May 16, 2025
In recent developments, China's tightening grip on rare earth element (REE) exports is poised to significantly impact the global semiconductor industry by 2026. As the world's dominant processor of these critical minerals, China's policy shifts have raised concerns about supply chain stability and the broader implications for technology sectors worldwide.
Rare earth elements, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, are indispensable in the manufacturing of semiconductors, electric vehicles, wind turbines, and various defense applications. China's control over more than 90% of global REE processing capacity has positioned it as a pivotal player in these industries.
In April 2025, China imposed export restrictions on seven rare earth elements, requiring special licenses for their export. This move, part of a broader strategy to exert control over critical mineral exports, has led to immediate concerns about production delays and increased costs in the semiconductor sector.
While a temporary 90-day suspension of these restrictions was announced in May 2025, allowing U.S. companies to apply for export licenses, the long-term outlook remains uncertain. Industry experts warn that without significant diversification of supply sources, the semiconductor industry could face substantial disruptions by 2026.
The international community is responding by seeking alternative sources of rare earth elements. Efforts include developing domestic mining and processing capabilities in countries like the United States, Canada, and Australia. However, establishing these facilities requires substantial investment and time, making them unlikely to alleviate short-term supply concerns.
In the interim, companies are exploring ways to reduce reliance on rare earth elements, such as developing alternative materials and recycling existing components. Nevertheless, these solutions are still in nascent stages and may not fully offset the potential supply constraints.
China's rare earth export controls underscore the vulnerabilities in the global semiconductor supply chain. As the industry braces for potential disruptions, stakeholders must prioritize diversification and innovation to mitigate risks. Proactive measures taken now will be crucial in ensuring resilience against future geopolitical and supply chain challenges.
