“Supply Chain Under Pressure: How China's Rare Earth Controls Ripple Through the Semiconductor Industry”

Despite the latest round of U.S.–China negotiations leading to a one-year postponement of China's external rare-earth export controls, the move has still sparked discussions in the market about the semiconductor industry's indirect exposure and the long-term resilience challenges within the supply chain. China has recently taken significant steps to expand and tighten its rare-earth controls. Building on the first phase of restrictions scheduled to take effect in April 2025, Beijing further broadened its export control list on October 9, adding more rare-earth elements—such as holmium, erbium, thulium, europium, and ytterbium—to the restricted items.

China's latest actions are widely interpreted as an effort to leverage its dominance in rare earths as geopolitical and economic pressure. Shortly after, President Trump warned that he would impose a 100% tariff on Chinese products imported into the United States as retaliation, along with new export controls targeting critical software. It is evident that rare-earth restrictions have become a new weaponized tool in the escalating U.S.–China trade and technology competition.

China’s Rare Earth Controls: A New Test for Global Semiconductor Resilience

Rare earth elements are the invisible backbone of modern technology — powering semiconductors, electric vehicles, drones, and even defense systems. As China moves to expand its export controls on rare earth materials, the stability of the global supply chain faces a new and significant challenge.

Although the latest U.S.–China talks have delayed the enforcement of these restrictions by one year, Beijing's actions still signal a strategic shift. The expanded list now includes elements such as holmium, erbium, thulium, europium, and ytterbium — all critical to high-tech manufacturing.

For Taiwan, the short-term effects may center on industries tied to high-speed motors used in drones and electric vehicles. However, the semiconductor industry — despite relying mainly on suppliers from Europe, the U.S., and Japan — could still face indirect disruptions. Some companies may even need to apply for export licenses from Beijing due to extraterritorial regulations.

The greatest potential threat comes through the semiconductor equipment supply chain. High-end systems such as ASML's EUV lithography machines rely on rare-earth magnets and optical components to achieve nanometer-level precision. Likewise, leading equipment makers like Applied Materials (AMAT) and Tokyo Electron (TEL) use rare-earth materials, such as cerium oxide, in key processes like CMP, deposition, and etching. Any restriction on these materials could delay deliveries, raise maintenance costs, and amplify uncertainty across the industry.

For TSMC and other advanced manufacturers, delays in equipment supply could slow progress in leading-edge process development and U.S. expansion plans. The ripple effects could also threaten the stability of the global AI supply chain, which depends on advanced semiconductor technology.

China's dominance in rare earth processing — not just mining — gives it powerful leverage in the global market. While countries are working to diversify sources through new mining projects, eco-friendly extraction, and recycling, progress remains limited.

In the long run, Taiwan must strengthen its supply chain resilience through diversified sourcing, closer partnerships with Europe, Japan, and Australia, and greater investment in rare-earth recycling and alternative materials.

As geopolitical tensions rise, China's rare earth policy is becoming a key weapon in the U.S.–China tech war — one that will continue to reshape global supply chains. The future of technological innovation may depend not only on silicon and software, but also on the rare elements buried deep within the earth.

Source of Information: Tech Nice