Assessing the Impact of Chinese Export Controls on Japanese Semiconductor and EV Supply Chains

The global semiconductor and electric vehicle (EV) industries are increasingly entangled in a geopolitical tug-of-war over critical materials. China's strategic use of export controls on gallium, photoresist, and rare earths has forced Japanese manufacturers to recalibrate their supply chains, prioritizing resilience over cost efficiency. As of December 2025, these controls remain a double-edged sword: temporarily paused to ease immediate tensions but embedded with long-term strategic intent. Japan's response spanning diversification, recycling, and regional reconfiguration-offers a blueprint for navigating this volatile landscape and presents compelling investment opportunities.

The Chinese Strategy: Paused, Not Reversed

China's export controls on rare earths and critical minerals have evolved into a geopolitical tool. In November 2025, the Ministry of Commerce (MOFCOM) suspended six October 2025 directives that would have tightened licensing for rare-earth elements and super-hard materials. This pause, however, masks a broader strategy. Extraterritorial licensing obligations-requiring foreign manufacturers using Chinese-origin materials to secure export licenses-remain in place. For instance, MOFCOM Notice 61, effective December 1, 2025, restricts re-exports of products containing ≥0.1% Chinese-origin rare earths. These rules extend China's influence to downstream manufacturing, including semiconductors and EVs, where rare-earth magnets and sputtering targets are indispensable.

Japan, a key player in high-end photoresist production (dominating 90% of the EUV lithography market), faces dual risks: Chinese restrictions on rare earths and unconfirmed rumors of Japanese photoresist export curbs. While no formal ban has materialized, the mere speculation has driven Chinese photoresist suppliers' stock prices upward, underscoring the fragility of supply chains reliant on single-source providers.

Strategic Diversification: Japan's Global Outreach

To counteract these risks, Japan has embarked on an aggressive diversification strategy. The U.S.-Japan Framework for Securing Critical Minerals and Rare Earths, signed in October 2025, exemplifies this approach. The agreement targets full-value-chain collaboration, from mining and separation to magnet production, with joint financing mechanisms including grants, guarantees, and equity investments. For example, the Japan Organization for Metals and Energy Security (JOGMEC) has partnered with REAlloys Inc. to transfer rare-earth separation and magnet-fabrication technologies to North America. This mirrors Japan's historical model of securing access through public-private partnerships, as seen in its collaboration with Lynas Rare Earths in Australia.

Japan's geographic diversification is equally ambitious. A ¥3 trillion, five-year investment in Central Asia aims to develop rare-earth supply chains in Kazakhstan, Uzbekistan, and Kyrgyzstan. This initiative emphasizes not just mining but also downstream processing, logistics, and technology transfer. Such efforts align with Japan's broader goal of reducing rare-earth imports from China from 70% to below 50% by 2030.

Recycling and Urban Mining: Closing the Loop

Japan's recycling innovations are reshaping the critical minerals landscape. Researchers at Kyoto University have developed a Selective Extraction–Evaporation–Electrolysis (SEEE) process that recovers 96% of neodymium and 91% of dysprosium from used magnets, with purities exceeding 90%. This technology, commercialized by firms like Proterial and Shin-Etsu Chemical, addresses the bottleneck of heavy rare-earth recovery-a sector where China still dominates.

Urban mining, or extracting critical minerals from electronic waste, is another frontier. Japan's domestic lithium-ion battery recycling initiative, supported by the U.S.-Japan Critical Minerals ASEAN Supply Chain Seminar, highlights the economic potential of e-waste streams. By 2026, Japan plans to test-mine rare-earth-rich seabed mud near Minamitori Island, further diversifying its resource base. These efforts are not just environmental but strategic: recycling reduces reliance on primary mining and insulates supply chains from geopolitical shocks.

Regional Reconfiguration: Building Resilience

Japan's supply chain reconfiguration extends beyond sourcing to regional collaboration. The U.S.-Japan Critical Minerals Supply Security Rapid Response Group, established under the October 2025 framework, identifies priority minerals and vulnerabilities. This rapid-response mechanism accelerates the delivery of processed materials, a critical advantage in a world where 45-day licensing delays for rare earths can cripple semiconductor and EV production.

Japan's partnerships with ASEAN nations further illustrate this regional focus. By leveraging its technological expertise in refining and magnet fabrication, Japan is positioning itself as a hub for midstream and downstream processing in Southeast Asia. This strategy not only diversifies supply but also captures value-added stages of the supply chain, traditionally dominated by China.

Investment Opportunities: Where to Allocate Capital

For investors, Japan's initiatives present three key opportunities:1. Alternative Suppliers: Companies like Lynas Rare Earths (Australia) and Caremag (France), partnered with JOGMEC, offer exposure to diversified rare-earth supply chains.2. Recycling Technologies: Firms developing SEEE processes or urban mining capabilities, such as Proterial and Shin-Etsu Chemical, are poised for growth as recycling becomes a cornerstone of supply chain resilience.3. Regional Infrastructure: Projects in Central Asia and ASEAN, supported by Japan's ¥3 trillion investment, represent high-impact opportunities in mining, logistics, and processing.

The U.S. Inflation Reduction Act and Japan's Green Transformation (GX) initiative are expected to drive $2–3 billion in combined public and private investment over five years, further validating these opportunities.

Conclusion: A Model for Resilience

Japan's response to Chinese export controls is a masterclass in strategic diversification. By combining global sourcing, recycling innovation, and regional collaboration, it is building a supply chain ecosystem that prioritizes resilience over vulnerability. For investors, the lessons are clear: capital allocated to alternative suppliers, recycling technologies, and regional infrastructure will not only hedge against geopolitical risks but also capitalize on the inevitable shift toward decentralized, circular supply chains.