Semiconductors Vs rare earths: China retaliates against US sanctions, imposes strict export control for elements it has 90% global monopoly in. Read what it means

In the modern era, war is not confined to military superiority, geopolitical manoeuvres, rhetoric and narrative management but also about having a monopoly in the arena of technology, especially semiconductors and rare earth elements (REEs). Donald Trump’s return to power in the US has stirred a geopolitical upheaval, driven by the motives of establishing dollar dominance and unipolarity, the US is tariffing, threatening and arm-twisting countries into bowing down. However, countries like China and India, which firmly advocate multipolarity, are not only resisting US pressure but also playing the game in Trump’s style.

China’s Ministry of Commerce has announced sweeping new export controls on rare earth elements on 9^th October 2025. This marks a massive escalation in its trade arsenal, and a move that would rattle the US. The CCP government’s measures expanded restrictions to cover 12 rare earth elements–adding five critical ones, including, Holmium, Europium, and Ytterbium, along with related materials–bringing these under tight scrutiny to include crucial materials used in semiconductors, defence technologies and permanent magnets.

The Chinese MOFCOM’s announcement number 61 goes beyond REE export restrictions and says, “Overseas organizations and individuals (hereinafter referred to as “overseas designated export operators”) must obtain a dual-use item export license issued by the Ministry of Commerce of China before exporting the following (listed) items to countries and regions outside of China.”

The statement attached a list of REEs divided into two parts. Part one includes: Samarium Metal, Dysprosium Metal, Gadolinium Metal, Terbium Metal, Lutetium Metal, Scandium Metal, Yttrium Metal, Samarium-Cobalt Alloy, Terbium-Fe Alloy, Dysprosium-Fe Alloy, Terbium-Dysprosium-Fe Alloy, Dysprosium Oxide, Terbium Oxide.

Part two contains two sub-categories: first, rare earth permanent magnet materials, which include Samarium-Cobalt Permanent Magnet Materials; Terbium-Containing Neodymium-Fe-Boron Permanent Magnet Materials; Dysprosium-Containing Neodymium-Fe-Boron Permanent Magnet Materials; Parts, Components, and Assemblies Containing the Above Materials.

Second are Earth Target Materials, including target materials containing Samarium: a. Samarium Target; b. Samarium-Cobalt Alloy Target; c. Samarium-Fe Alloy Target. 2. Gadolinium-containing targets: a. Gadolinium target; b. Gadolinium-iron alloy target; c. Gadolinium-cobalt alloy target. 3. Terbium-containing targets: a. Terbium target; b. Terbium-cobalt alloy target; c. Terbium-dysprosium-iron alloy target. 4. Dysprosium-containing targets: a. Dysprosium target; b. Terbium-dysprosium-iron alloy target. 5. Lutetium target. 6. Scandium target. 7. Yttrium-containing targets: a. Yttrium target; b. Yttrium-aluminium alloy target; c. Yttrium-zirconium alloy target.

This even includes items made outside China with Chinese mining, refining, magnet or recycling technology and products with trace amounts, as little as 0.1% of their value coming from China.

It is essential to note that over 90% of the world’s processed rare earths and rare earth magnets are produced in China. The 17 rare earth elements are essential components of everything from military radars to electric cars and aircraft engines. It is not that rare earth elements are scarce in other countries. But they are difficult to process. China dominates this sector since it has mastered the difficult process of extracting rare earth elements. Technological advancements, availability of cheap labour and lenient environmental regulations provide China with an edge over others.

Is China weaponising rare earth elements to gain a trade and geopolitical edge?

The new rule will effectively expand Chinese export control jurisdiction outside of its borders, generating additional uncertainty for multinational manufacturers who operate in Southeast Asian countries like Malaysia, Vietnam, or Thailand and depend on Chinese-designed separation or magnet fabrication equipment.

Beijing has now officially linked REEs with the semiconductor and Artificial intelligence sectors. China has sent out an unambiguous message to the West that any exports linked to logic chips that are 14 nanometres or smaller, memory chips that are 256 layers or more, or AI research that may have military uses will essentially be subject to a case-by-case evaluation. The delicate worldwide balance of supply chains for chipmaking, where rare earths are essential for lithography, wafer polishing, and magnetic components, is likely to be unsettled by this.

This, however, is not the dragon’s first dance with REE restrictions. China has for quite some time been adopted the approach of strategic tightening and loosening. In August 2025, China announced the removal of restrictions on the export of fertilisers, rare earth magnets/minerals and tunnel boring machines to India amid a tariff war with Trump and mounting global supply pressures. That reprieve, however, proved to be short-lived as the latest controls reverted to, rather, surpass previous aggressions, including the 2010 Japan-China dispute over REEs supply in the World Trade Organisation.

China today wields a monopoly controlling about 90% of the global REE processing and refining as a potent weapon, turning obscure minerals into crucial geopolitical leverage. Now, by choking off even trace amounts in finished goods, Beijing is not only targeting raw exports but entire downstream industries, compelling adversaries and rivals, particularly the US, to scramble for alternatives that may not exist in scale.

In such a case, even friendshoring efforts don’t help since processing remains a Chinese choke point. It remains to be seen how the US tackles potential defence project delays. US sources a significant chunk of its rare earths, as much as 70%, from China, as per latest data.

US and China playing a tit-for-tat game

The timing of China’s REE clampdown is significant as Chinese President Xi Jinping is set to meet Trump later this month. Currently, the US charges tariffs of 57.6 per cent on Chinese goods. Trump, however, has threatened to halt Chinese imports. Tensions between the US and China are mounting as the 90-day tariff truce, which began on 11^th August, ends around 9^th November.

On 8^th October, the US Department of Commerce’s Bureau of Industry and Security (BIS) announced the addition of 16 mainland Chinese companies to the Unreliable Entity List. These companies included the mainland China and Hong Kong subsidiaries of Arrow, which is a major global electronic components distributor, in addition to a range of small and medium-sized tech and trading companies. The move came over allegations that the Chinese companies in question facilitated the purchase of components for drones used by Hamas and Houthi terrorists.

In response, China not only expanded restrictions over rare earth elements, but also announced on 9^th October that it will add 14 US companies, including the anti-drone technology company TechInsights and its affiliates, to the Unreliable Entity List. Beijing said that these companies indulged in military and technological cooperation with Taiwan, or “made malicious remarks about China, and assisted foreign governments in suppressing Chinese companies.”

Meanwhile, the Trump administration proposed banning Chinese airlines from flying over Russia on US routes since it saves China fuel and time. Separately, the US imposed sanctions on Chinese refineries and oil terminals, Shandong Jincheng Petrochemical Group and Rizhao Shihua Crude Oil Terminal Co., for buying Iranian oil.

However, when the measures and countermeasures taken by both the US and China are juxtaposed, it is evident that Washington’s move reeks of desperation while Beijing’s retaliation has been swift, measured and comfortable.

While it is an era of global interdependence, the US needs China more than China needs the US. China has responded to the Trump administration’s geopolitical tantrums with solid measures harming the American technology sector.

Trump’s high-handedness and intransigence are costing Americans more than inflicting significant damage to China. In June this year, Ford Motor Company temporarily shuttered factories due to magnet shortages from China. American farmers, particularly soybean farmers, are devastated due to Trump’s policies. Amusingly, while the US is rolling out measures against China one after the other, Washington is also expecting China to purchase American soybeans.

The fresh China-US trade war began in February this year after Trump imposed an additional 10 per cent tariff on Chinese imports, demanding that Beijing act on fentanyl precursors in to the US. In response, China imposed levies on US commodities, farm equipment and automobiles, and launched a probe into several American businesses.

In March this year, the Trump administration expanded US export controls on advanced semiconductors, including a licensing requirement for high-end AI chips like Nvidia’s H20. This move, built on prior Biden-era rules, aimed explicitly at denying China access to the computing power needed for training large AI models and advancing military applications. In short, Trump intended to slow Beijing’s AI self-reliance to ensure that the US maintains a technological edge.

In April, President Trump singled out China over tariffs exceeding 100 per cent of his ‘Liberation Day’ levies. China also retaliated to Trump’s high-handedness, and both countries increased duties on each other until agreeing on a 90-day pause in May. While the TikTok deal has been a positive indicator, China’s REEs control expansion move hints that Beijing will not hold back from playing on the front foot if the US intensifies the trade war.

Visualizing How Rare Earths Power U.S. Defense Read More