Highlights

• China formally warns Nvidia about security concerns on H20 AI chips, highlighting growing US-China tech rivalry.
• Potential rare earth minerals could become strategic bargaining chips in semiconductor and AI technology negotiations.
• Market reacts with Chinese chipmakers surging amid expectations of increased domestic AI chip development.

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The Economic Times reports that China has formally warned Nvidia over “security concerns” tied to its older H20 AI chips — one of the few AI accelerators still legally sold into China under U.S. export controls. While no outright ban was issued, analysts see the move as a strategic signal in the escalating U.S.–China tech rivalry.

Beijing’s message: it will not tolerate perceived backdoors or hidden functions in U.S.-made chips, especially in the high-stakes race for AI dominance. The backdrop is a U.S. policy push to increase traceability in AI hardware, which China views as a potential surveillance risk. Nvidia denied any such features, insisting its products contain “no kill switches, no spyware, and no backdoors.”

Market reaction was swift — shares of Chinese chipmakers Semiconductor Manufacturing International Corporation (opens in a new tab) (SMIC) and Cambricon (opens in a new tab) surged on bets that Beijing will double down on domestic AI chip development.

Some U.S. lawmakers are pressing for stricter export enforcement via a proposed Chip Security Act, while others favor diplomacy. Meanwhile, the Trump campaign has hinted at a broader U.S.–China deal in the works — and, critically for REEx readers, rare earth minerals essential for chipmaking are reportedly part of the negotiating toolkit.

Why This Matters for Rare Earths Investors

• Rare earth leverage in tech talks: If rare earths are indeed being used as bargaining chips in AI chip negotiations, this would further validate China’s long-standing strategy of integrating critical minerals into broader geopolitical tradeoffs.
• Risk of reciprocal controls: Any U.S.–China tech accord that touches rare earths could either ease tensions (by ensuring flow) or harden them (if used as retaliatory measures), directly affecting Nd, Pr, Dy, Tb availability for both chipmaking and magnet industries.
• China’s domestic pivot: A faster Chinese push into self-sufficient AI chip production will still depend on securing magnet-grade rare earths for cooling systems, robotics, and high-performance computing hardware — keeping demand high.

Critical Questions Left Unanswered

• Are rare earths genuinely on the table in these talks, or is this political theater to apply pressure?
• If they are, what specific minerals and volumes might be negotiated, and how would that affect non-chip sectors (EVs, wind, defense)?
• Could this set a precedent where critical minerals become regular bargaining chips in unrelated tech disputes?

REEx Bottom Line

This is no longer just about AI chips. If rare earths are woven into the fabric of U.S.–China semiconductor diplomacy, investors should expect more volatility — and more instances where critical minerals markets move on tech headlines, not just mining news. In this chess match, the AI board and the rare earth board may now be one and the same.