Critical mineral policies are choking the semiconductor supply chain

Chip orders that once were a straightforward bill of materials often now appear as a tangle of geopolitical risk and regulatory hurdles. A single cutting-edge semiconductor contains multiple layers of materials targeted by tariffs. From rare base metals to the fabricated die itself, one chip can trigger several duties, each exponentially raising its price. Even before the finished semiconductor is packaged and shipped, it can trigger multiple rounds of tariffs stemming from separate, overlapping trade policies.  

Shifting steel and aluminum exemptions, retaliatory tariffs, and policy swings in Washington and Beijing have left supply chain leaders constantly guessing whether they’ll be caught paying duties on duties. The resulting compliance burden can hit unprepared chip buyers hard, often before they realize they’re at risk.  

One component, multiple tariffs

Modern semiconductors are complex, globally sourced pieces of a diverse supply chain reliant on dozens of high-purity inputs and precision tools. The myth of the self-contained semiconductor is long gone, with many chips originating from or passing through regions now ensnared in trade disputes. As each stage of this upstream value chain is increasingly exposed to tariffs, the result is cumulative costs that few buyers prepare for.  

Take, for instance, the Section 232 tariffs on strategic metals like aluminum and copper, and Section 301 tariffs, which target Chinese-origin goods, including specialty chemicals and subcomponents. The effect is a silent stacking of duties. Aluminum shipped from China may be hit with a Section 232 tariff, then again under Section 301 if further processed, and again if incorporated into an end-use product.  

This exposure means a single finished chip may carry a tariff load equivalent to 10-14% or more increase in total production costs. That’s a major hit to tight margins, particularly for contract manufacturers and fabless firms who operate on lean unit economics.  

Perhaps more problematic is the unpredictability. Tariffs on manufacturing equipment can delay new fab buildouts and cause production bottlenecks, creating a vicious cycle of difficult sourcing and price hikes.  

Rare Earth controls: China’s strategic countermove

While the U.S. targets the semiconductor supply chain through tariffs, China has wielded its own economic leverage. Namely, it’s control over the majority of the world’s rare earth elements. These critical materials, essential for producing semiconductors, lasers, magnets, and other essential components, are overwhelmingly refined or manufactured in China, which controls over 80% of global capacity.  

In April, Beijing escalated its response to U.S. tariffs by placing new export controls on rare earth processing technologies and select products. Though the two countries agreed on a new trade framework which includes a commitment from China to resume rare earth exports to the U.S. earlier this month, global supply is strained.  

Many firms have built inventory buffers that can last six months to a year. However, when those stockpiles run dry, production challenges will follow. Making matters worse is the fact that some rare earth magnet producers in China slowed production in response to export uncertainty. Despite resuming their output, this spring’s slowdown could have widespread ramifications in the coming months.  

Notably, refining infrastructure for these critical materials is scarce or nonexistent in most countries outside of China. The U.S. and EU have mineral deposits but currently lack the processing capacity to extract and refine them at scale. For now, this gives China a powerful lever with which it can assert its influence over the global chip sector.  

The compliance burden: ‘A spiderweb of madness’

Even companies accustomed to regulatory complexity, escalations in trade tensions present unique challenges. For one, U.S. Customs and Border Protection (CBP) has stepped up its scrutiny of chip-related imports for tariffs classification accuracy, particularly those involving intermediate and compound materials.  

Despite efforts to improve, supply chains have simply become too complex for existing compliance systems. Many companies lack the ability to trace a component’s lineage back to its mineral or chemical root. Inputs originating in China might be assembled or refined elsewhere, creating ambiguity in classification. Moreover, unclear rules around intermediary processing have left buyers with the best intentions unsure of how to proceed.  

This widespread uncertainty now triggers enforcement. CBP has recently detained shipments not based on the product label, but on gaps in documentation. These detentions lead to costly delays, penalties, and, in some cases, retroactive duty liabilities.  

Trade compliance specialists have dubbed the current landscape “a spiderweb of madness.” A dizzying maze of sourcing records, customs declarations, and rule-of-origin documentation makes it difficult for robust compliance systems to keep up. Unlike other supply chains, compliance failures cannot be solved by simply paying more. They demand forensic-level sourcing records, supplier audits, and near total transparency across the bill of materials.  

This expectation for granularity is a shocking jolt to a system built for speed and opacity at scale. Most importers aren’t ready, or able to adapt.  

Why companies are caught off guard

Despite the semiconductor supply chain’s growing complexity, many companies still operate under the assumption that their upstream partners are managing tariff compliance and traceability. This blind spot is where the next wave of disruptions will hit.  

Most organizations have robust systems for tracking finished goods, but not the base minerals or precursor chemicals used to make them. They rarely receive alerts when such inputs are hit by tariffs or supply constraints. Few have visibility into how Chinese-origin materials might pass through multiple localities before being assembled.  

The consequences aren’t theoretical. When a critical material becomes restricted or reclassified under new customs rules, disruption follows. Missed shipments, flagged entries, and extra duties will occur suddenly with no time to pivot. This leaves procurement teams scrambling to solve problem after problem only to find that pricing has surged and alternatives are unavailable.

Strategically, this highlights a broader weakness in risk management practices that fail to account for origin exposure and regulatory flux. Such oversights are dangerous in a market as volatile as today’s.  

The path forward: Rethink risk, redefine tracking

To navigate this “web of madness,” the semiconductor industry must radically shift its approach to sourcing and compliance. Risk management must go beyond price and delivery time to:  

• Map material origin down to the compound level, including detailed tracing of processing history and input breakdowns.  

• Evaluate supplier exposure to tariffs under Section 232 and Chinese controls on a rolling basis.  

• Develop proactive sourcing alternatives now, not after a crisis is already happening.

Unfortunately, current systems weren’t designed to deliver insights with this level of granularity. Achieving the necessary perspective demands integrated trade intelligence, real-time customs analytics, and supplier transparency practices that don’t yet exist at scale in most companies.

Players in the chip industry can’t continue to compete on performance, cost, or time-to-market. Compliance risk mitigation, transparency, and geopolitical diversification now define what makes a company competitive. As China tightens its grip on critical inputs and U.S. tariffs compound across supply layers, the firms that succeed will be those who invest early in traceability and agile sourcing.