China Restricts Export of Crucial Minerals in Trade War Escalation

Beijing imposed restrictions on exports of gallium and germanium, vital metals used in electronics and semiconductor production. Starting from August 1, the Chinese Ministry of Commerce announced that these metals, along with their chemical compounds, will be subject to export controls to protect national security and interests. Exporters will require licenses and must report details of overseas buyers and their applications.

Gallium and Germanium: Strategic Elements for Electronics

Gallium and germanium, byproducts from processing coal and bauxite, play crucial roles in electronics and semiconductor industries. China holds a significant share of global production, with over 95% of the world’s gallium output and 67% of germanium production. Other producing countries include Japan, South Korea, Russia, Ukraine, Canada, Belgium, the US, and Russia.

The Trigger: US and Allies Tighten Choke Hold on China’s Chip Ambitions

China’s export control move follows aggressive actions by the US and its allies to limit China’s chip ambitions. The Netherlands recently imposed measures restricting ASML, the leading chip-making equipment manufacturer, from selling its advanced machines to China. This tightening of export restrictions may complicate US-led efforts to shift supply chains away from China.

Impact on US and Negotiations with China

China’s export control actions on gallium and germanium could be a bargaining chip in negotiations with the US to roll back export controls on semiconductors and manufacturing equipment. The US depends on China for a significant portion of gallium and germanium imports, highlighting the importance of diversifying supply chains. However, de-risking from China might lead to higher costs and seeking alternative sources.

Potential Path Forward Amidst Deglobalization

While it is unlikely that export restrictions on advanced chip-making equipment will be lifted, US Treasury Secretary Janet Yellen’s visit to China may offer an opportunity to ease economic and trade tensions between the two countries. As countries face the urgency of de-risking critical resources, finding alternative sources becomes crucial for the semiconductor industry.