers and other specialized tools. Jacob Feldgoise, a senior analyst at Georgetown University, stated that these new export controls will mainly impact companies using rare-earth chemicals in chip production and those that integrate rare-earth magnets into their machinery.
While some speculate that these restrictions may be temporary, particularly ahead of Trump’s planned trip to Asia and a meeting with Chinese leader Xi Jinping, tensions between the two nations have clearly escalated. Trump’s tariff increase will raise import costs on numerous Chinese products to 130% starting next month, just short of the 145% seen earlier this year before both sides eased tariffs for trade talks. Trump also suggested he might cancel his meeting with Xi, labeling China’s actions as hostile.
This isn’t the first instance of rare earths becoming a point of contention in U.S.-China trade relations. Earlier this year, after tariffs were raised on Chinese imports, China responded by halting exports of rare-earth materials to the U.S. Although a temporary truce was reached, both sides remain on edge.
Key players in the semiconductor industry, including Intel, Taiwan Semiconductor Manufacturing Company, and Samsung Electronics, rely on ASML for their operations. While Samsung and Intel declined to comment, TSMC did not respond to inquiries.
A White House official mentioned that relevant agencies are evaluating the impact of these new regulations, which were introduced abruptly as part of China’s strategy to control global technology supply chains.
The U.S. House Select Committee on China criticized China’s actions, calling them an “economic declaration of war against the U.S.” Committee Chairman John Moolenaar stated that China has “fired a loaded gun at the American economy.”
Germany, Europe’s largest economy, has already taken steps to diversify its raw material supply, expressing significant concern over China’s restrictions. They are closely coordinating with affected companies to address the issue.
Taiwan, which primarily sources rare earths from Europe, the U.S., and Japan, stated that further assessment is needed to understand the full impact on its chip industry and will continue to monitor any indirect effects related to material prices and supply chains.
