In a dramatic escalation of the ongoing trade war between the United States and China, both nations have unleashed a new wave of tit-for-tat measures that threaten to shake global supply chains, particularly those vital to high-tech industries. Over the past two weeks, rare earth materials and semiconductor chips have emerged as the latest battlegrounds, with repercussions stretching from Wall Street to European automakers.
On October 9, 2025, China’s Ministry of Commerce announced its strictest export controls yet on rare earth materials, a move that sent shockwaves through global markets. Rare earths, a group of 17 elements essential for producing everything from electric vehicle (EV) motors and wind turbines to advanced defense systems, are a linchpin of the modern technological economy. China currently controls 70% of global rare earths production and over 90% of global refining, according to Reuters and South China Morning Post. Now, with Beijing’s new rules, that grip is set to tighten even further.
Just a day later, Washington fired back. In a retaliatory move, the U.S. declared an additional 100% tariff on Chinese imports, set to take effect November 1, and signaled new export controls on critical software, potentially including artificial intelligence frameworks and electrical design automation (EDA) tools. The result? A sharp market selloff: the Dow Jones plummeted nearly 900 points, while the S&P 500 dropped 2.7%, with EV and semiconductor stocks leading the declines. The message was clear—supply chain disruptions are no longer a distant threat but an immediate reality.
China’s latest export controls, effective November 8, extend beyond the seven rare earth elements it already regulates, adding five more to the list. But the real kicker comes December 1, when any overseas company exporting products containing more than 0.1% Chinese rare earths or using Chinese processing technology will need Beijing’s explicit approval and licensing. This sweeping measure essentially establishes China’s own version of the foreign direct product rule, a tool previously wielded by Washington to restrict China’s access to advanced semiconductors produced with U.S. technology. As South China Morning Post reported, these new rules will also apply to permanent magnets and other items manufactured outside China but containing Chinese rare earths above a certain threshold.
The implications are staggering. For U.S. manufacturers, stricter licensing and traceability requirements threaten to choke off key inputs for EVs, defense systems, and consumer electronics. "China’s position on the trade war is consistent: we do not want it, but we are not afraid of it," a spokesperson for China’s Ministry of Commerce stated, encapsulating Beijing’s willingness to leverage its dominance in this sector.
Meanwhile, the Dutch government has become embroiled in its own dispute with China over Nexperia, a Chinese-owned semiconductor company. On September 30, Dutch authorities took control of Nexperia, citing fears that sensitive technology could be transferred to its Chinese parent, Wingtech. In response, China’s Commerce Ministry issued export controls on October 4, barring Nexperia China and its subcontractors from exporting specific finished components and sub-assemblies manufactured in China. The Dutch economy ministry acknowledged, “The situation regarding the Nexperia facilities in China, where export control measures have been applied, naturally has our full attention. We are in discussions about resolving this matter with the Chinese authorities, as well as other relevant European governments and businesses.”
This chip disruption is no small matter. Nexperia, one of the world’s largest makers of basic chips such as transistors, supplies major automakers and consumer electronics firms. With its biggest manufacturing site in Hamburg, Germany, but most chips packaged and assembled in China, the export restrictions could quickly ripple through Europe’s automotive industry. Major automakers have already warned that continued disruptions could impact vehicle production—a stark reminder of how deeply intertwined global supply chains have become.
Yet, for all of China’s assertiveness, enforcing these new export controls on a global scale may prove tricky. As South China Morning Post reported, analysts at Morgan Stanley noted that while the U.S. has decades-old legal frameworks, a robust global licensing regime, and close cooperation with allies to track U.S.-origin technology, China currently lacks a comparable compliance architecture. “The US leverages decades-old legal frameworks, an established global licensing regime, close allied cooperation, and rigorous liability enforcement to ensure visibility over US-origin technology throughout intricate supply chains,” Morgan Stanley wrote in an October 16 report. In contrast, China’s ability to monitor and enforce its rules on products manufactured abroad remains untested.
That hasn’t stopped other countries from scrambling to diversify their rare earth supplies. Japan’s state agency JOGMEC, for instance, forged a $250 million partnership with Australia’s Lynas in 2010 to secure independent rare earth supplies. As of August 2024, Lynas now accounts for roughly 12% of global rare earth oxide production, supplying 90% of Japan’s light rare earths and expanding into heavy rare earths. India, too, is getting in on the act: Indian Rare Earths Limited (IREL) is working with Japanese and Korean companies to develop rare earth magnet production that doesn’t rely on Chinese technology, aiming for board approval in 2025 and full implementation within five years.
U.S. firms aren’t sitting idle either. The “China+1” strategy—maintaining Chinese supply lines while building parallel operations elsewhere—is gaining traction. Back in September 2021, MP Materials and General Motors inked a deal to source rare earth magnets for EVs from a domestic supply chain, with MP Materials sourcing from Mountain Pass, California, and manufacturing in Texas. This marks the first credible U.S. effort to counter China’s near-monopoly in rare earths production and downstream manufacturing.
Still, the risks run deep. Former Senator Judd Gregg has warned that U.S. markets are dangerously reliant on vulnerable supply chains, especially Taiwan’s TSMC, which produces over 97% of the world’s advanced semiconductors. Any disruption there would cripple not just the tech sector but the entire global economy.
History offers a sobering lesson. In 2010, China cut off rare earths access to Japan during a diplomatic spat, weaponizing critical materials for the first time. Beijing doubled down in 2021, consolidating control over rare earth supply chains and prompting the U.S. to seek alternatives and stockpile materials. Now, with the most intense export controls yet, China is once again flexing its muscle, but as columnist Clyde Russell observes, “China can only wield its rare earths ‘weapon’ once.” If Beijing pushes too hard, Western governments will be forced to invest heavily in expanding their own refining capacity, potentially eroding China’s dominant market share over time.
As countries worldwide scramble to formulate contingency plans, the path forward is clear: resilience, not retaliation, is the key to navigating this era of trade conflict. Diversifying supply chains, investing in alternative refining capacity, and forging new partnerships will cost less today than scrambling to manage a crisis tomorrow. The future of high-tech industries—and perhaps the global economy—hangs in the balance.