China’s exports of two crucial minerals for semiconductor manufacturing, gallium and germanium, dropped to zero in August after Beijing imposed restrictions on foreign sales. This move comes as China seeks to protect its national security amidst a simmering technology war with the United States. The country is a major producer of these minerals, accounting for 80% of the world’s gallium and 60% of its germanium. However, Chinese customs data released on Monday revealed that no exports of these elements were made last month.
The restrictions on exports highlight China’s willingness to retaliate against US export controls despite concerns about its economic growth. Already grappling with weak domestic demand and a housing crisis, China faces the risk of further damaging its economy by restricting exports. This could also accelerate the shift of supply chains out of the country.
While China may be the industry leader in producing gallium and germanium, there are alternative producers and substitutes available for both materials. Analysts from Eurasia Group suggest that although the impact may be felt in the short term, it is unlikely to have a significant long-term effect on global supply chains.
The collapse in exports has already had an impact within China itself. Gallium prices have fallen as inventories built up due to export controls. On the other hand, tight supply has led to a slight increase in germanium prices.
In July, Beijing announced that gallium and germanium would be subject to export controls to protect its “security and national interests.” These minerals are used in various products, including computer chips and solar panels. The move exacerbates the ongoing technology war between China and the United States over access to advanced chip-making technology.
Last year, the Biden administration implemented export controls prohibiting Chinese companies from purchasing advanced chips without a license. To make this campaign successful, cooperation from other countries was necessary. Japan and the Netherlands joined this effort earlier this year, further slowing down chip exports to China.
In response, China launched a cybersecurity investigation on US chipmaker Micron in April and subsequently banned it from selling to Chinese companies involved in key infrastructure projects. The recent launch of Huawei’s Mate 60 Pro smartphone, powered by an advanced chip, has put political pressure on the United States to tighten sanctions against Huawei and Semiconductor Manufacturing International Corp (SMIC), the Chinese chipmaker believed to have produced the semiconductor.
As the technology war intensifies, further restrictions on chips from Washington are expected. Analysts at Jefferies suggest that there will be increased pressure for President Biden to tighten the ban against China in the fourth quarter of this year.
The impact of these export controls and retaliatory measures remains uncertain. While they may disrupt supply chains and cause short-term fluctuations in prices, alternative producers and substitutes exist. The long-term effects on global trade dynamics will depend on how countries navigate this complex landscape.
According to CNN, China’s decision to halt exports of gallium and germanium reflects its determination to protect national security interests amidst an ongoing technology war with the United States. The move comes as China faces economic challenges such as weak domestic demand and a housing crisis. However, restricting exports can be a double-edged sword that may damage China’s economy and accelerate the shift of supply chains out of the country. Despite being a major producer of gallium and germanium, alternative producers and substitutes are available globally. The impact is already being felt domestically as gallium prices have fallen due to inventories building up while germanium prices have slightly risen due to tight supply. This article highlights the ongoing technology war between China and the United States over access to advanced chip-making technology which has resulted in export controls imposed by both sides. Further restrictions are expected from Washington following Huawei’s recent smartphone launch powered by an advanced chip created despite US sanctions aimed at isolating Chinese tech giant Huawei from such technology. The long-term effects on global trade dynamics remain uncertain as countries navigate this complex landscape.
