The United States and Japan are racing to build a new global supply chain for critical minerals, backing the effort with fresh government subsidies and industry support – but slow government-to-government dealmaking and simmering geopolitical disputes threaten to blunt their progress.
China’s export controls on rare earths and other critical minerals have strained manufacturers in the United States and Japan for much of this year, forcing companies to navigate new licensing rules, longer lead times and higher material costs for semiconductors, batteries and defense hardware.
Beijing and Washington are set to discuss whether to extend their one-year trade truce before it expires in November, and any breakdown in those talks could prompt China to tighten its export restrictions further, deepening the squeeze on global supply chains.
The US Department of Defense announced a $174 million equity investment on August 31 to help build a gallium production facility at Alcoa Corporation’s Wagerup refinery in Australia, backed by Japan’s Sojitz Corporation and Export Finance Australia, aiming to supply 100 metric tons of the metal annually for radar, missile defense and other military systems.
The US Department of Energy said on August 20 that it would invest $500 million in seven projects to expand America’s processing of critical minerals and materials, as well as battery manufacturing and recycling capacity, through its Office of Critical Minerals and Energy Innovation. Before this, the Trump administration had already unveiled a series of new rules and investment programs over the summer to try to boost the supply of critical minerals.
Chipmakers in the US and UK, which consume large volumes of rare earths and other critical minerals, say they can still secure adequate supplies for now, albeit with heavier paperwork and higher prices. They are bracing for the situation potentially to worsen.
“There are always challenges with countries who want to control certain aspects of the supply chain,” Ian Croston, vice president of operations at Lumentum, a US-listed optical components maker, told Asia Times in an interview on the sidelines of the Semiconductors to Systems Summit in London on August 26. “Have we seen issues with China? We have them all the time. We have to work around.”
Asked whether the export controls had brought extra paperwork and higher costs, Croston did not dispute it, saying it was simply part of doing business, comparing the export controls to Britain’s exit from the European Union and the tariffs introduced by the Trump administration.
He said Lumentum was prepared for any eventuality, noting that such disruptions are common among governments worldwide and must be managed as they arise.
“You always need to understand your suppliers, where they’re coming from, and if they’re a valued supplier you will know what their constraints are and how we can manage the business,” he said. “It is about reducing friction.”
Lumentum’s Chief Executive Michael Hurlston said in early July that the shortage of indium phosphide (InP), the compound semiconductor material used in lasers for AI data centers, could ultimately become more severe than the current squeeze on memory chips. He said Lumentum and rival Coherent together cannot meet demand from Nvidia and other hyperscale customers, whose orders have shifted from hundreds of lasers to hundreds of millions.
Lumentum sources most of its indium phosphide substrates from Japan’s Sumitomo Electric and JX Advanced Metals, limiting its direct exposure to China’s export delays. Nvidia moved in March to shore up supply, investing $2 billion each in Lumentum and Coherent with purchase commitments and future access to capacity attached.
Beijing has restricted indium exports since February 2025, driving prices from about $250 per kilogram to about $805 per kilogram last month. It also banned exports of gallium and germanium to the US in December 2024, a measure it suspended in November 2025 as part of the one-year trade truce.
The bans have driven Western warehouse prices to roughly $2,100 per kilogram for gallium and more than $6,000 per kilogram for germanium, compared with domestic Chinese prices of about $247 and $3,100 per kilogram, respectively.
“I know a lot of the export control processes are quite onerous now,” Iwan Davies, group technology director at IQE plc, a Cardiff-based maker of compound semiconductor wafers, told Asia Times. “For things like gallium and germanium, there’s a delay in getting some of those materials out of China, and indium phosphide is the same now. So whether you buy the metal or the compound, there’s still an issue in the supply chain at the moment.”
He said IQE obtains purified gallium and indium elements from a small number of globally renowned material suppliers to the semiconductor industry. He said Beijing’s export curbs made it likely that supply would diversify into other regions over time, with IQE preparing for the risk of intensifying US-China tensions.
Outside China, the gallium, germanium and indium supply chain runs through a small group of specialist suppliers:
- Vital Materials (China): a refiner of gallium, germanium, indium and selenium, and a major upstream source for Western semiconductor firms;
- AXT (US): a major supplier of gallium arsenide (GaAs) and indium phosphide (InP) substrates, though much of its crystal growth and mineral processing runs through joint ventures in China;
- Freiberger Compound Materials (Germany): one of the few non-Chinese suppliers of GaAs substrates for wireless and photonics uses;
- Sumitomo Electric and Sumitomo Chemical (Japan): major suppliers of GaAs and InP substrates and other electronic materials;
- DOWA Electronics Materials (Japan): a supplier of high-purity gallium, indium and compound semiconductor wafers.
Japan’s JOGMEC
Japan’s relationship with Beijing soured last November, when Prime Minister Sanae Takaichi told parliament that a Chinese attack on Taiwan could pose an “existential threat” to Japan, prompting a furious response from Beijing. China moved in January 2026 to restrict exports of dual-use materials, including rare earths, gallium, germanium, graphite and magnets, to Japan, explicitly tying the curbs to Tokyo’s stance on Taiwan.
China’s rare earth exports to Japan fell 51% year-on-year in the first half of 2026, more than three times the 16% drop in Beijing’s overall rare earth exports over the same period. Japan received no gallium or germanium from China in January or February, only a single gallium shipment in May, and then nothing again in June, when customs data also showed zero shipments of dysprosium, terbium and yttrium.
“The situation is challenging,” said Sayaka Tomihara, counselor for economic affairs at the Embassy of Japan in the UK, in an interview during the same event. “Japanese firms are concerned with China’s export controls and also the situation in the Gulf concerning the oil supply. There are a lot of disruptions in the supply chain, and many of our industries are being forced to think about how they can diversify the portfolio to deal with the situation.”
To secure rare-earth supply, she said, recycling and deep-sea extraction are both long-term options Japan is exploring, but neither offers a near-term fix.
“There are private-to-private negotiations and also governmental efforts,” she said. “We’re doing that on a company-to-company basis, and we’re working with other like-minded countries to try to gain the capacity.”
She added that over the next six to 12 months, the Japanese government will work with JOGMEC (Japan Organization for Metals and Energy Security), a state-backed agency that secures mineral and energy resources for Japan, on government-to-government efforts and on supporting private companies’ negotiations.
On August 20, Japan’s government proposed giving JOGMEC greater freedom to invest in critical mineral projects, allowing it to invest independently rather than only alongside a Japanese company, or with foreign partners when waiting for a Japanese partner would delay a project. JOGMEC already runs more than a dozen overseas offices and over 30 resource projects in 15 countries.
US-led Pax Silica
Washington has organized much of the Western effort through Pax Silica, a coalition it launched in December 2025 with the United Kingdom, Japan, South Korea, Singapore, Australia and Israel to lock down supply chains for artificial intelligence, semiconductors and critical minerals. Membership has since grown to 25 countries that have signed the Pax Silica Declaration, alongside a broader circle of observers and endorsement partners.
Taiwan has formally endorsed Pax Silica’s principles through a separate joint statement on economic security cooperation with Washington, without joining as a full signatory, while rare-earth-rich Canada and Estonia are designated observers.
Semiconductor executives said that building a Western rare-earth supply chain outside China is easier said than done, given each country’s own trade interests.
“Canada has probably the second-largest reserves of critical minerals and rare earth elements, with the potential to become a major supplier,” said Paul Slaby, managing director of Canada’s Semiconductor Council. “It’s underdeveloped, though, and needs substantial investment to access and process.”
“There’s a need for a consolidator to manage demand,” he said. “Elements like gallium aren’t mined directly but extracted as a byproduct of processing metals like aluminum.”
Slaby said a resilient, China-independent supply chain could be built in five to 10 years with full cooperation, capital and political will. However, he added that trade frictions, such as the US-Canada tariff dispute, could weaken the West’s rare earth alliance and slow its progress.
US President Donald Trump’s trade war with Canada has deepened, with Washington imposing 50% tariffs on Canadian goods last month. In response, Ontario’s premier has threatened to cut off critical mineral exports to the US.
Feras Alkhalil, vice president of research and development at Pragmatic Semiconductor, a UK-based flexible-chip maker, said chipmakers have another route around China’s export controls: switching to new materials or changing manufacturing approaches altogether. He said the same function can often be delivered using alternative materials or processes that sidestep supply constraints.
He said Pragmatic works with equipment makers and academic groups on UK and European research to develop such alternatives, but switching an established process may take three to five years.
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