China’s Rare Earth Export Controls: Impact on IT Hardware

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China has announced immediate export controls on seven more rare earth elements critical to enterprise IT hardware manufacturing, firing a fresh salvo in the ongoing tech trade war. This move could significantly impact tech giants including Dell Technologies, HP, Apple, and IBM, along with semiconductor leaders such as Intel, Samsung, and TSMC.

“This development is materially more targeted — and potentially more destabilizing — than most previous supply chain disruptions we’ve tracked since 2020,” said Sanchit Vir Gogia, CEO and chief analyst at Greyhound Research. “What elevates the severity is the lack of short-term substitutability. Unlike chips or cables, these elements can’t simply be redesigned out of a supply chain.”

“AI-first infrastructure rollouts — particularly those involving GPUs, edge accelerators, and high-efficiency cooling — are directly in the crosshairs,” Gogia noted. “So are quantum computing R&D efforts and high-reliability storage systems where thermal and magnetic materials matter.”

“We see the greatest exposure in private data center expansion projects, AI inferencing at the edge, and next-gen device manufacturing, including specialized industrial IoT and robotics,” noted Gogia.

“The real impact timeline begins within 3–6 months, especially as existing inventory buffers are exhausted,” Gogia pointed out. “Pricing pressure on affected components is likely to emerge even earlier as manufacturers hedge against tightening access.”

CIOs should integrate these considerations into their technology roadmaps and budget planning, Gogia added.

According to Greyhound Research’s Gogia, it is no coincidence this announcement follows moves by the US and its allies to ringfence semiconductor capabilities through the “Chip 4” alliance and deepen their rare earth supply diversification. “China is signalling that any attempt to isolate its position in core technology stacks will be met with asymmetric friction in return.”

“Geopolitics is no longer just a backdrop — it is now a full-time actor in enterprise IT strategy,” Gogia added. “China’s move on rare earths formalizes that shift.”

“This isn’t just about tit-for-tat retaliation — it’s a layered play,” explained Gogia. “We believe this is part of a broader shift in China’s posture — from being a passive node in global tech supply chains to becoming an active economic gatekeeper.”

As quoted in NetworkWorld.com

Additional comments by Greyhound Research analyst:

This development is materially more targeted—and potentially more destabilising—than most previous supply chain disruptions we’ve tracked since 2020. While COVID-era component shortages were broad and indiscriminate, this move from China zeroes in on seven highly strategic rare earth elements essential to very specific classes of IT hardware, especially high-performance AI and hyperscale compute systems.

What elevates the severity is the lack of short-term substitutability. Unlike chips or cables, these elements can’t simply be redesigned out of a supply chain. Many of them—like dysprosium and terbium—are fundamental to permanent magnets in cooling systems, high-density storage, and AI accelerator infrastructure.

From a CIO perspective, the real impact timeline begins within 3–6 months, especially as existing inventory buffers are exhausted. Pricing pressure on affected components is likely to emerge even earlier as manufacturers hedge against tightening access.

At Greyhound Research, we believe this ranks as one of the most precision-calibrated supply chain risks the enterprise IT sector has faced in over a decade, not because of volume impact, but because of strategic concentration risk and timing in the middle of a global AI infrastructure build-out.

This move mirrors patterns observed in earlier trade tensions, where geopolitical strategies significantly impacted supply chains. As highlighted in a recent research report that we at Greyhound Research penned, “The Tariffs Missed Indian IT, But The Shockwaves Won’t,” such actions have historically led to ripple effects across global markets, underscoring the need for enterprises to diversify their supplier base and enhance resilience against geopolitical shifts.

AI-first infrastructure rollouts—particularly those involving GPUs, edge accelerators, and high-efficiency cooling—are directly in the crosshairs. So are quantum computing R&D efforts and high-reliability storage systems where thermal and magnetic materials matter.

We see the greatest exposure in private data center expansion projects, AI inferencing at the edge, and next-gen device manufacturing, including specialised industrial IoT and robotics that rely on compact high-performance materials. CIOs betting on localised, AI-enriched compute will need to account for possible BOM (bill of materials) changes, delivery slippage, and vendor reprioritisation.

Our early reads from Greyhound Infrastructure Pulse 2025 indicate a softening of enterprise confidence in deploying large-scale on-prem AI workloads without vendor co-commitment on hardware traceability. Meanwhile, we expect to see increased preference for modular, vendor-managed consumption models (like AI-as-a-Service) that abstract some of this material risk away from enterprise buyers.

This will almost certainly influence budgeting decisions through 2026, with higher scrutiny around capital-intensive hardware projects and growing demand for visibility into upstream supplier risk management.

These shifts align with broader IT investment recalibrations we’re observing in response to trade policy shifts, especially in North America and parts of the EU. Enterprises are now being forced to make trade-offs not just between vendors, but between risk archetypes—do they want faster innovation from complex, globalised supply chains or slower cycles from sovereign, traceable ones? That question is no longer theoretical.

This isn’t just about tit-for-tat retaliation—it’s a layered play. While the immediate trigger may be recent U.S. export restrictions on AI chips and lithography equipment, this action clearly fits into China’s longer-term strategic calculus. Rare earths have always been part of China’s asymmetric advantage in global tech policy. What’s changed now is the timing and messaging—and both are deliberate.

It’s no coincidence this announcement follows moves by the U.S. and its allies to ringfence semiconductor capabilities through the “Chip 4” alliance and deepen their rare earth supply diversification. China is signalling that any attempt to isolate its position in core technology stacks will be met with asymmetric friction in return.

At Greyhound Research, we believe this is part of a broader shift in China’s posture—from being a passive node in global tech supply chains to becoming an active economic gatekeeper. It’s no longer about just defending national interest—it’s about reshaping dependency patterns in their favour.

This reflects a broader shift we’ve seen playing out across multiple fronts—from tariffs to chip policy. As we argued in our tariff analysis, geopolitics is no longer just a backdrop—it is now a full-time actor in enterprise IT strategy. China’s move on rare earths formalises that shift.

The clarity will come not from Beijing’s words—but its exceptions. If we begin to see selective export approvals to “friendly” partners or narrow industrial exemptions based on reciprocal concessions, that’s a strong indicator this is a pressure tactic, not a foundational policy shift.

On the other hand, if China starts formalising long-term licensing regimes, tightening environmental quotas for rare earth mining, or introducing export-linked national security classifications for these materials, that suggests permanence. Watch for changes in how state-run suppliers communicate with foreign customers—if they become opaque or politically filtered, that’s another cue the shift is systemic.

At Greyhound Research, we’re advising enterprise clients to treat this as a strategic fault line, not a short-term glitch. Even if this specific move is dialled back, it won’t be the last. The global AI infrastructure race is no longer just about algorithms—it’s about atoms, and who controls them.

As we noted in “The Tariffs Missed Indian IT, But The Shockwaves Won’t,” these moves often come in waves—not single strikes. The smart enterprise CIO will assume a future shaped by policy volatility, not just commercial volatility. And that means treating sourcing, licensing, and geopolitical monitoring as part of core IT governance, not a side function of legal or procurement.

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