China has once again pulled from one of its most effective levers in the ongoing tech war with the United States: rare earth elements. The Ministry of Commerce of the People’s Republic announced an additional package of controls that restricts the export of five critical elements —holmium, erbium, thulium, europium, and yttrium— and tightens the control over the technological equipment necessary for their refining. With this decision, Beijing raises to 12 the number of rare earths subject to some form of export restriction, consolidating its dominance over a supply chain critical to much of the global semiconductor, defense, and green energy industries.
The message comes at a strategically calculated moment: just weeks before a highly anticipated face-to-face between Xi Jinping and Donald Trump, scheduled at the APEC summit in South Korea. Since 2024, both countries have maintained an extremely fragile trade truce after implementing retaliatory tariffs of 145% and 125%. The new Chinese move acts as a warning shot and threatens to almost certainly break this tariff ceasefire.
Control exercised from the processing chain
China processes around 90% of the world’s rare earths. This dominance is not just in the volume of extraction but — and above all — in the industrial capacity to separate, refine, and turn them into oxides, metals, and high-performance magnets. In practice, control over the process equals control over the tap. And Beijing has decided to turn it off a bit more.
The official announcement — identified as “Announcement Number 61 of 2025” — invokes national security to justify the new controls. “Products related to rare earths have dual-use properties, civilian and military. Implementing export controls is an international practice,” argued a spokesperson for the Ministry of Commerce. The Chinese government also accused “certain foreign organizations and individuals” of diverting materials toward military applications.
The tightening is not limited to the elements themselves but also to the machinery and technologies used in their refinement. This last point is key: it limits third countries, even those with access to mineral sources, from short-term replacing the lost processing capacity if Beijing decides to cut off supply.
Licenses and thresholds targeting semiconductors, AI, and defense
The new regime requires companies wishing to export goods containing Chinese-origin rare earths to apply for specific licenses if the products contain more than 0.1% of these materials or were manufactured with machinery originating from China. Permits will not be granted to defense sector users and will be evaluated on a case-by-case basis when it comes to sensitive technologies: chips of 14 nm or more advanced, 256-layer memories, or artificial intelligence research with potential military use.
This 0.1% threshold seems designed to cover a wide range of industrial components. Metals like holmium, erbium, thulium, europium, and yttrium may appear in tiny quantities in high-performance permanent magnets, laser dopants, phosphors for displays, optical sensors, or telecommunications devices. Although their proportions are small, their function is often critical: just missing one gram could halt a high-value production line.
The expected impact affects three particularly sensitive areas for the US and its allies: semiconductors (equipment and materials for lithography and packaging), energy (wind turbines and vehicle motors), and defense (from avionics to guidance systems). Among the most cited cases are F-35 fighter jets or Tomahawk cruise missiles, platforms that rely on components frequently including rare earths processed in China.
Reacting to U.S. restrictions
Beijing is moving in response to a landscape it perceives as increasingly hostile. Since 2022, Washington has limited China’s access to advanced chip manufacturing equipment and more recently has hit Chinese companies’ direct revenue linked to AI hardware sales. The new restrictions are seen as reciprocal: if the US erects barriers around EUV lithography, high-performance computing, or the latest GPUs, China reminds that it holds the keys to critical raw materials and refining know-how.
“Protecting the security and stability of global supply chains” is the official wording. However, the geopolitical subtext is clear: rare earths will remain a tool of pressure as long as US controls over the chip ecosystem persist. Hardware from servers for AI to consumer GPUs could be among the main casualties.
Market immediate signals: rises and jitters
The stock market reaction was immediate. In China, companies like China Northern Rare Earth or Shenghe Resources saw increases of up to 10%, driven by expectations of higher prices and wider margins. In the US, firms such as Energy Fuels, Critical Metals Corp, and MP Materials also rose notably amid predictions of escalating mineral costs.
In hardware, the movement has been more cautious, with a still contained reading. The focus on licenses and defense applications suggests a case-by-case assessment process that could take days or weeks to produce direct impacts on the supply chain of commercial products. Still, the market gave clues: AMD dropped nearly 6% in recent days, while TSMC moved in the opposite direction by a similar percentage. These are signs that money is weighing scenarios involving rising costs, order reallocation, and possible delays, but panic has yet to set in.
Another blow to hardware prices?
The question is gaining ground: will there be further price hikes? The precedent of 2023-2024 — when tensions and restrictions on raw materials and chips translated into higher costs and longer lead times — fuels sector fears of a replay. Currently, there are no alarms sounding, but the probability isn’t negligible if tensions escalate or if licenses are systematically denied to entire industry segments.
AI hardware is a clear candidate for increased pressure. The race for GPUs, accelerators, and advanced memory (HBM, GDDR) already faces bottlenecks; adding controls over magnets, dopants, and manufacturing processes could reinforce upward cost and time trajectories. Even in “consumer” markets like graphics cards, upstream cost increases tend to eventually trickle down into retail prices.
A powder-keg calendar: APEC and the “precarious truce”
The timing fuels the view of these restrictions as tactical moves. With the upcoming APEC summit in South Korea and Donald Trump in the White House seeking to project firmness, Beijing positions a move that forces Washington to choose: loosen some of its technological siege or face the possibility of a shock in critical raw materials for industry. On the table, a fragile trade truce that, after tariffs of 145% and 125%, is increasingly seen as theoretical.
What can companies do?
In the short term, risk management involves three strategies:
- Supply chain visibility. Map where and how much of these affected rare earths are involved — including processing machinery of Chinese origin — and identify alternatives. The 0.1% threshold requires a level of detail many companies haven’t previously mapped.
- Licensing and traceability. Prepare comprehensive documentation for license applications, reinforce batch traceability, and clearly define end uses, excluding defense applications if applicable. For sensitive technologies (14 nm, 256-layer memories, AI with potential military use), anticipate possible denials and contingency plans.
- Diversification and substitution. Explore suppliers not exposed to these new controls or alternative processing routes outside China. It’s a complex path: doubling refining capacity isn’t improvised, and capital costs are significant. Nonetheless, some manufacturers may accelerate agreements with third countries to mitigate dependence.
Mineral leverage as a negotiation tool
China’s strategy isn’t new but is increasingly sophisticated. Years ago, the emphasis was on broad bans; today, controls are precisely targeted with a surgical scalpel at elements and equipment that maximize pressure while seemingly minimizing impact on non-strategic civilian sectors. For Washington, responding isn’t straightforward: lifting restrictions on EUV lithography, GPUs, or advanced lithography equipment conflicts with security doctrines; accepting Beijing’s rare earth controls raises costs for energy transition, rearmament, and digitalization.
In this tug-of-war, hardware gets caught in the crossfire. The semiconductor economy is designed to be global: wafers may be Taiwanese, machinery European, IP American, assembly in Southeast Asia, and rare earths processed in China. Touch one piece, and you alter the entire system.
What to watch in upcoming weeks
- License granting criteria. Will Chinese authorities interpret relaxed rules for non-critical civilian applications or extend de facto bans across entire sectors?
- Washington’s response. Further tightening on chip manufacturing equipment or AI hardware sales to China will almost certainly trigger another escalation in mineral restrictions.
- Price effects. Early signals in permanent magnets, optical components, and power modules may foretell rises in consumer electronics and servers.
- Portfolio reconfiguration. Corporate moves — from raw material hedging to long-term supply contracts — will give clues about disruption expectations.
For now, the market mood is concern, not panic. But if diplomatic tensions intensify and licenses start to be systematically denied, the industry will find it hard to avoid a wave of costs and delays. Underneath, a deeper question looms: can the silicon economy — from smartphones to AI cloud — thrive in a world that intentionally fragments its critical materials?
Frequently Asked Questions (FAQ)
Which rare earths has China restricted, and why does it matter for hardware?
The latest controls target holmium, erbium, thulium, europium, and yttrium, with stricter export limits on refining equipment. Though used in small amounts, these are vital for high-performance magnets, lasers, phosphors, and sensors. Disruption in their supply affects semiconductors, telecommunications, energy, and defense.
How do the new export licenses work and who do they affect?
Any product containing over 0.1% of Chinese-origin rare earths or made with Chinese processing machinery must apply for a license. Licenses won’t be granted for defense sector users. For 14 nm or more advanced chips, 256-layer memories, or AI projects with potential military use, applications will be reviewed case-by-case.
Will GPU, server, and AI infrastructure prices rise?
In the short term, the market has not fully alarmed but risks are real. If licensing restrictions tighten and access to critical materials and processes is made more expensive, upstream costs will likely trickle into graphics cards, AI accelerators, and data center equipment. The impact may first be seen in delivery times before affecting retail prices.
What can companies do to mitigate the impact of rare earth restrictions?
Map where these elements intervene in their value chain, strengthen traceability and licensing preparation, and explore diversification options. For sensitive tech, contingency plans should be drafted in case of denials. Although ramping up refining outside China is complex and costly, some sectors will likely accelerate agreements with alternative suppliers to reduce dependence.
via: Noticias Incubaweb