Chip Supply Chain Braces For Disruption Amidst Trump-Xi Trade Fallout

As a direct result of the ongoing US-China trade war, businesses are expecting disruptions in the global supply chain of semiconductors.

In response to China's curbs on exports of rare-earth mineral, US President Donald Trump has now retaliated with imposing 100 per cent tariffs on and restrictions on software sales to  the east Asian country.

Rare earth elements are critical components to manufacturing a range of products from smartphones and electric vehicles to renewable energy technology.

Trumps escalation of a trade standoff between two major economies also had an impact on the US stock market indices with Nasdaq down by 3.6 percent and the S&P 500 declining to 2.7 percent.

China’s expansion of curbs linked to rare earth minerals is a dominant move threatening to stall the chips powering the AI boom.

This triggered the additional 100% US tariffs on China and export controls on “any and all critical software.”

The rare-earth curbs may lead to weekslong delays in shipments for ASML Holding NV, the only manufacturer in the world of machines that make the most advanced semiconductors, a person familiar with the company said.

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A senior manager at a major US chip company said the firm is still assessing potential impacts, according to a Bloomberg report.  

Meanwhile, the biggest risk the company faces is of rising rare earth-dependent magnets prices, which are critical to semiconductor supply chain, the manager said.

An official at another US chip company said the business is rushing to identify which of its products contain rare earths from China and is worried that the country’s requirement for licenses will grind its supply chain to a halt.

China’s new rules make it a requirement for overseas firms to gain approval for shipping any material containing even trace amounts of Chinese rare earths — and explicitly call out parts used to make certain computer chips and advance AI research with military applications.

“These are the strictest export controls that China has utilized,” said Gracelin Baskaran, a critical minerals-focused director at the Center for Strategic and International Studies, citing a  Bloomberg report.

“It’s quite clear that they have the sticks and the leverage to make, not just US firms, but firms worldwide comply,” he said.