China has stopped its exports of two rare minerals necessary for semiconductor manufacturing, causing a significant disruption in global supply chains. Data released by Chinese customs authorities revealed that the country did not export any gallium or germanium in August, following the imposition of export restrictions by Beijing. These actions were justified on grounds of national security. China is a major producer of these minerals, accounting for approximately 80% of the world's gallium and 60% of germanium. In comparison, the country exported 5.15 metric tons of forged gallium products and 8.1 metric tons of forged germanium products in July.
In response to inquiries about the halt in exports, a spokesperson from China's commerce ministry stated that the department had received export applications for these materials, and some had been approved. However, no further details were provided. These restrictions reflect China's willingness to retaliate against US export controls, despite concerns over its own economic growth. With already weakening domestic demand and a housing crisis, this move could further harm the Chinese economy and potentially accelerate the shift of supply chains away from the country.
Analyzing the situation, Eurasia Group analysts noted that while China currently leads in gallium and germanium production, alternative producers and substitutes are available for these materials. This indicates that the impact of the export halt may extend beyond China, affecting global markets as well. The consequences of this collapse in exports are already being seen within China itself, as inventories of gallium have piled up, causing a drop in prices. On the other hand, germanium prices have slightly increased due to tight supply.
The export controls imposed by China on gallium and germanium stem from a larger tech war with the United States. This battle revolves around access to advanced chipmaking technology, essential for various industries including smartphones, self-driving cars, and weapons manufacturing. Last year, the Biden administration implemented export controls banning Chinese companies from purchasing advanced chips and chip-making equipment without a license. Japan and the Netherlands also joined these efforts, further limiting chipmaking exports to China.
In retaliation, Beijing conducted a cybersecurity probe into US chipmaker Micron in April and prohibited it from selling to Chinese companies involved in crucial infrastructure projects. The recent launch of Huawei's Mate 60 Pro smartphone, powered by an advanced chip developed despite US sanctions, has added fuel to the fire. The introduction of this model has created political pressure on the United States to escalate sanctions against Huawei and Semiconductor Manufacturing International Corp. (SMIC), the Chinese chipmaker believed to have produced the semiconductor.
As a result, there are expectations that the Biden administration will further tighten chip bans against China in the fourth quarter. This ongoing tech war between the two economic giants continues to have significant implications for global technological and economic landscapes.