China's rare earth squeeze hits AI chips and ASML hard

Reading time: 6–7 minutes

The short story

Rare earths might sound arcane, but they’re the invisible backbone of your servers, fabs and industrial robots. Motors, pumps, lithography stages—all rely on magnets and alloys that lean on rare earth elements.

On 9 October 2025 China rewired the rules of the game. MOFCOM Notice 2025-61 now requires export licences even when Chinese-origin rare earths make up just 0.1% of a foreign-made product, with the full extraterritorial bite arriving 1 December 2025.^[1] Expect paperwork, provenance audits and potential pauses as customs officers learn the new playbook.

What actually changed?

• De minimis trigger: Foreign-made items that contain ≥0.1% by value of the listed Chinese rare earth inputs now require a Beijing-issued licence before they can move to a third country.^[2]
• Technology reach: Gear manufactured abroad using Chinese mining, separation, magnet-making or recycling know-how is also covered, even if no raw material crosses a border.^[3]
• Timeline: Domestic Chinese-origin items fell under licence on 9 October; the foreign-product provisions start 1 December, in line with legal analyses from trade counsel and MOFCOM guidance.^[2]

In short: the rules now follow the material wherever it travels, mirroring Washington’s own “foreign direct product” approach to advanced chips.

Why AI teams will feel it

The bottleneck isn’t ore in the ground—it’s the midstream. China processes over 90% of the world’s rare earths and magnets, so any licensing drag in Beijing ripples through fabs in Arizona, clean rooms in Hsinchu and robot lines in Stuttgart.^[4]

Expect compliance checks on innocuous parts: vacuum pumps, wafer-handling stages, even coolant valves. Each fresh licence adds calendar risk, especially if your supplier’s supplier sits on the hook.

Who feels it first

ASML: China generated 42% of ASML’s Q3 2025 system sales, and CFO Roger Dassen says the company is “short-term prepared” thanks to inventory, but warns of potential delays if licences bog down.^[4]

Tesla Optimus: Elon Musk told investors the humanoid robot programme is already constrained by magnet export approvals from China; Tesla is working with Beijing to secure licences, but production timelines remain fluid.^[5]

Apple hedges: Rather than wait for paperwork, Apple signed a $500 million domestic magnet deal with MP Materials, pairing new magnet lines in Fort Worth with a recycling facility in California to reduce exposure to Chinese inputs.^[6]

Ford and the auto sector: Only about a quarter of early licence requests were approved after April’s initial controls, forcing automakers to pay premiums or pause lines—Ford idled its Chicago Explorer plant for a week while awaiting magnets.^[7]

Nvidia’s parallel battle

Nvidia is absorbing a $5.5 billion charge after Washington required licences for H20 GPU exports to China, illustrating how export policies can wipe out inventory overnight.^[8] China has since tightened customs inspections on the very China-compliant H20 and RTX Pro 6000D chips, adding weeks of uncertainty even for shipments designed to meet the rules.^[9]

Europe scrambles for resilience

The EU Critical Raw Materials Act locks in 2030 targets: source 10% of strategic raw materials from EU mining, 40% from EU processing and 25% from EU recycling, while capping any single foreign supplier at 65%.^[10]

To get there, Brussels approved 47 strategic projects worth €22.5 billion across 13 member states, fast-tracking permitting for extraction, processing, recycling and substitution efforts.^[11]

The bigger picture

Think of Notice 61 as torque at the start of a supply chain. More friction at the origin means higher costs, longer dwell times and stricter traceability downstream. Analysts warn that if controls persist through 2026, chipmakers could face production slowdowns and delayed launches as they scramble for non-Chinese magnet capacity.^[12]

The near-term to-do list? Map your suppliers’ exposure, build buffer inventory where it makes sense, and line up alternative sources—even at a premium—before bottlenecks arrive.

Quick glossary

• Rare earths (REEs): Elements used in high-strength magnets, lasers and polishing compounds.
• Export controls: Government rules requiring licences to ship sensitive items abroad.
• Foreign-product rule: Extends export jurisdiction to foreign-made items that incorporate or rely on controlled inputs or technologies.

Bottom line

China just shifted from guarding minehead output to policing entire value chains. For AI infrastructure builders, that means budgeting for compliance delays, multi-source contracts and higher component prices. The companies investing today in redundant supply—ASML’s inventory strategy, Tesla’s redesigns, Apple’s domestic magnet build-out—are the ones most likely to keep shipping on schedule in 2026.

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Sources

1. Center for Security and Emerging Technology, “MOFCOM Notice 2025-61 translation,” 9 Oct 2025.
2. Mayer Brown, “PRC announces new export controls on rare earth and battery materials,” 10 Oct 2025.
3. Asian Metal, “China extends export controls to overseas rare earth products,” 10 Oct 2025.
4. Reuters, “ASML plays down Chinese tool stockpiling, impact of rare earth restrictions,” 15 Oct 2025.
5. Reuters, “Musk says Tesla’s Optimus humanoid robots affected by China’s export curbs,” 23 Apr 2025.
6. Apple Newsroom, “Apple expands U.S. supply chain with $500 million commitment,” 15 Jul 2025.
7. MetalMiner, “Rare Earths MMI: U.S.–China trade deal eases export controls,” 7 Jul 2025.
8. CNBC, “Nvidia says it will record $5.5 billion charge tied to H20 GPUs,” 15 Apr 2025.
9. Financial Times, “China launches customs crackdown on Nvidia AI chips,” 10 Oct 2025.
10. European Commission, “European Critical Raw Materials Act,” accessed 16 Oct 2025.
11. Anadolu Agency, “EU adopts 47 strategic projects to boost raw material capacities,” 25 Mar 2025.
12. EE Times, “China’s rare earth controls may impact chip industry by 2026,” 25 Apr 2025.