America Controls the Chips. China Controls the Mines.

The semiconductor conflict between the US and China has settled into a two-layer war. Each side is tightening its grip on a different part of the supply chain — and each side's leverage sits at the layer the other cannot quickly substitute. The US operates at the digital layer: export controls on advanced chips, restrictions on lithography equipment, the MATCH Act requiring Japan and the Netherlands to align their DUV controls with Washington's ^[1]. Taiwan is considering strict AI chip export bans to China ^[2]. These are controls that work at a border — a shipment stopped, a license denied, a customs declaration checked. China operates at the physical layer — the raw materials that must flow through factories before any chip exists. It controls roughly 70% of global rare earth mining and 90% of processing capacity ^[3]. It produces about 80% of the world's tungsten ^[4]. And since 2025, it has been systematically tightening those controls. In April, China banned dual-use exports — including rare earths essential for chips and drones — to seven European defense firms ^[5].

Law-abiding EU entities with integrity have absolutely no need to worry. — Ministry of Commerce

In June, it applied the same template to 40 Japanese entities, including Mitsubishi Heavy Industries subsidiaries, prohibiting the sale of dual-use items without approval ^[6]. Then in July, it blocked terbium, dysprosium, and yttrium oxide shipments to Japan specifically in retaliation for Prime Minister Takaichi's comments about defending Taiwan ^[7]. The sequence is not subtle: a rhetorical formula, repeated across targets, backed by physical controls on the materials those targets need. The most revealing move came in June, when China sanctioned MP Materials — the only large-scale active rare earth mine in the United States. The sanctions prohibit dual-use exports to the company, officially in retaliation for Pentagon blacklists of Chinese firms ^[8]. But the effect is more precise than the justification: by cutting off MP Materials, China struck at the physical foundation of the American effort to build its own rare earth supply chain. Whether or not that was the intent, it was the result. Then came the helium ban — the move that, at first glance, looked like the sharpest weaponization yet. In July, China banned helium exports. The timing seemed to fit the pattern: another physical-layer input, another Chinese restriction. But the facts run the other way. China produces only 15% of its own helium and imports more than half from Qatar ^[9]. When Iran's blockade of the Strait of Hormuz disabled Qatar's Ras Laffan facility — the world's largest helium hub, responsible for 30 to 38% of global supply — China faced a domestic supply crisis ^[10][11]. The export ban was a defensive move to prevent domestic price spikes, not an offensive strike. The helium episode reveals a limit in this two-layer war. Physical-layer leverage is not one-sided. The US-aligned semiconductor supply chain was even more exposed than China's: Samsung and SK Hynix relied on Qatar for roughly 65% of their helium, compared to China's 54% dependence ^[11]. The Hormuz blockade, which the IRGC has used to impose per-ship tolls of $1 to $2 million, remains unresolved ^[12]. A chokepoint that one side thought it controlled can turn out to control both. The allies are not standing still. The US-EU critical minerals partnership, signed in April, explicitly frames China's mineral dominance as "economic coercion" and establishes coordinated subsidies, stockpiling, and border-adjusted price floors ^[13]. The G7 has set a target to reduce reliance on any single non-G7 supplier to below 60% by 2030 ^[14]. India has built critical mineral partnerships with 24 countries ^[15]. The US launched a minerals dialogue with five Central Asian nations in June, with Kazakhstan alone investing $470 million in geological exploration ^[16]. And the Pentagon is funding real production: Lynas Rare Earths has begun producing separated heavy rare earths outside China for the first time in 20 years, with $96 million in Defense Department support ^[17]. But none of this reaches production scale before 2027 or 2028. USA Rare Earth's $2.8 billion acquisition of Brazil's Serra Verde — the only non-Asian producer of all four magnetic rare earths at scale, backed by $1.6 billion from the Commerce Department and $565 million from the DFC — will not produce at volume until then ^[18]. The Army's REalloys facility in Utah, which will process dysprosium and terbium for defense systems, is targeted for 2028 ^[19]. A federal procurement ban on Chinese rare earth materials in US defense systems takes effect on January 1, 2027 — creating a hard deadline that the allied alternatives are racing to meet ^[19]. That leaves a window of roughly 18 months in which China's physical-layer leverage remains intact — and the pattern of the past year suggests every month of it will be used. The most telling evidence is not a new restriction but an acquisition attempt. In May, six Chinese-linked investors accumulated 17.5% of Australia's Northern Minerals, which controls the Browns Range dysprosium and terbium project — one of the few non-Chinese sources of the heavy rare earths essential for permanent magnets. The investors tried to oust the chairman and received shares from previously sanctioned individuals before Australia's Treasurer ordered divestment ^[20]. The attempt fits a pattern in which Chinese-linked capital has moved toward the very non-Chinese mineral projects being built to break that dominance. China is also extending its physical-layer controls beyond minerals. It is considering restricting exports of advanced solar panel manufacturing equipment to the US, directly targeting Tesla's pursuit of $2.9 billion in equipment from Chinese suppliers ^[21]. The tungsten controls imposed in February, combined with wartime munitions demand, have pushed prices to historic highs and triggered exploration in Portugal and Nevada — but those are prospecting-stage results, not producing mines ^[4][22]. The two-layer structure of this conflict means neither side can win by dominating only its own layer. The US can deny China advanced chips, but it cannot fabricate them without minerals China controls. China can restrict rare earths and tungsten, but it cannot produce cutting-edge chips without the equipment and IP the US and its allies hold. The helium crisis showed that physical chokepoints can stop production faster than digital ones — and that neither side fully controls the physical layer it is trying to weaponize. The question the next 18 months will answer is whether the allied escape route from Chinese mineral dominance can be built faster than China can block it.