China’s Rare-Earth Curbs Threaten Global Chip and AI Industries

The global semiconductor industry is on edge as China introduces new export restrictions on rare-earth materials, a move that could disrupt chip production and the rapidly growing AI sector.

Under the new rules, foreign companies must seek Chinese approval to ship any material containing even trace amounts of rare earths. The restrictions specifically mention parts used in advanced computer chips and AI research, especially those with potential military applications.

A Major Shift in China’s Trade Policy

This marks China’s first major attempt to exercise long-arm jurisdiction over foreign firms in the semiconductor industry. Experts say it’s a clear signal that Beijing is willing to leverage its dominance in rare earths — materials critical to the production of semiconductors, or chips — as a strategic tool in the escalating trade war with the United States.

Businesses worldwide are now bracing for disruptions, as the US has quickly responded by announcing new tariffs and software export restrictions.

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US Retaliates with Tariffs and Export Controls

In reaction to China’s move, US President Donald Trump announced an additional 100% tariff on Chinese goods and fresh export controls on “any critical software.”

This latest tit-for-tat exchange marks another escalation in the ongoing tech and trade tensions between the world’s two largest economies. The US is particularly concerned about China’s influence over materials that are essential for producing AI chips and semiconductor components.

Impact on Global Chipmakers

The ripple effect is already being felt across the semiconductor supply chain.
According to sources, ASML Holding NV, the world’s only maker of machines that produce the most advanced semiconductors, could face weeks-long shipment delays due to these new curbs.

A senior executive at a major US chip company said their firm is still assessing the situation but expects a rise in the prices of rare earth-dependent magnets, which are vital for chip manufacturing.

“The clearest risk we face right now is cost escalation and supply delays,” the executive said on condition of anonymity.

Another US-based chip company official mentioned that they are rushing to identify which of their products use Chinese rare earths, fearing that the new licensing requirements could bring their supply chain to a standstill.

Rising Global Concerns Over Supply Chain Stability

China’s move comes at a time when the AI and semiconductor sectors are booming, creating a massive demand for advanced chips. The tightened controls could slow down global innovation, particularly in AI and defense-related technologies.

“These are the strictest export controls China has ever implemented,” said Gracelin Baskaran, a critical minerals expert at the Center for Strategic and International Studies. “They have the leverage to make not just US firms, but companies worldwide, comply.”

Meanwhile, it remains unclear which US software products might fall under Trump’s proposed export restrictions. Earlier in July, Washington had relaxed certain export rules for chip-design software, but that decision may now be reversed amid renewed tensions.

The Road Ahead

As both nations tighten their control over critical technologies and materials, the semiconductor industry faces a volatile and uncertain period.

With China controlling the majority of global rare-earth production, and the US doubling down on tech restrictions, the balance of power in the global chip supply chain could shift dramatically.

The coming weeks will reveal whether these export curbs and tariffs lead to negotiation or spark a deeper, more damaging trade conflict in the AI and chip sectors.

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