The United States and Japan are moving with unusual urgency to build alternative supply chains for the critical minerals that underpin modern electronics and defense systems. Fresh government subsidies and industry partnerships are taking shape, but the pace of intergovernmental agreements and lingering geopolitical disputes are complicating the effort.
China’s export controls on rare earths and other minerals have weighed on manufacturers in both countries for much of this year. Companies now face licensing hurdles, longer delivery times, and sharply higher costs for materials used in semiconductors, batteries, and military hardware. The controls have also raised the stakes for the upcoming talks between Beijing and Washington over extending a one-year trade truce that expires in November. A breakdown in those negotiations could prompt China to tighten restrictions further, deepening the strain on global supply chains.
Government investments and industry response
On August 31, the US Department of Defense announced a $174 million equity investment to help build a gallium production facility at Alcoa Corporation’s Wagerup refinery in Australia. The project, backed by Japan’s Sojitz Corporation and Export Finance Australia, aims to produce 100 metric tons of gallium annually for use in radar, missile defense, and other military systems. Earlier in August, the US Department of Energy said it would invest $500 million in seven projects to expand domestic processing of critical minerals, battery manufacturing, and recycling capacity.
These moves follow a series of investment programs and new rules unveiled by the Trump administration over the summer. The goal is to reduce dependence on Chinese supplies, but industry executives caution that the transition will not be quick or seamless.
“There are always challenges with countries who want to control certain aspects of the supply chain,” said Ian Croston, vice president of operations at Lumentum, a US-listed optical components maker, in an interview on the sidelines of the Semiconductors to Systems Summit in London on August 26. “Have we seen issues with China? We have them all the time. We have to work around.”
Croston acknowledged that the export controls have added paperwork and costs, but he framed them as a routine part of doing business, comparing the situation to Brexit and the tariffs introduced by the Trump administration. He said Lumentum was prepared for any eventuality, noting that such disruptions are common among governments worldwide and must be managed as they arise.
“You always need to understand your suppliers, where they’re coming from, and if they’re a valued supplier you will know what their constraints are and how we can manage the business,” he said. “It is about reducing friction.”
The stakes are high. Lumentum’s chief executive, Michael Hurlston, warned in early July that a shortage of indium phosphide (InP), a compound semiconductor material used in lasers for AI data centers, could become more severe than the current squeeze on memory chips. He said Lumentum and rival Coherent together cannot meet demand from Nvidia and other hyperscale customers, whose orders have shifted from hundreds of lasers to hundreds of millions.
Lumentum sources most of its indium phosphide substrates from Japan’s Sumitomo Electric and JX Advanced Metals, limiting its direct exposure to Chinese export delays. Nvidia moved in March to shore up supply, investing $2 billion each in Lumentum and Coherent with purchase commitments and future access to capacity attached.
Beijing has restricted indium exports since February 2025, driving prices from about $250 per kilogram to roughly $805 per kilogram last month. It also banned exports of gallium and germanium to the US in December 2024, a measure it suspended in November 2025 as part of the one-year trade truce. The bans have pushed Western warehouse prices to about $2,100 per kilogram for gallium and more than $6,000 per kilogram for germanium, compared with domestic Chinese prices of about $247 and $3,100 per kilogram, respectively.
Iwan Davies, group technology director at IQE plc, a Cardiff-based maker of compound semiconductor wafers, told Asia Times that export control processes have become “quite onerous.” He said delays in getting gallium, germanium, and indium phosphide out of China are affecting supply chains, whether companies buy the raw metal or the compound. IQE obtains purified gallium and indium from a small number of globally renowned material suppliers, and Davies said Beijing’s curbs make it likely that supply will diversify into other regions over time. IQE is preparing for the risk of intensifying US-China tensions.
Outside China, the gallium, germanium, and indium supply chain runs through a small group of specialist suppliers. Vital Materials, a Chinese refiner, remains a major upstream source for Western semiconductor firms. AXT, a US company, supplies gallium arsenide and indium phosphide substrates, though much of its crystal growth and mineral processing runs through joint ventures in China. Freiberger Compound Materials in Germany is one of the few non-Chinese suppliers of gallium arsenide substrates. Japan’s Sumitomo Electric, Sumitomo Chemical, and DOWA Electronics Materials also play key roles.
The race to secure these minerals is not just about economics; it is a strategic imperative for Washington and Tokyo. As the US-China rivalry shifts from decoupling to leverage game, control over critical minerals has become a key bargaining chip. The outcome of the upcoming trade talks will likely determine whether the current supply chain disruptions ease or worsen.
For now, chipmakers in the US and UK say they can still secure adequate supplies, albeit with heavier paperwork and higher prices. But they are bracing for the situation to potentially deteriorate. The investments in Australia and the US are steps in the right direction, but they will take years to yield meaningful volumes. In the meantime, the world’s most advanced industries remain dependent on a handful of suppliers, many of them based in China.
