Rare Earth Shortages Hit US Aerospace and Chip Sectors
The US aerospace and semiconductor industries are facing critical shortages of rare earth elements such as yttrium and scandium. China, which dominates the global supply, has seen prices surge following the implementation of export controls, crippling key American technology supply chains.
China's export controls are not a new phenomenon but an escalation of a long-term strategy. Restrictions on rare earth exports and technology began years ago, but the April 2025 controls on seven heavy rare earths, followed by October 2025 rules governing related technologies and even foreign-made products using Chinese inputs, represent a significant tightening. These actions are seen as direct retaliation for US tariffs and technology controls, embedding mineral supply chains into the broader geostrategic competition. The impact on specific material flows has been dramatic. In the eight months following the April 2025 controls, the U.S. received only 17 tons of yttrium products from China, a 95% decrease from the 333 tons in the same period a year prior. This has caused yttrium prices to surge by approximately 69 times their level a year ago, forcing some North American aerospace coating manufacturers to pause production and turn away clients. In the aerospace sector, yttrium is irreplaceable for the thermal barrier coatings that allow jet engine components to withstand extreme temperatures. For the semiconductor industry, scandium is critical for advanced chip processing and packaging for 5G technology, with major US chipmakers relying on it for components in virtually every 5G smartphone and base station. The U.S. currently has no domestic scandium production. The defense implications are direct and severe. A single F-35 fighter jet requires over 900 pounds (418 kg) of rare earth materials for its electric actuation systems, radar, and precision-guided munitions. Neodymium, samarium, and yttrium are essential for the powerful, heat-resistant permanent magnets used in missile guidance, naval destroyers, and submarine propulsion systems. In response, the U.S. government is leveraging the CHIPS Act and the Defense Production Act to onshore supply chains. USA Rare Earth, for instance, received a non-binding agreement for $277 million in federal funding and a $1.3 billion loan to develop its Round Top project in Texas and a magnet facility in Oklahoma, aiming for commercial production by 2028. This is part of a broader push that has seen the Pentagon award over $439 million since 2020 to build domestic rare earth capabilities. The European Union is pursuing a parallel strategy through its Critical Raw Materials Act, which entered into force in May 2024. The Act sets benchmarks for 2030 to ensure the bloc can extract at least 10%, process 40%, and recycle a significant portion of its annual consumption of strategic materials, while mandating that no more than 65% of any single strategic raw material comes from a single third country.
