Washington, Tokyo Move to Shield Mineral Supply Chains From China

Washington and Tokyo are accelerating a joint effort to secure chip-grade critical minerals after Beijing tightened export controls on rare earths, gallium, germanium and indium phosphide over the course of 2026, disrupting supply chains for semiconductors, defence systems and artificial-intelligence hardware. The squeeze intensified after China moved in January 2026 to restrict dual-use mineral exports to Japan, explicitly tying the curbs to Tokyo’s stance on Taiwan, while Beijing’s earlier restrictions on gallium, germanium and indium phosphide continued to strain manufacturers in the United States and the United Kingdom (Pao, 2026).

This report situates the US-Japan minerals push within the wider structural dependence on Chinese mineral refining, examines the corporate exposure created by the indium phosphide shortage for optical-component makers supplying the AI data-centre build-out, and assesses the political-economy stakes for Washington and Tokyo as they race to build an alternative supply chain through new subsidies, state-backed investment vehicles and the Pax Silica coalition. It also flags an unresolved analytical puzzle: whether a China-independent mineral supply chain – which industry executives estimate could take five to ten years to build at full capacity – can be assembled fast enough to outpace a licensing regime that Beijing has shown it can tighten again once the current one-year trade truce expires in November 2026.

The August–September 2026 Push

The US Department of Defense announced a $174 million equity investment on 31 August to help build a gallium production facility at Alcoa Corporation’s Wagerup refinery in Australia, backed by Japan’s Sojitz Corporation and Export Finance Australia, aiming to supply 100 metric tons of the metal annually for radar, missile-defence and other military systems (US Department of War, 2026). Three weeks earlier, the US Department of Energy said it would invest $500 million across seven projects to expand America’s processing of critical minerals, battery manufacturing and recycling capacity through its Office of Critical Minerals and Energy Innovation (US Department of Energy, 2026). On the Japanese side, Tokyo proposed on 20 August giving JOGMEC (the state-backed Japan Organization for Metals and Energy Security) greater freedom to invest independently in overseas mineral projects rather than only alongside a Japanese or foreign partner (Pao, 2026).

These moves build on the Action Plan on Critical Minerals that Washington and Tokyo signed in March 2026, and on Pax Silica; a coalition of 25 countries that Washington launched in December 2025 to lock down mineral, chip and AI supply chains, which Taiwan has endorsed through a separate joint statement without becoming a full signatory (Pao, 2026).

Structural Drivers of the Minerals Squeeze

The proximate trigger for the current scramble was Beijing’s decision to tighten licensing, but the underlying vulnerability is structural and will persist regardless of how the current truce is resolved. Three forces stand out:

China refines roughly 19 of the 20 minerals classified as strategic, controlling about 70 percent of global refining capacity, even though its share of raw extraction has declined; analysts tie some $6.5 trillion of downstream industry to that processing chokepoint, which licensing rules can throttle without Beijing needing to control the mines themselves.

Beijing has used the licensing regime as a foreign-policy instrument rather than a purely commercial one: after Prime Minister Sanae Takaichi told parliament in November 2025 that a Chinese attack on Taiwan could pose an “existential threat” to Japan, China’s rare earth exports to Japan fell 51 percent year-on-year in the first half of 2026 – more than three times the 16 percent drop in Beijing’s overall rare earth exports over the same period – with zero shipments of dysprosium, terbium and yttrium recorded in June (Reuters, 2026b).

Civilian demand is compounding the squeeze: Beijing has restricted indium phosphide exports since February 2025, and prices have risen from about $250 per kilogram to roughly $805 per kilogram as demand for the lasers used in AI data-centre optical components has shifted from hundreds of units to hundreds of millions (Reuters, 2026a).

Corporate Exposure: The Indium Squeeze

The clearest illustration of how the mineral squeeze is transmitting into the AI supply chain is indium phosphide. Lumentum’s chief executive, Michael Hurlston, has said the shortage could ultimately become more severe than the current squeeze on memory chips, warning that Lumentum and rival Coherent together cannot meet orders from Nvidia and other hyperscale customers (Pao, 2026). Nvidia moved in March 2026 to shore up supply, investing $2 billion each in Lumentum and Coherent with purchase commitments attached.

Beijing’s gallium and germanium ban on the United States, imposed in December 2024 and suspended in November 2025 as part of the one-year trade truce, has left Western warehouse prices at roughly $2,100 per kilogram for gallium and more than $6,000 per kilogram for germanium – multiples of the roughly $247 and $3,100 per kilogram domestic Chinese prices, respectively (Pao, 2026). Executives at compound-semiconductor makers describe the resulting paperwork and delays as a routine cost of doing business rather than an acute crisis, but most say they are bracing for the situation to worsen.

Alliance-Building Headwinds

Building a China-independent mineral supply chain is complicated by the trade interests of the very allies Washington and Tokyo are recruiting. Canada holds some of the largest critical-mineral reserves outside China but remains underdeveloped and would need substantial investment to access and process them, according to Paul Slaby, managing director of Canada’s Semiconductor Council (Pao, 2026). Slaby estimates a resilient, China-independent supply chain could be built in five to ten years with full cooperation, capital and political will.

That cooperation is not guaranteed: President Trump’s trade dispute with Canada has deepened, with Washington imposing 50 percent tariffs on Canadian goods, prompting Ontario’s premier to threaten cutting off critical-mineral exports to the United States (Pao, 2026). Switching semiconductor manufacturing processes to alternative materials that sidestep Chinese supply offers another route around the controls, but industry engineers estimate it can take three to five years to requalify an established process.

Diversification Timeline and Credibility

The central analytical tension facing policymakers is a mismatch of timelines. China suspended its most recent rare-earth export measures for one year, until 10 November 2026, but left the broader licensing architecture intact, meaning the reprieve is conditional rather than structural. Diversification efforts, by contrast, are measured in years: Japanese diplomats describe recycling and deep-sea extraction as long-term options that offer no near-term fix, while government-to-government negotiations through JOGMEC are expected to take six to twelve months just to establish a framework (Pao, 2026).

This means the new mines, refineries and substitute-material programmes now under construction will not meaningfully offset Chinese supply before markets must confront the possibility that Beijing revives or tightens controls once the truce expires. In August, prices for several niche elements jumped because of fears that suspended measures would return, underscoring how much of the current calm rests on a single, reversible policy decision in Beijing, rather than on durable Western capacity.

Strategic Stakes for Washington and Tokyo

For Washington, the stakes extend beyond semiconductor manufacturing to defence readiness: gallium feeds radar and missile-defence systems, and the Pentagon’s direct equity stake in the Wagerup refinery reflects a judgment that military-grade supply cannot be left to commercial sourcing alone (US Department of War, 2026). For Tokyo, the dispute is inseparable from the broader deterioration in ties with Beijing since Prime Minister Takaichi’s November 2025 remarks on Taiwan, which China has treated as grounds for economic retaliation independent of any prior trade friction (Pao, 2026).

The joint push should therefore be read as sitting at the intersection of industrial policy, alliance management and deterrence, rather than as a purely commercial effort to diversify suppliers. Its success will depend less on the scale of the subsidies announced this summer than on whether Washington, Tokyo and their Pax Silica partners can reconcile their own competing trade interests before Beijing’s licensing regime tightens again.

Bibliography:

-Pao, J. (2026) ‘US, Japan race to secure chip-grade minerals as China curbs exports’, Asia Times, 3 September. Available at: https://asiatimes.com/2026/09/us-japan-race-to-secure-chip-grade-minerals-as-china-curbs-exports/ (Accessed: 9 September 2026).

-Reuters (2026a) ‘China’s control over indium phosphide exports threatens AI data centre rollout’, Reuters, 11 June. Available at: https://www.reuters.com/world/china/chinas-control-over-indium-phosphide-exports-threatens-ai-data-centre-rollout-2026-06-11/ (Accessed: 9 September 2026).

-Reuters (2026b) ‘China’s heavy rare earth tap stays closed to Japan in June’, Reuters, 20 July. Available at: https://www.reuters.com/world/china/chinas-heavy-rare-earth-tap-stays-closed-japan-june-2026-07-20/ (Accessed: 9 September 2026).

-US Department of War (2026) Department of War Announces $174 Million Investment to Secure Gallium Supply Chain. Washington, DC: US Department of War, 31 August. Available at: https://www.war.gov/News/Releases/Release/Article/4587183/department-of-war-announces-174-million-investment-to-secure-gallium-supply-cha/ (Accessed: 9 September 2026).

-US Department of Energy (2026) Energy Department Announces $500 Million to Secure America’s Critical Mineral and Battery Supply Chains. Washington, DC: US Department of Energy, 20 August. Available at: https://www.energy.gov/articles/energy-department-announces-500-million-secure-americas-critical-mineral-and-battery (Accessed: 9 September 2026).