From Singapore: The diplomatic handshake between Donald Trump and Xi Jinping in Busan last October was supposed to put a floor under the rare earth crisis. It has not. Four months after the two presidents agreed to ease critical mineral export restrictions, American semiconductor manufacturers are still struggling to secure supplies of scandium, a niche but irreplaceable material used in the production of 5G chips. According to Reuters, which spoke with two US government officials and fourteen industry figures for its investigation, some chipmakers are now running down their last remaining stockpiles.
The numbers alone tell a troubling story. China exported 17 tonnes of yttrium products to the US in the eight months after controls were introduced last April, versus 333 tonnes in the eight months before those measures. That is a collapse of roughly 95 per cent. Yttrium, used in coatings that prevent jet engine turbines from melting at operating temperatures, has become so scarce that since Reuters first reported on yttrium shortages in November, prices have jumped 60 per cent and are now about 69 times as high as a year ago.
Scandium presents a separate but equally acute problem for chipmakers. Dylan Patel, founder and CEO of SemiAnalysis, said US semiconductor makers are running low on scandium, and global production is only several tens of tonnes a year. Scandium is used in fuel cells, specialty aluminium aerospace alloys, and advanced chip processing, including packaging steps. Patel said major US semiconductor manufacturers rely on scandium for chip components that "go into essentially every 5G smartphone and base station."
The mechanism China is using to apply pressure is worth examining closely. US chipmakers have experienced delays in receiving new scandium export licences from China in recent months and have reached out to Washington for help. Many of these firms had obtained scandium from third-country suppliers, but China requires licence applicants to declare their end-users. In practice, this means Beijing can vet every link in the chain, including intermediary traders in countries that are not party to the bilateral dispute. "Our thesis is that it is precisely the semi industry being targeted," one US official told Reuters.
The structural exposure is stark. "The US currently has zero domestic scandium production and no operational alternative sources outside China," Patel said, adding that stockpiles are likely in months rather than years. The October deal, which the White House described as including Chinese commitments to effectively eliminate export controls on rare earths, was meant to address precisely this kind of vulnerability. Legal analysis by Morrison Foerster found that China will suspend for one year its October 2025 export control measures on rare earth materials, but the status of its earlier April 2025 controls remains ambiguous. That ambiguity appears to be the gap through which current shortages are flowing.
A Weapon of Calibrated Precision
It would be tempting to read this situation purely as Beijing acting in bad faith, using administrative delay to circumvent diplomatic commitments while maintaining plausible deniability. There is genuine evidence to support that reading. While between 2019 and 2024 only 43 export-control compliance enquiries were posted publicly to China's commerce ministry, that number jumped to 135 in 2025 alone, suggesting a deliberate intensification of bureaucratic scrutiny rather than a temporary administrative backlog.
Yet a more complete picture acknowledges China's own complexity here. China reportedly produces over 90 per cent of the world's processed rare earths and rare earth magnets, a dominance built over decades of patient industrial policy and, at times, subsidised production that undercut competitors globally. Western nations, including Australia, made a collective economic choice to rely on that cheap supply rather than develop domestic processing capacity. The consequences of that choice are now arriving. The Australian Competition and Consumer Commission and other regulators in allied nations have for years flagged concentration risks in global supply chains, warnings that went largely unheeded during years of low inflation and geopolitical stability.
The Trump administration's response has been to pursue several tracks simultaneously. It is planning to build a strategic reserve for critical minerals, similar to the oil reserves the US built in 1975 after the price shocks brought by the OPEC oil embargo from 1973 to 1974. Washington also founded the Pax Silica initiative, designed to pivot the global semiconductor supply chain away from China, with India officially joining the effort this month. Whether these initiatives can move fast enough to matter is a different question. Building non-China separation and refining capacity requires years of capital, permitting, and technical infrastructure development, meaning the near-term supply crunch will not be resolved by policy announcements alone.
Australia's Strategic Opening
For Australian exporters and policymakers, the signal is hard to miss. Australia holds some of the world's largest rare earth deposits, and companies such as Lynas Rare Earths have invested heavily in domestic processing capacity in a deliberate effort to position themselves as a supply-chain alternative. The Department of Industry's critical minerals strategy has identified rare earths as a priority precisely because of the kind of geopolitical leverage now on display in Washington and Beijing. This crisis is, in part, a validation of that framework.
The trade implications for Australia are direct: every tonne of scandium or yttrium that the US cannot source from China is a tonne that allied supply chains need to find elsewhere. Australia's rare earth sector is not yet capable of filling that gap at scale, but the commercial incentive to invest in that capacity has never been stronger. One sign of shifting US intent is that a US agency is reported to be seeking to buy scandium oxide from Rio Tinto for a defence stockpile, a move that would channel significant procurement dollars toward an Australian mining giant.
The easing of trade tensions, premised in part on China pausing its critical mineral export restrictions, will be on the table when Trump and Xi meet in Beijing in March. That summit will be closely watched across the Indo-Pacific. A lasting resolution would relieve immediate pressure on chipmakers, but it would also dampen the commercial urgency that is currently driving investment toward alternative suppliers, including Australian producers.
The honest assessment is that neither a full diplomatic resolution nor a complete supply-chain decoupling is likely in the near term. What is more probable is a prolonged period of managed friction, in which Beijing uses its rare earth licensing system as a calibrated instrument of leverage and Washington scrambles to build redundancy that will take years to materialise. For Australia, the prudent path is to accelerate investment in domestic processing capacity now, while global demand for alternative supply is at its peak. Waiting for the geopolitics to settle before committing capital would almost certainly mean missing the window. The Australian Bureau of Statistics consistently shows mining as one of the economy's most resilient export earners; rare earths represent its next frontier, if Canberra is prepared to move with sufficient urgency.