U.S. sanctions Chinese firms as China tightens rare-earth controls
Escalating U.S.–China trade and security moves are threatening global supply chain stability.
China’s decision to expand rare earth export controls introduces a new layer of vulnerability into semiconductor production. Dozens of rare earth inputs play a significant role in semiconductor manufacturing processes. For chipmakers reliant on China’s materials and processing technology, the new rules could lead to higher costs, supply bottlenecks, and production slowdowns.
U.S. escalates sanctions and reverses decision on Arrow
The United States Commerce Department has added 29 companies to its Entity List, including 15 Chinese firms. The new sanctions, announced in early October, target companies accused of funneling U.S.-origin electronics into weaponized unmanned aerial vehicles (UAVs) being used by militant groups, including Hamas, the Houthis, and other Iran-aligned proxy forces.
Of the newly sanctioned companies, 10 were explicitly cited for enabling components in weaponized UAVs. These entities will now require special export licenses to receive U.S.-origin goods or technology. Given the Commerce Department’s track record after similar moves, those license requests will almost certainly be denied.
Among the targeted firms were several Arrow affiliates based in China. The Commerce Department claimed both subsidiaries played a part in facilitating procurement activities that allowed their components to be used in military drone platforms, including those recovered in conflict zones across the Middle East.
In response, Arrow paused all shipments of Texas Instruments products to the affected subsidiaries. The firm hasn’t publicly stated a timeline for resuming those shipments.
In a statement, Arrow spokesperson John Hourigan said, “We are in discussion with BIS concerning these listings and will provide further details as soon as they become available. In the meantime, we will work to minimize supply chain disruptions to our partners.”
On Tuesday, October 21st, the Bureau of Industry and Security (BIS) stated it would remove several of Arrow’s China-based affiliates from the entity list. The delisting would remove the stringent license requirements for exports previously placed on listed entities.
Hourigan also stated that BIS had added Arrow Electronics (Hong Kong) Co. Ltd. to the list, but said Arrow wasn’t affiliated with it. “Based on publicly available information, it appears to be a copycat using a similar name,” Hourigan commented in an email.
“After we learned of this company's designation on the Entity List, Arrow conducted a review of its global partner and customer records and found no evidence—active or inactive—of any business relationship with ‘Arrow Electronics (Hong Kong) Co., Ltd.’ We worked with authorities to clarify the basis for that listing and resolve it.”
China intensifies rare-earth export controls
As the U.S. expands sanctions on Chinese firms, Beijing has responded in the ongoing trade battle by tightening its grip on the global rare earths supply chain. In an industry where China holds overwhelming dominance, it is now flexing its ability to use rare earths as a geopolitical lever.
China’s Ministry of Commerce added five new rare earth elements to its export control list: holmium, erbium, thulium, europium, and ytterbium. These elements, though not widely known outside the chip industry, are indispensable in technologies ranging from semiconductor lithography to advanced magnets used in AI, EVs, and aerospace systems.
Along with expanding its list, China also added controls over the export of refining and processing technologies. This includes dozens of magnet-making, refining, and purification processes. Exporters of both materials and equipment must now apply for licenses, with approvals subject to increasingly opaque review standards tied to China’s national interests.
China, which currently controls some 90% of global rare earths processing capacity, has employed a series of targeted measures over the past 18 months in response to growing U.S.-led tech restrictions. In 2023, Beijing restricted exports of gallium and germanium, used heavily in RF chips and optical components. Earlier this year, it took a firmer stance, adding several additional inputs to its export controls list and introducing a more convoluted approval process.
On October 16th, China went a step further to accuse the U.S. of inciting panic over its rare earth control strategy. A Commerce Ministry spokesperson, He Yongqian, said in a statement, “The U.S.’ interpretation seriously distorts and exaggerates China’s (rare earths export control) measures, deliberately stirring up unnecessary misunderstanding and panic. Provided the export license applications are compliant and intended for civilian use, they will be approved.”
By further tightening its grip on rare earth inputs, China can greatly influence a number of industries. Automakers and semiconductor manufacturers are already reporting early-stage disruptions, including license delays and difficulties securing feedstocks. Several firms across the U.S., EU, and Japan have flagged risk scenarios involving lower inventory thresholds and potential downstream production halts in early 2026 if alternative sources aren’t secured.
Supply diversification efforts have accelerated in the rest of the world, but these initiatives are capital intensive and slow to ramp up. With processing capacity highly centralized in China, even the most resilient supply chains may be vulnerable to regulatory shifts affecting rare earth exports.
For now, all developments in this area will be crucial to monitor. As U.S.-China trade tensions appear to be thawing ahead of the Asia-Pacific Economic Cooperation summit later this month, rare earth exports will be a lynchpin to any discussions between the two nations.
