China blocks rare Earth exports to US firms tied to AI supply chain

The Chinese government has blocked dual-use exports to ten US corporations on Monday (June 22). Two companies are producing rare earth elements, which are part of the US semiconductor and AI hardware production chain. This move could disrupt supply chains for chips, magnets, and advanced computing components.

According to the official statement released by China’s Ministry of Commerce on June 22, MP Materials and USA Rare Earth have joined the list of ten defense and drone firms, which will be blocked from dual-use exports. The two companies are producing rare earths in the mine-to-magnet manufacturing chain that provides elements for both electric motors and data centers. According to reports, the action is more serious than the previous one, which demanded that exporters apply for a license to ship dual-use products.

Why rare earths matter for AI

Rare earth metals form part of the NdFeB permanent magnets, which are used in hard drives, server cooling fans, robotics, electric motors, and advanced defense applications. NdFEB magnets are growing in significance due to the increasing number of cooling systems, automated equipment, and power management equipment in hyperscale data centers.

The United States has been heavily reliant on China for the acquisition of these materials. China produces about 60% of all the mining outputs of rare earth materials in the world, while processing almost 90% of the total global rare earth material processing capacities. This gives China a massive role in refining the materials that ultimately become magnets and electronic components.

This presents a problem because MP Materials runs the only active rare earth mine in the United States, located in Mountain Pass, California. This mine has a production capacity of tens of thousands of metric tons of rare earth concentrate every year. This mine is key to the efforts of the US to build a critical mineral supply chain within the country. In July 2025, the company signed an important deal with the US Department of Defense involving financing, price guarantees, and offtake commitments aimed at expanding the US magnet manufacturing capacity.

Meanwhile, USA Rare Earth is establishing refining and magnet manufacturing facilities in the US, in a move aimed at lessening dependence on China’s supply chain. USA Rare Earth, together with MP Materials, is increasingly becoming a representation of the efforts of the US in localizing the production of critical material inputs in semiconductors, electric cars, and AI infrastructure.

The new export ban is more extensive than previous restrictions. Under the new regulations, Chinese exporters are not allowed to export dual-use goods to any of the 10 named entities, and organizations in third-world countries are barred from transferring Chinese-origin dual-use items to them. China’s Commerce Ministry said the measures were intended to “safeguard national security and interests” and fulfill the country’s international non-proliferation obligations.

The move is well timed. Washington blacklisted Chinese tech firms such as Alibaba, Baidu, BYD, and NIO on its military-associated company list earlier this month. Monday’s measure by Beijing has been seen as retaliatory to Washington’s “malicious practice.”

Procurement embargo covers 46 US companies

As part of the same measure, the Chinese Ministry of Finance also prohibited government procurement offices from buying any products made by 46 US corporations, among which are Lockheed Martin and Raytheon Missiles & Defense. The procurement embargo takes effect right away but will not cover US-funded enterprises operating in China.

The introduction of the procurement embargo means that China has also begun using its purchasing capabilities to pressure the US in the growing technology dispute.

The ten companies mentioned on the list of export controls

The complete list published by China’s Ministry of Commerce consists of Aveox, a maker of motors for military uses; Red Cat Holdings and its subsidiary Teal Drones; IMSAR, a radar equipment company; Jaia Robotics, an underwater robotics company; Ball Aerospace; Oshkosh Defense; L3Harris Maritime Services; MP Materials; and USA Rare Earth.

A number of these companies work in industries related to AI and computing technologies. Ball Aerospace makes satellites and sensors. IMSAR manufactures synthetic aperture radars that use more and more AI algorithms for analytics. The drone companies need components similar to autonomous systems development and edge AI technology.

Can US supply chains catch up?

Escalation of export controls between the U.S. and China has gained pace since late 2022, when the U.S. government began imposing comprehensive controls on the export of advanced chips to China. Researchers at the Center for Strategic and International Studies (CSIS) cautioned in an April 2026 study about how export controls are progressively turning into coercive economic tools by stating that:

“As China mobilizes its own export control regime, the world is in danger of an export control and economic statecraft arms race that could severely undermine our security and economic prosperity.”

“As China mobilizes its own export control regime, the world is in danger of an export control and economic statecraft arms race that, if unchecked, could severely undermine our security and economic prosperity.”

Read more about how export controls have evolved into a core tool…

— CSIS Chinese Business & Economics (@CSISCBE) April 30, 2026

This same CSIS study pointed out how export controls were causing operational expenses for industries. In a March 2026 survey of semiconductor and information technology companies, 56% reported average export license review times exceeding 180 days, while one-third experienced waits of more than 300 days.

For firms that are planning to set up AI infrastructure within the US, the most pressing challenge is whether there will be enough rare earth capacity to counter any decrease in access to China’s supplies and refining facilities. Analysts have been noting for a while now that it will take many years, if not decades, to achieve such diversification due to the fact that mining alone does not cover the entire supply chain process. Refining, alloy making, and magnet fabrication processes all still take place within China, and setting up such facilities would require a huge capital outlay. As the South China Morning Post reports, based on analysts’ comments, it may take anywhere from up to twenty years to fully diversify rare earth supply chains.

This, in turn, means that even if both MP Materials and USA Rare Earth companies manage to increase domestic capacity, they will not be able to compensate for the absence of China soon enough. Instead, what the new export controls show is that one of the most important aspects of the AI competition is access to critical minerals and magnet manufacturing capacity itself.

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