US shipments of yttrium — a rare earth element critical to advanced semiconductor manufacturing — have collapsed roughly 95%, from 333 tons to just 17 tons, in the eight months following Beijing’s April 2025 export controls. China controls approximately 90% of global rare earth processing capacity, and industry executives now warn of potential production halts before the end of 2026 if the bottleneck isn’t resolved.

The Scale of the Chokepoint

China’s dominance isn’t primarily about mining rare earths — it’s about processing them into usable industrial form, a capability the country has spent decades building and that has no scalable near-term substitute elsewhere. Beijing’s October 9, 2025 export control expansion put yttrium, scandium, dysprosium, terbium and other elements under an opaque licensing regime that determines who receives shipments and when (TFTC).

The May 2026 US-China trade truce produced only a vague commitment to “address concerns” about rare earth shortages, with no binding timeline, no removal of specific controls, and no verification mechanism — leaving the underlying bottleneck largely unresolved months later (TFTC).

Why Yttrium and Scandium Specifically Matter

These are not obscure materials to the AI hardware story — they are load-bearing:

• Photonic chips rely on indium phosphide as a substrate material with no currently scalable commercial substitute, and one manufacturer holds roughly 40% of the global market for indium phosphide optical components (Discovery Alert).
• Scandium has become increasingly important in certain deposition processes used in leading-edge semiconductor fabrication, and shortages have already created measurable impacts on chip manufacturing yield (Discovery Alert).
• If a pending “Wave 2” suspension of controls expires without renewal, five additional rare earth elements would return to full restriction simultaneously — a compounding shock for industries that haven’t yet secured alternative sources, leaving manufacturers with a planning horizon of less than six months, according to critical minerals analysis (Discovery Alert).

A Sophisticated Form of Leverage

The October 2025 expansion marked what analysts describe as a qualitative shift: by extending restrictions to cover not just the raw materials but processing equipment, technical documentation, and accumulated operational refining knowledge, Beijing effectively weaponized decades of processing expertise as a strategic asset — targeting capabilities rather than simply commodities (Discovery Alert).

China escalated the response further in June 2026, blocking dual-use exports to ten US companies, including two rare earth producers whose output feeds directly into the US semiconductor and AI hardware production chain (Cryptopolitan). Researchers at the Center for Strategic and International Studies have warned that the pattern risks triggering “an export control and economic statecraft arms race” that could undermine global security and economic prosperity (Cryptopolitan).

The Market Is Already Repricing This

Domestic Chinese markets have responded aggressively: since the start of 2026, rare earth concept stocks on China’s A-share market have surged, with Grinm Advanced Materials up 200% and Oulai New Materials up as much as 350%, reflecting a market-led revaluation of who captures profit across the global semiconductor supply chain (BigGo Finance). The report notes that the combined annual net profit of 177 A-share semiconductor companies has historically been less than one-twentieth of a single US chipmaker’s profits — a gap Beijing’s rare earth leverage is explicitly aimed at closing.

The US Regulatory Backdrop

Washington’s own January 2026 export control rule tightened restrictions on advanced AI chips destined for China, introducing new total processing power thresholds and shifting licensing for chips like Nvidia’s H200 and AMD’s MI325X from presumptive denial to case-by-case review, subject to a 25% tariff, a 50% volume cap relative to domestic shipments, and mandatory US-based third-party testing (Informed Clearly). China’s rare earth controls function as the direct retaliatory counterpart to this regime.

Key Takeaways

• US yttrium shipments from China fell roughly 95% following Beijing’s April 2025 export controls, with prices up about 60% since.
• China controls approximately 90% of global rare earth processing capacity, giving it leverage that goes well beyond raw material supply.
• A pending expiration of “Wave 2” control suspensions could add five more restricted elements simultaneously, with manufacturers facing under six months of planning certainty.
• Chinese domestic rare earth stocks have surged as markets price in a structural shift in global semiconductor supply chain economics.

As the United States and its G7 partners race to build critical minerals supply chains outside China’s control, ASEAN economies — sitting on some of the world’s largest reserves of nickel, tin and rare earth-adjacent minerals — are increasingly practicing a strategy of deliberate hedging: courting Western investment in processing and manufacturing capacity while avoiding formal alignment against China, their largest trading partner and dominant regional investor.

Why This Has Become Urgent

China’s near-total dominance of global rare earth processing — controlling roughly 90% of capacity, according to industry analysis — has turned critical minerals into one of the sharpest instruments of economic statecraft in the current cycle (see our companion coverage). Beijing’s escalating export controls on yttrium, scandium and other elements essential to AI chip manufacturing have made clear to Washington and its allies that dependence on a single-country supply chain for these inputs is a structural vulnerability, not a temporary inconvenience.

Researchers at the Center for Strategic and International Studies have warned explicitly that the pattern of escalating export controls between the US and China risks triggering “an export control and economic statecraft arms race that could severely undermine global security and economic prosperity” (Cryptopolitan).

Where ASEAN Fits

Southeast Asia holds a genuinely pivotal position in this contest, but its individual economies are responding in structurally different ways:

• Indonesia has leaned into resource nationalism, banning raw nickel ore exports to force domestic processing investment — a strategy that has driven record foreign investment but risks entrenching a narrow, commodity-dependent industrial base if it fails to move into higher-value battery manufacturing (see our companion coverage).
• Malaysia has instead captured the manufacturing layer of the battery and electronics supply chain, positioning itself as ASEAN’s leading battery exporter while AMRO credits “robust electronics exports and AI-related investment” for cushioning growth against broader “geoeconomic fracturing” (see our companion coverage).
• Singapore continues to function as the region’s financial and logistics anchor, benefiting from rerouted shipping traffic during the Hormuz conflict while its manufacturing sector rides the same AI-driven semiconductor supercycle reshaping demand for the critical minerals underlying chip production (see our companion coverage).

The Regional Coordination Angle

Rather than each country negotiating individually with Washington or Beijing, ASEAN members have been building horizontal coordination mechanisms. Indonesia and the Philippines have proposed a nickel supply chain corridor explicitly framed around regional integration, with the Philippine Chamber of Commerce and Industry’s president describing the goal as ensuring “ASEAN is strongest when it acts as one unit” (Tribune.net.ph). Separately, Malaysia’s Selangor state has deepened bilateral cooperation with Indonesia’s West Java Province across manufacturing, infrastructure and Islamic finance, reflecting a broader pattern of intra-ASEAN economic deepening running in parallel with — rather than as a substitute for — engagement with both Washington and Beijing (ACN Newswire via Barchart).

Why Neither Superpower Can Simply Bypass ASEAN

For Washington, ASEAN’s mineral reserves and manufacturing capacity represent one of the few credible near-term paths to diversifying critical minerals and electronics supply chains away from China — a strategic priority underscored by the UAE’s own recent upgrade in US technology export access (see our companion coverage), part of a broader pattern of Washington deepening ties with trusted partners outside China’s orbit. For Beijing, ASEAN remains both an enormous export market and, increasingly, a manufacturing base for goods designed to route around US tariffs and export restrictions — making continued economic engagement equally indispensable.

This dual dependency is precisely what gives ASEAN economies room to hedge rather than choose. It also means the region’s trade and investment data over the next several years will likely be read closely by policymakers in Washington, Beijing, Brussels and Tokyo as a real-time indicator of how the broader US-China economic rivalry is actually being resolved on the ground, rather than in policy statements.

Key Takeaways

• China’s dominance of rare earth processing has made critical minerals a central front in US-China economic rivalry, with ASEAN’s mineral reserves newly strategically significant.
• Indonesia, Malaysia and Singapore are pursuing distinct national strategies — resource nationalism, manufacturing capture, and financial/logistics hubbing, respectively — rather than a unified regional approach.
• ASEAN nations are building horizontal coordination mechanisms, like the proposed Indonesia-Philippines nickel corridor, to strengthen collective bargaining power.
• Both the US and China have deep enough economic stakes in ASEAN that the region can credibly hedge between them rather than being forced to align with either bloc.

China posted a record export month in June 2026. Nearly every outlet covering it led with the same number — $412 billion, up 27% — and largely missed the quieter, more consequential story running in the opposite direction: a 34% monthly drop in rare earth exports.

The headline number

China exported a record $412 billion worth of goods in June 2026, blowing past all forecasts as the global AI investment supercycle turbocharged demand for chips and computing equipment, according to Bloomberg. Exports climbed 27% year-on-year — the fastest pace in four months — while imports jumped 36%, a five-year high that easily beat the 24% growth economists had forecast, according to Daily Sabah. China’s monthly car exports topped 1 million for the first time in June, and the country sold 32 billion integrated circuits to the world, per Reuters, via Investing.com.

The trade surplus hit $125.6 billion in June, keeping China on track for a second consecutive year with a surplus topping $1 trillion, per the same Reuters report.

The number almost nobody led with

Buried well below the headline in most coverage: the volume of China’s rare earth exports fell 34% in June and is down 6.4% year-to-date, as Beijing tightened restrictions on the critical elements, according to Daily Sabah. China accounts for around two-thirds of global rare earths production — materials used in everything from smartphones to missiles — and has “wielded its dominance” as leverage in trade negotiations, per the same report.

This is arguably the more important story of the two, and it’s being systematically underreported relative to the AI-export headline. A record trade month built substantially on AI-chip demand is happening at the exact same time Beijing is deliberately constraining exports of the minerals that chip and defense manufacturing depend on. That combination — surging exports of finished high-tech goods, alongside tightening control of upstream raw material exports — is a much more strategically significant signal than the aggregate trade number suggests, because it points to China consolidating leverage at both ends of the AI and defense supply chain simultaneously.

The domestic demand problem the export boom is masking

Julian Evans-Pritchard, head of China economics at Capital Economics, cautioned that the strong import figure “should not be taken as evidence that domestic demand is booming,” per Reuters. Xu Tianchen, senior economist at the Economist Intelligence Unit in Beijing, echoed this: “domestic demand remains a drag. Retail sales remain pretty flat and fixed asset investment was negative last month.”

China’s oil imports hit their lowest level since October 2016, and China appears to be drawing down existing energy stockpiles rather than paying up amid regional disruption — while coal imports jumped 29% annually in June, suggesting a shift back toward coal to fill the gap, per Reuters. In effect, China’s headline growth engine right now is almost entirely external (AI-linked exports), while the domestic economy — consumption, retail, fixed investment — continues to lag.

The trade friction this is generating

China’s trade surplus with the European Union alone hit $32.9 billion in June, up from $30.7 billion in May, according to Daily Sabah, a gap Zhang Zhiwei of Pinpoint Asset Management said “puts further pressure on the trade tension between China and its trading partners, Europe in particular.” Ties with Washington have stabilized somewhat since President Trump’s May visit to Beijing, but the persistent imbalance remains a friction point.

What this means for global businesses

For manufacturers and investors dependent on China’s supply chain — including Pakistani textile and electronics importers — the signal to watch isn’t the trade surplus headline. It’s whether Beijing’s rare earths tightening becomes a broader tool for leverage as AI-chip demand keeps China’s export engine running hot despite domestic softness. A country simultaneously dominating AI-linked exports and constraining upstream critical mineral supply has more geopolitical leverage than the trade balance alone conveys.

FAQ

How much did China’s exports grow in June 2026? Exports rose 27% year-on-year to a record $412 billion, driven largely by AI-related chip and computing equipment demand.

Why did China’s rare earth exports fall even as overall exports hit a record? Beijing tightened restrictions on rare earth exports, which fell 34% month-on-month in June, as China leverages its roughly two-thirds share of global production.

Is China’s domestic economy also growing at a record pace? No — economists including Capital Economics’ Julian Evans-Pritchard note that retail sales remain flat and fixed asset investment was negative in the most recent month, even as export-driven trade data surged.