China’s export controls on rare earths could cause production delays and higher costs in the semiconductor industry as soon as next year, Boston Consulting Group (BCG) Associate Director Karl Breidenbach told EE Times. 

“If export restrictions remain in force or tighten through 2025-2026, companies not diversified away from Chinese sources could face production slowdowns, higher production costs, slowdowns in wafer throughput and possibly product launch delays for devices that rely on affected components,” Breidenbach said. 

It is the latest salvo in the trade war between China and the U.S. In April, China’s Ministry of Commerce restricted seven rare earth elements and magnets that are critical for defense, energy and semiconductor production after U.S. President Donald Trump raised tariffs on Chinese products. The Chinese restrictions include materials most of us rarely think of, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium.  

The Chinese government will require domestic companies to secure special export licenses for the minerals and magnets made from them. 

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Despite years of efforts to reduce supply-chain risks, China has kept its monopoly on the refined materials, according to an April report from Washington D.C think tank CSIS. Australia, Japan and Vietnam are among a handful of nations with initiatives and investments underway to bolster rare earth mining, processing and R&D, as well as magnet manufacturing, Gracelin Baskaran, CSIS director of the Critical Minerals Security Program, said in the report.  

For the U.S. to build alternative sourcing partners for long-term supply chain security, it is important to continue to provide financial and diplomatic support to ensure the success of these initiatives, the CSIS report said. 

“If we arrive at a scenario where no gallium or dysprosium at all is flowing to U.S./EU buyers, this would severely constrain any technology requiring III-V semiconductors or rare-earth magnets,” BCG’s Breidenbach said. “Overall, the likelihood of this scenario is somewhat limited as new non-Chinese mining/refining projects start coming online, recycling programs ramp up and diversification is on its way. But we are still in a difficult change period for the semi and electronics industry.” 

If tensions worsen, China could tighten its license issuance to turn off the tap for certain minerals overnight, Breidenbach noted.  

“It’s a negotiation chip for currently ongoing trade negotiations,” he said. “I expect a cautious but firm rollout: few if any licenses to Western entities at first, with the possibility of partial relaxations if tensions cool.” 

In recent years, major chipmakers and governments have invested in alternate rare-earth production. Suppliers include Lynas in Australia, providing neodymium-praseodymium oxides, as well as new rare-earth separation facilities in the U.S. and Europe, and partnerships with mines in Africa.  

The U.S. has started to fund domestic processing of gallium and germanium. Japan and Europe have invested in non-Chinese sources for heavy rare earths, such as Japan’s JOGMEC.  

“I assume that over the next few years, we can expect some traditionally China-dependent materials to have robust non-Chinese supply chains or substitutes like DRAM-grade tungsten from Canada, dysprosium-free magnet modules from Japan, or even novel semiconductor materials like Ga₂O₃ or boron nitride being developed to bypass gallium entirely,” Breidenbach said. 

Supply-chain exposure 

The chipmaking process relies on critical rare-earth elements with applications ranging from high-precision tool parts to wafer fab materials.  

Tungsten, under tighter Chinese export control, is used in interconnects for advanced packaging and tooling. Restricted supply has caused price spikes within months, according to BCG.  

“Rare-earth magnets using neodymium-iron-boron alloys doped with dysprosium/terbium are part of lithography systems and wafer-handling robots, so curbs on these inputs could delay equipment deliveries and maintenance for chip fabs,” Breidenbach said. “The first immediate impact is that IDMs and foundries face cost inflation and potential bottlenecks in production if their Chinese sources for such specialized materials dry up.” 

Some IDMs have preemptively secured several months of supplies in anticipation of export controls, he noted. 

Semiconductor equipment makers and materials suppliers are increasing inventories of at-risk items, and chipmakers have signed long-term agreements with suppliers who have diversified supply sources, Breidenbach said. 

Dysprosium, terbium, neodymium, praseodymium, cerium, lanthanum and yttrium top the list of materials that are critical to the chip industry, according to BCG. 

“Neodymium is arguably the single most critical rare earth for electronics,” Breidenbach said. “Neodymium-praseodymium alloys generate powerful permanent magnets used in semiconductor manufacturing equipment like lithography scanners and etch tools as well as in countless electronic devices.” 

China’s dominance in the refinement of rare earths gives the nation a key sole-supplier advantage, according to Paul Triolo, who advises tech clients at Washington, D.C.-based Albright Stonebridge Group.  

“This intellectual property is the rarest thing about the entire supply chain, and it requires years to acquire, refine and innovate with,” he said. “This is where the real gap is. The Mountain Pass mine in California, for example, can produce lots of ore with rare earth elements, but refining this into a product ready to be used for industrial purposes is primarily done in China.” 

National security 

Rather than a blanket ban, every Chinese export requires a special license, and authorities will vet end users and end uses of the material case by case, according to Breidenbach.  

“We can expect China to deny or delay licenses for transactions that could benefit geopolitical rivals or sensitive industries,” he said. “For example, if a Chinese supplier applies to export gallium to a foreign semiconductor IDM that indirectly supplies the U.S. defense industry, that license could be refused on ‘national security’ grounds.”