China’s Rare Earth Export Controls Shock the World
In October 2025, China’s Ministry of Commerce and General Administration of Customs jointly issued Notice No. 61 of 2025, announcing expanded rare earth-related export controls, adding 5 rare earth metals (holmium, erbium, thulium, europium, ytterbium) to the control list, bringing the total to 12 of 17 rare earth metals under export licensing. Control scope covers not only rare earth metals themselves but extends to rare earth mining, processing technologies, and magnet manufacturing technology. Some provisions took immediate effect, with major regulations effective November 8, and extraterritorial jurisdiction clauses effective December 1. This marks Beijing’s first exercise of long-arm jurisdiction over foreign companies targeting the semiconductor industry, threatening to disrupt chip supply chains powering the AI boom. China’s Ministry of Commerce stated this safeguards national security and interests, preventing rare earth resources from military use, though industry widely views this as strategic retaliation in escalating U.S.-China tech war.
Control Content and Scope
12 Controlled Rare Earth Metals
Five Newly Added Rare Earth Elements:
- Holmium (Ho): Used in laser crystals, nuclear reactor control rods, magnet additives
- Erbium (Er): Critical material for fiber optic amplifiers, laser medical devices, nuclear industry
- Thulium (Tm): High-power lasers, X-ray equipment, portable X-ray machines
- Europium (Eu): LED red phosphor, OLED displays, nuclear reactor control materials
- Ytterbium (Yb): High-power lasers, quantum computing (qubit materials), stainless steel strengthening
Previously Controlled Seven Rare Earth Elements (Since April 2025):
- Samarium (Sm): Permanent magnets, nuclear applications
- Gadolinium (Gd): MRI contrast agents, nuclear reactors, magnetic materials
- Terbium (Tb): Green phosphors, magnetostrictive materials, fuel cells
- Dysprosium (Dy): High-temperature permanent magnets, hybrid vehicle motors, wind power
- Lutetium (Lu): Medical imaging, petroleum refining catalysts
- Yttrium (Y): LED phosphors, laser crystals, superconductors
- Scandium (Sc): Aluminum alloy strengthening (aerospace applications), solid oxide fuel cells
Technology Export Controls
Rare Earth Mining and Processing Technology: Covers rare earth mine extraction, beneficiation, smelting separation, purification full-process technology, preventing technology outflow enabling other countries to establish independent rare earth supply chains.
Magnet Manufacturing Technology: Neodymium-iron-boron (NdFeB) permanent magnet manufacturing technology, widely applied in electric vehicle motors, wind power, hard disk drives, military missile guidance systems.
Extraterritorial Jurisdiction Clause (Effective December 1): After Chinese companies export rare earth overseas, if overseas buyers resell without Chinese government permission, China can pursue legal liability. This marks China’s first exercise of extraterritorial jurisdiction in rare earth domain, emulating U.S. export control model.
Semiconductor Industry Case-by-Case Review
Targeting Advanced Processes: Rare earth export applications for sub-14nm advanced process semiconductors, advanced memory chips (such as HBM3), semiconductor manufacturing or testing equipment will undergo case-by-case review with strict approval standards.
AI Chip Related: Rare earth for AI chips with potential military applications will face particularly strict scrutiny. This directly impacts Nvidia, AMD, Intel, and other AI chip manufacturers.
Review Timeline: Industry estimates review timelines ranging from weeks to months, causing supply chain uncertainty and delivery delays.
Impact on Semiconductor Industry
ASML Lithography Manufacturing
Critical Rare Earth Dependencies: ASML’s EUV (Extreme Ultraviolet) lithography machines require substantial rare earth elements:
- Yttrium (Y): Laser crystals generating high-power lasers for EUV light sources
- Neodymium (Nd): Nd:YAG laser crystals, lithography light source core
- Terbium (Tb), Dysprosium (Dy): Magnet materials, precision positioning systems (wafer alignment, reticle movement)
Supply Chain Delay Risks: Bloomberg reported rare earth controls could delay ASML shipments by weeks. ASML produces approximately 50-60 EUV machines annually, each priced over $200 million. Shipment delays will impact capacity expansion plans for TSMC, Samsung, and Intel.
Limited Alternative Supply Sources: Though the U.S., Australia, and Canada have rare earth deposits, processing capabilities are weak. China controls 90% of global rare earth processing capacity. Establishing new capacity requires 5-10 years.
TSMC CoWoS Packaging
CoWoS Packaging Rare Earth Requirements: TSMC’s CoWoS (Chip-on-Wafer-on-Substrate) advanced packaging technology for AI chips (Nvidia H100, AMD MI300) requires rare earth elements:
- Samarium-cobalt magnets (SmCo): Vacuum chuck systems, chip precision alignment
- Samarium (Sm), Neodymium (Nd): Magnetic materials, packaging equipment core components
- Europium (Eu), Terbium (Tb): Detection equipment phosphorescent materials, post-packaging chip optical inspection
Capacity Expansion Blocked: TSMC plans to significantly expand CoWoS capacity in 2025-2026 (monthly capacity from 35,000 wafers in 2024 to 80,000 wafers in 2026). Rare earth supply disruption will delay expansion timelines, affecting Nvidia and AMD order fulfillment.
Cost Increase Pressure: Expected rare earth price increases will drive up packaging costs, ultimately passed to AI chip prices, impacting AI infrastructure construction costs.
Semiconductor Equipment Manufacturers
Applied Materials: Etching and thin film deposition equipment require rare earth materials for precision ceramics and magnetic components. Rare earth controls affect equipment delivery and maintenance.
Tokyo Electron: Japanese semiconductor equipment giant’s coating, development, and etching equipment depend on rare earth, facing same supply chain risks as ASML.
Lam Research: Etching equipment and thin film deposition systems use rare earth ceramics and magnetic materials. Controls affect new equipment production and legacy equipment spare parts supply.
Memory Industry
HBM3 Memory Manufacturing: High Bandwidth Memory (HBM3) production requires rare earth materials:
- Yttrium (Y): High-purity yttrium aluminum garnet (YAG) lasers, wafer cutting and bonding
- Scandium (Sc): Aluminum-scandium alloy, HBM heat dissipation substrate material
- Europium (Eu): Quality inspection phosphorescent materials
Supplier Impact: SK Hynix, Samsung, Micron, and other HBM memory suppliers face rare earth supply disruption risks, affecting memory supply to Nvidia, AMD, and other AI chip manufacturers.
Price Surge Expectations: HBM3 memory prices already rose 150% in 2024. Rare earth controls may drive further price surges, exacerbating AI chip cost pressures.
China’s Rare Earth Industry Advantages
Resource and Capacity Advantages
Rare Earth Reserves: China’s rare earth reserves approximately 44 million tons, accounting for 37% globally, but processing capacity is more critical. The U.S., Australia, Vietnam, and India also have considerable reserves but lack processing capabilities.
Mining Capacity: China’s 2024 rare earth extraction volume approximately 240,000 tons, accounting for 70% globally. Inner Mongolia Bayan Obo, Sichuan Mianning, and Jiangxi Ganzhou are three major production regions.
Processing Capacity: China controls over 90% of global rare earth processing capacity, including beneficiation, separation, purification, and metal preparation full-process. This is China’s greatest strategic advantage. Other countries, even with deposits, must rely on Chinese processing.
Magnet Manufacturing: China produces over 90% of global neodymium-iron-boron permanent magnet materials, applied in electric vehicles, wind power, consumer electronics, and defense.
Industrial Chain Completeness
Upstream Mining: State-owned enterprises like Baotou Steel Rare Earth, China Rare Earth Group, Minmetals Rare Earth, Northern Rare Earth, and Xiamen Tungsten control major mines.
Midstream Processing: Rare earth separation and smelting enterprises concentrated in Jiangxi, Inner Mongolia, and Sichuan, with mature technology, low costs, and lenient environmental standards (compared to Europe and America).
Downstream Applications: Complete downstream industrial chains including magnet manufacturing (Zhong Ke San Huan, Ningbo Yunsheng), phosphors (Youyan Rare Earth), polishing materials, and catalysts.
Strategic Significance
Energy Transition Dependence: Electric vehicles, wind power, solar energy, and other clean energy technologies highly depend on rare earth. China’s control over energy transition critical raw materials forms strategic leverage.
Military Applications: Precision-guided missiles, fighter radar, night vision devices, and laser weapons all require rare earth. China can influence Western military supply chains through rare earth controls.
Technology Competition Chips: Semiconductors, AI, quantum computing, and other frontier technologies depend on rare earth. China weaponizes rare earth to counter U.S. semiconductor export controls.
Global Supply Chain Restructuring
U.S. Rare Earth Strategy
Mountain Pass Mine: U.S. California Mountain Pass is the Western Hemisphere’s only rare earth mine, operated by MP Materials, with annual capacity approximately 43,000 tons rare earth oxides, but can only produce rare earth concentrate requiring Chinese processing.
Domestic Processing Plans: U.S. Department of Defense invests hundreds of millions of dollars assisting MP Materials in establishing domestic rare earth separation capacity, expected completion 2027. However, technical maturity and cost competitiveness far inferior to China.
Defense Reserves: U.S. strategic mineral reserves include small rare earth quantities, but far insufficient for long-term supply disruption. Department of Defense is expanding rare earth procurement and reserves.
Recycling: Developing rare earth recycling technology from waste hard drives, magnets, and fluorescent lamps, but small scale, high cost, unable to replace primary mineral production.
Australian Rare Earth Development
Lynas Rare Earths: Australian Lynas is the largest rare earth producer outside China, extracting at Western Australia’s Mount Weld, with Malaysia Kuantan processing plant annual capacity approximately 10,000 tons rare earth oxides, supplying Japan, South Korea, and Europe.
Expansion Plans: Australian government collaborates with U.S. to invest in Lynas establishing rare earth processing plant in Texas, targeting 2026 operation, annual capacity 5,000 tons, exclusively supplying U.S. defense and critical industries.
Environmental Controversies: Rare earth processing generates radioactive waste (thorium, uranium). Malaysia Kuantan plant faces environmental protests. Texas plant may encounter similar challenges, delaying progress.
Japan’s Rare Earth Reserves and Recycling
National Reserves: Japan’s Ministry of Economy, Trade and Industry maintains 6-12 months consumption strategic rare earth reserves, including neodymium, dysprosium, terbium, and yttrium.
Urban Mining: Japan leads global rare earth recycling technology, extracting rare earth from waste electronic products. Hitachi Metals, Toyota Motor, and other enterprises actively invest, but recycling accounts for only 10-15% of demand.
Diplomatic Diversification: Japan signs rare earth supply agreements with Australia Lynas, Vietnam, and India, reducing China dependence, but short-term complete decoupling impossible.
EU Rare Earth Independence Plan
Critical Raw Materials Act (CRMA): EU passed CRMA in 2024, targeting at least 10% critical raw materials (including rare earth) from EU mining and 40% from EU processing by 2030.
Sweden Kiruna Rare Earth Mine: Swedish state-owned mining company LKAB discovered Europe’s largest rare earth deposit in Kiruna (estimated over 1 million tons rare earth oxides), but development requires 10-15 years, providing no short-term supply assistance.
Greenland Kvanefjeld Mine: Greenland possesses world-class rare earth deposits, but environmental and political factors obstruct development. Greenland banned uranium mining in 2021, affecting rare earth development (rare earth ores often contain associated uranium, thorium).
Geopolitical and Strategic Competition
U.S.-China Tech War Escalation
U.S. Semiconductor Export Controls: Since 2022, U.S. restricts sub-7nm chips, EUV lithography machines, and AI chips (Nvidia H100) exports to China, attempting to curb China’s AI and supercomputer development.
China’s Countermeasures: Rare earth export controls are China’s strategic weapon countering U.S. tech blockade, using resource advantages to reversely constrain Western semiconductor industry. China previously restricted gallium, germanium, and graphite exports.
Gradual Escalation: April 2024 controlled 7 rare earth types, October 2025 expanded to 12. Future may further extend to all 17 rare earth types or even implement comprehensive embargoes, depending on U.S. China policy.
Trump-Xi Meeting Context
APEC Summit Timing: Rare earth control announcement timing is sensitive, occurring before potential meeting between former U.S. President Trump and Chinese President Xi Jinping at late October 2025 APEC summit in Gyeongju, South Korea.
Negotiation Leverage: China demonstrates economic retaliation capability through rare earth controls, adding leverage for potential trade and technology negotiations, pressuring U.S. to ease China tech export restrictions.
Tariff Threats: Trump threatened 60% tariffs on Chinese goods during campaign. China’s rare earth controls are preemptive retaliation, warning U.S. trade wars lead to mutual losses.
Taiwan’s Supply Chain Role
TSMC’s Dilemma: TSMC depends on both U.S. advanced equipment (ASML, Applied Materials) and Chinese rare earth raw materials, caught in U.S.-China tech war crossfire, with rising supply chain risks.
Diversified Procurement: TSMC needs to establish partnerships with U.S., Australian, and Japanese rare earth suppliers, reducing single-source China dependence, but short-term difficulties.
Cost Transfer: Rising rare earth prices increase wafer foundry costs. TSMC may raise prices, affecting customer (Apple, Nvidia, AMD) profitability.
Industry Impact and Response Strategies
Rare Earth Price Surge
Historical Price Volatility: During 2010-2011 Diaoyu Islands conflict, China restricted rare earth exports to Japan, rare earth prices surged 10-20 times. 2025 controls may trigger similar increases.
Heavy Rare Earth vs. Light Rare Earth: Heavy rare earth like dysprosium (Dy), terbium (Tb), and yttrium (Y) show larger increases (China dominates). Light rare earth like neodymium (Nd) and lanthanum (La) show relatively moderate increases (Australia can partially substitute).
Hedging Strategies: Semiconductor, electric vehicle, and wind power enterprises need to establish rare earth strategic reserves (3-6 months inventory), sign long-term supply contracts, lock prices avoiding surge impact.
Alternative Technology R&D
Rare Earth-Free Motors: Tesla and Toyota invest in rare earth-free or low-rare-earth permanent magnet motor R&D, using iron nitride (FeN) or iron-fluorine magnets replacing neodymium-iron-boron, but performance and cost still inferior to traditional magnets.
Induction Motors: Electric vehicles adopt induction motors (such as Tesla Model 3 standard range) replacing permanent magnet synchronous motors, requiring no rare earth, but slightly lower efficiency and heavier weight.
Ceramic Material Alternatives: Semiconductor equipment develops non-rare-earth ceramic materials (such as zirconia, silicon nitride) replacing yttria-stabilized zirconia (YSZ), reducing rare earth dependence.
Recycling Economy: Establish rare earth recycling industrial chain, extracting rare earth from retired hard drives, batteries, fluorescent lamps, and wind turbines, circular utilization reducing primary ore demand.
Supply Chain Resilience Building
Diversified Suppliers: Enterprises should diversify rare earth procurement sources, increasing Australia Lynas, U.S. MP Materials, Vietnam rare earth supply proportions, reducing single China dependence.
Vertical Integration: Large enterprises (such as Apple, Toyota) consider investing in upstream rare earth mining and processing, ensuring stable supply, but capital intensive with long payback periods.
Strategic Alliances: U.S., Japan, EU, and Australia establish “Rare Earth Alliance,” sharing resources, technology, capacity, countering China monopoly, similar to semiconductor Chip 4 alliance.
Impact on Taiwan’s Industries
Semiconductor Supply Chain
TSMC Response: TSMC needs to coordinate rare earth supply with equipment vendors (ASML, Applied Materials), potentially collaborating with Japanese and U.S. governments to establish strategic reserves, ensuring capacity remains unaffected.
OSAT Risk: ASE and SPIL use rare earth magnetic materials in precision equipment. Controls affect equipment maintenance and spare parts supply, requiring alternative sources.
Cost Increase: Rising rare earth prices increase semiconductor manufacturing costs. Taiwan IC design companies (MediaTek, Realtek) face wafer foundry price increase pressure, eroding profits.
Electric Vehicle and Green Energy Industries
Electric Motors: Taiwan’s electric vehicle supply chain (Fortune Electric, TECO Electric) uses neodymium-iron-boron permanent magnet motors. Rare earth controls increase motor costs, affecting electric vehicle price competitiveness.
Wind Power: Taiwan’s offshore wind farms extensively adopt permanent magnet generators. Rare earth supply disruption will delay wind farm construction, affecting 2030 renewable energy targets (20GW wind power).
Solar Energy: Solar panel manufacturing uses rare earth phosphorescent materials (improving photoelectric conversion efficiency). Controls affect solar industry costs and technological progress.
Policy Response Recommendations
Establish National Reserves: Taiwan should emulate Japan, establishing rare earth strategic reserves (6-12 months consumption), jointly funded by government and industry, reducing supply disruption impact.
Supply Diversification: Ministry of Economic Affairs assists enterprises in establishing partnerships with Australian, U.S., and Japanese rare earth suppliers, providing credit guarantees or low-interest loans, diversifying procurement sources.
Recycling Industry Support: Subsidize rare earth recycling technology R&D and industrialization, extracting rare earth from electronic waste and industrial waste, establishing circular economy, reducing import dependence.
International Cooperation: Join U.S.-Japan-EU “Rare Earth Alliance,” participating in international rare earth supply chain restructuring, ensuring Taiwan semiconductor industry long-term competitiveness.
Long-Term Trends and Outlook
Accelerated De-Sinicization of Supply Chains
5-10 Year Transition Period: Establishing non-China rare earth supply chains requires 5-10 years, covering mine development, processing plant construction, technology maturation, environmental permits. Short-term China advantages difficult to shake.
Cost Increase: Non-China rare earth production costs 20-50% higher than China (labor, environmental costs), will drive up downstream product prices, affecting electric vehicle and wind power adoption rates.
Technology Catch-Up: U.S., Japan, and Europe invest in rare earth separation and purification technology R&D, narrowing technology gap with China, but requiring time to accumulate experience and talent.
Rare Earth Alternative Technology Breakthroughs
Materials Science Innovation: Quantum materials and nanomaterials R&D may bring new generation magnets, phosphorescent materials, and catalysts requiring no rare earth, fundamentally reducing rare earth dependence.
AI-Assisted Design: AI accelerates new material discovery, shortening R&D cycles from 10-15 years to 2-3 years, potentially finding rare earth alternatives faster.
Commercialization Timeline: Even with laboratory breakthroughs, material commercialization still requires 5-10 years. Short-term rare earth demand unavoidable.
New Geopolitical Balance
Multipolar Supply Chains: Future rare earth supply will form “China, U.S.-Australia-Japan-EU, Southeast Asia” tripolar landscape, reducing single-country monopoly, but efficiency and costs inferior to past globalized division of labor.
Resource Nationalism: Countries view critical minerals as strategic assets, restricting exports, prioritizing domestic needs, similar to energy security logic, driving protectionism.
Delayed Green Transition: Limited rare earth supply may delay electric vehicle, wind power, and solar energy adoption, affecting global 2050 carbon neutrality goal achievement.
Conclusion
China’s October 2025 expanded rare earth export controls, bringing 12 rare earth metals under licensing and implementing case-by-case reviews for sub-14nm advanced processes, AI chips, and semiconductor equipment, marks U.S.-China tech war escalation from chip technology to critical raw materials level. China’s strategic advantage controlling 90% of global rare earth processing capacity makes rare earth a powerful weapon countering Western tech blockades. ASML lithography shipment delays, TSMC CoWoS packaging supply chain risks, and memory manufacturers’ HBM3 production obstruction signal the global semiconductor industry entering a new crisis era. Rare earth control timing is sensitive, occurring before potential Trump-Xi meeting, with Beijing demonstrating negotiation leverage, warning U.S. trade wars and tech decoupling lead to mutual losses. Short-term, rare earth prices expected to surge, semiconductor, electric vehicle, and wind power industry costs increase. Enterprises need to establish strategic reserves, diversify supply, and accelerate alternative technology R&D, reducing single-source China dependence. Long-term, U.S., Australia, Japan, and EU accelerate establishing non-China rare earth supply chains, but requiring 5-10 year transition period, with costs 20-50% higher than China, driving up green transition and AI infrastructure costs. For Taiwan, TSMC, OSAT, electric vehicle, and wind power industries all face impact. Government should establish national rare earth reserves, assist enterprise procurement diversification, support recycling industries, and participate in international rare earth alliances, ensuring semiconductor industry competitiveness. Rare earth controls reveal globalized division of labor fragility. Future supply chains will trend toward multipolarity, regionalization, and strategization, with increased efficiency and costs but enhanced resilience. U.S.-China tech war enters resource war phase. Rare earth is just the beginning. Gallium, germanium, graphite, lithium, cobalt, and other critical minerals may all become geopolitical competition chips. Enterprises and governments must plan ahead, avoiding supply chain disruption risks.
