Rare earth metals are becoming the quiet choke point in the global AI race. These rare earths along with critical metals—like gallium and germanium—are essential to manufacturing AI chips, high-frequency components, and power devices. China currently accounts for over 90% of global gallium production and about 60% of germanium supply. As the country strengthens its control over exports, the semiconductor industry may face material shortages that no one is fully prepared for.
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Understanding Rare Earth Metals and Their Role in AI Chips
Rare earth elements are a critical, yet often overlooked, component in the making of modern technology—especially AI chips. These 17 elements, though not as rare as their name suggests, are difficult to mine and process, which makes them both precious and strategically important.
In the world of AI accelerators like GPUs and ASICs, rare earths play a central role in enhancing performance and efficiency. Here’s a closer look at how they’re used:
- Neodymium: This rare earth is critical in producing high-performance magnets. These magnets are used in AI chip cooling systems and motors in robotics and other applications that require precision and speed. Neodymium magnets help reduce power consumption, which is crucial for AI’s energy demands.
- Terbium and Dysprosium: Used in optical devices and lasers, these rare earths are key to technologies like LiDAR. LiDAR is used in autonomous vehicles, robotics, and other AI-driven systems that rely on 3D scanning and precise object detection.
Alongside rare earths, other critical minerals also play a major role. Materials like gallium and germanium, while not classified as rare earth elements, are equally crucial:
- Gallium is used in gallium arsenide (GaAs) and gallium nitride (GaN) semiconductors, enabling high-frequency and high-power AI chip functions.
- Germanium is vital for photonics and high-efficiency transistors that power next-generation AI hardware.
In short, rare earths are not just additives in AI chip designs—they are indispensable to the performance, energy efficiency, and miniaturization of the devices that power the AI revolution. Without them, the future of AI chips as we know it would be fundamentally different—and not for the better.
China’s Dominance Over Rare Earths: A Growing Risk for AI
While rare earths are critical to AI chips, access to them is increasingly in the hands of a single player: China. According to the U.S. Geological Survey (USGS), China accounts for about 70% of global rare earth production and over 90% of gallium output. This near-monopoly gives China enormous leverage over the AI race.
Over the last two years, China has taken aggressive steps to tighten its grip:
- In August 2023, the Chinese government introduced export licensing requirements for gallium and germanium, two key materials used in high-frequency AI chips. Companies were asked to provide detailed information about the intended end use and end user before securing shipments, according to a report by Reuters .
- In 2024, China went a step further by declaring all rare earth deposits as state-owned resources, as reported by Politico . This move effectively gave the government direct control over mining rights and future export decisions.
This concentration of supply comes at a time when global demand for AI chips and related hardware is exploding. According to IDC Research, the AI semiconductor market is expected to grow at a double-digit compound annual growth rate (CAGR) through 2028 . Any disruption in the availability of rare earths could severely strain chip production timelines and cost structures.
For now, manufacturers outside China remain heavily dependent. And if trade tensions escalate, the risks to the semiconductor supply chain—and by extension, the AI boom—could become unmanageable.
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How Global Players Are Responding to the Rare Earth Challenge?
Recognizing the growing vulnerability, countries around the world are moving fast to reduce their dependence on China for rare earths. But rebuilding supply chains that have taken decades to centralize is proving to be an uphill task.
In the United States, the government has launched major funding initiatives to stimulate domestic rare earth mining and processing. According to the U.S. Department of Energy, more than $150 million has been allocated to develop sustainable critical material supply chains under the Bipartisan Infrastructure Law (energy.gov).
Meanwhile, the European Union passed the Critical Raw Materials Act in 2024, aiming to ensure that at least 10% of the EU’s annual consumption of strategic raw materials comes from local sources by 2030 (europa.eu). Japan, too, has stepped up investments in rare earth recycling and partnerships with countries like Australia to secure alternate supplies.
Still, challenges remain. Building new mines and processing facilities can take 5–10 years due to strict environmental regulations and high startup costs. Recycling rare earths, while promising, is not yet ready to meet the surge in demand driven by the AI boom.
In short, while global efforts to diversify rare earth supplies are accelerating, near-term dependence on China remains a hard reality—one that could shape the AI race in unexpected ways.
Conclusion: Rare Earths and the Future of AI
Rare earths are a fundamental part of the AI race, and their importance will only grow as the demand for AI chips continues to rise. With China controlling most of the supply, the semiconductor industry faces significant risks that could disrupt production timelines and costs.
Countries like the U.S., EU, and Japan are already working on reducing their dependence on China, but building alternative supply chains will take time. For now, the industry remains heavily reliant on China, making rare earths a critical factor in shaping the future of AI.
As the AI revolution moves forward, securing a steady, sustainable supply of these materials will be essential. The challenge is clear: Without rare earths, AI innovation could slow down, making it crucial for nations and companies to act fast and responsibly.
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