09 June 2025

The U.S. halts exports of aviation and semiconductor technology to China.

Nearly a month after the U.S. and China eased tensions with a temporary tariff reduction agreement, the "honeymoon" has abruptly ended. Both sides have resumed escalating non-tariff sanctions. The U.S.-China trade war is entering a new phase.

Now, the battleground has shifted from tariffs to rare earth elements and high technology. This new move is pushing the world’s two largest economies closer to a new “supply chain war,” as both Washington and Beijing seek to assert power by controlling critical links in the global economy.

Most recently, U.S. President Donald Trump has suspended exports of engines and control systems to China’s state-owned COMAC, which are used in the production of the C919 aircraft—a flagship model of China's domestic aviation ambitions.

Additionally, the U.S. has halted exports of chip design software from Cadence, Synopsys, and Siemens to Chinese partners. These three companies currently provide over 70% of semiconductor design tools in China. Without this software, development and testing of next-generation chips will be nearly impossible.

70% of U.S. rare earth supply for tech and manufacturing comes from China

Consequences of China's Rare Earth Export Ban

China’s rare earth export ban is clearly impacting its own supply chains, especially in semiconductors and aircraft components. These export restrictions, along with other non-tariff barriers such as visa limitations for students, are part of a broader strategy by both the U.S. and China to restrain each other’s strategic capabilities.

In retaliation, Beijing has deployed one of its sharpest tools—rare earths. Currently, 70% of the rare earths used in U.S. high-tech manufacturing and industrial goods come from China. The U.S. rare earth supply chain is now more unstable than ever.

China's export controls mainly target heavy rare earth elements, which are critical to defense technologies. For example, the F-35 fighter jet requires around 400 kg of rare earths for jet engines, avionics, munitions, and radar systems. The Virginia-class submarine uses up to 4,200 kg of rare earths in defense technologies. Notably, 78% of U.S. military weapons systems rely on rare earth materials imported from China.

Dr. Gracelin Baskaran, Director of the Critical Minerals Security Program at CSIS, stated: “The U.S. has no domestic processing capability for heavy rare earths. It is completely dependent on China. Sixteen major U.S. aerospace and defense firms would be unable to manufacture weapons without these materials.”

Dr. Hoo Chiew-Ping from the East Asia International Relations Caucus (Malaysia) added: “If China fully enforces its rare earth and magnet export ban, the U.S. will need to turn to allies like Australia or Japan. While their reserves are not huge, they could help meet short-term defense and aerospace needs.”

Meanwhile, the global auto industry has issued strong warnings to governments about potential production halts. Companies like General Motors, Toyota, Volkswagen, and Hyundai have highlighted that essential components such as gearboxes, motors, and sensors cannot be produced without rare earth materials.

Dr. Hoo further commented: “China’s ban is triggering a race among major powers to secure alternative rare earth supply chains—possibly even from deep-sea mining. However, in the short term, dependency on China remains almost unavoidable.”

The battle for greater control over supply chains in critical minerals and high technology is projected to become more complex

Global Businesses Restructure Supply Chains Amid Rising Trade Uncertainty

A recent HSBC survey of over 5,700 companies across 13 major markets reveals that two-thirds have experienced cost increases due to trade disruptions. In response, many are actively restructuring their supply chains to enhance resilience and reduce reliance on vulnerable links.

One notable move is in Europe, where Itelyum has launched the continent’s first industrial-scale facility to recycle critical rare earths from used permanent magnets. Backed by over €3 million in EU funding, this plant aims to reduce the bloc’s dependence on external sources—primarily China—for key raw materials. 

Francesco Gallo, Chief Operating Officer of Itelyum, stated: “Europe lacks sufficient rare earth supply for essential equipment. Every country wants these materials—not only for green technologies but also for defense.”

To shift from dependency to autonomy, the EU is embracing circular economy strategies, powered by AI and advanced robotics. “AI helps us map all electronic waste,” Gallo added. “It is essential for identifying, sorting, and disassembling waste, which we further process using robots where possible.”

On the business side, companies are increasingly adjusting their supply chains to align with market-specific conditions. HSBC reports a growing trend in nearshoring (relocating production closer to consumer markets) and reshoring (bringing production back home).
Surajit Rakshit, Country Head of Global Trade Solutions at HSBC Vietnam, noted: “We are seeing a surge in nearshoring strategies, particularly in globally connected sectors such as technology, media, and telecommunications. About 87% of clients in these industries have implemented or plan to implement nearshoring.”

Amid mounting global trade uncertainties, supply chain restructuring has become a strategic imperative for businesses and economies alike. Rather than solely focusing on cost efficiency, companies are now prioritizing a balance between operational safety and competitiveness.

In a recent update, President Donald Trump announced that China has temporarily resumed rare earth exports to the U.S. CNBC reported that three major automakers have received provisional licenses to purchase these critical materials. Further negotiations are set to resume on Monday, June 9. However, experts warn that the battle for control over mineral and high-tech supply chains is far from over, especially with tariff disputes still unresolved.