Datacenters face direct hit from China rare earth curbs, as clock runs out on escalated licensing chokeoff

Recent warnings from the IEEE suggest that China's export controls on rare earth minerals may begin to affect datacenters soon. The organization identified two rare earth elements, erbium and yttrium, as particularly critical for IT equipment. Exports of yttrium have dropped by around 75% compared to 2025, as these materials are key components in white LED lights, displays, microwave filters, solid-state lasers, and ceramic capacitors.

Erbium is used in amplifier circuits that boost optical signals in fiber-optic links. The Chinese government imposed restrictions on the export of rare earth minerals in April 2025, following retaliatory measures against US trade tariffs. This was followed by stricter controls in the year, requiring companies to obtain a license before exporting any goods containing rare earths sourced in China.

These measures, similar to US laws blocking exports of ASML chipmaking equipment to China, were suspended in November 2025 for 12 months after trade talks between the US and China. Beijing will decide in November 2026 whether to lift or extend the stricter measures. The International Energy Agency reports that rare earth supply remains one of the least geographically diversified among critical minerals, with China controlling about 60% of global mining output and 91% in separation and refining stages.

For yttrium and erbium, used in IT kit, China is the sole source, mining 90% of the world's supply. The US has taken steps to mitigate China's virtual monopoly, including a $750 million investment in Brazil's rare earth production and $500 million for expanding critical mineral processing. The US signed agreements with 54 countries at the 2026 Critical Minerals Ministerial meeting and launched Project Vault, a supply chain security initiative, but these initiatives may take time to affect China's impending decision on rare earth export controls.