China responded swiftly on Tuesday to new U.S. restrictions on semiconductor technology exports by imposing tighter controls on critical minerals used in chip manufacturing.

The move targets gallium, germanium, and antimony — essential materials for advanced electronics and defense applications, The Wall Street Journal reports.

What Happened: A day after the U.S. blacklisted 140 Chinese entities and restricted exports of memory chips vital to artificial intelligence, Beijing retaliated with export bans and reviews for U.S.-bound shipments of these minerals. The Chinese Ministry of Commerce justified the measures as necessary for national security.

China also cautioned its businesses against purchasing American chips due to reliability and safety concerns.

The restricted minerals are critical to the U.S. economy and defense supply chains, with Beijing accounting for a significant portion of imports between 2019 and 2022. For instance, the U.S. relied on China for 80% of its antimony needs during this period, WSJ reports.

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Why It Matters: The clash underscores the fragility of global supply chains and the geopolitical stakes tied to semiconductor dominance. With China tightening its grip on critical materials, the U.S. faces mounting pressure to diversify its supply sources.

ETFs such as the Invesco Semiconductors ETF (NASDAQ:PSI) and the SPDR S&P Semiconductor ETF (NYSE:XSD) could also feel the effects of these trade restrictions, given their exposure to impacted companies.

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