China has recently imposed restrictions on the export of gallium and germanium compounds, essential metals in the production of semiconductors. This move, driven by national security concerns, serves as a stark warning to the United States and Europe, as the ongoing technological trade war continues to escalate. The new regulations, set to take effect on August 1, will require exporters to obtain licenses for the shipment of these metals, with detailed information regarding importers, end users, and the intended usage.
The global battle for technological supremacy has intensified, with China holding the position as the world’s largest source of both gallium and germanium, as confirmed by a European Union study on critical raw materials. Notably, this development coincides with U.S. Treasury Secretary Janet Yellen’s upcoming visit to China later this week, further highlighting the significance of the issue at hand.
Experts believe that the impact on global supply will be limited due to the targeted scope of these restrictions. Analysts from Eurasia Group, including Anna Ashton, Xiaomeng Lu, and Scott Young, emphasized that this move serves as a warning shot to countries like the United States, Japan, and the Netherlands. By showcasing China’s retaliatory options and deterrence measures, it aims to discourage further restrictions on Chinese access to high-end chips and tools. Importantly, no outright bans on specific countries or end users have been imposed at this stage.
The introduction of export curbs has already sparked a surge in shares of Chinese germanium producers. Anticipating rising prices for the raw materials, investors have reacted positively to the short-term supply disruption. Yunnan Lincang Xinyuan Germanium Industrial experienced a significant boost of 10% in Shenzhen, while Yunnan Chihong Zinc & Germanium, despite scaling back earlier gains, still remained 7.5% higher. In contrast, the CSI 300 index of China’s largest A-share listings saw a mere 0.1% gain during midday trading.
Although officials from South Korea’s industry ministry and Taiwan’s foreign ministry downplayed the short-term impact of China’s export restrictions, they also cautioned against ruling out potential expansions of curbs to include other materials. Gallium, a soft silver metal utilized in the production of compound semiconductor wafers, electronic circuits, semiconductors, and light-emitting diodes, plays a critical role in the tech industry. Additionally, germanium finds its application in the manufacturing of fiber optics, enabling data and information transfer.
A Technological Trade War with Global Implications
China’s dominance in mining and processing operations, coupled with state subsidies and extensive economies of scale, has allowed the country to export processed minerals at a competitive cost unmatched by operators elsewhere. This market dominance, perpetuated by reduced global availability and increased global prices resulting from past Chinese export restrictions, has motivated foreign competition. Higher prices have made mining and processing ventures outside of China more cost-competitive, leading to a festering feud in the global market.
In October, the United States initiated comprehensive rules aimed at halting the export of crucial chips and semiconductor tools to China. These measures possess the potential to severely impact China’s ambitions to bolster its domestic technology industries. The United States has actively urged key chipmaking nations and allies, such as the Netherlands and Japan, to introduce export restrictions of their own.
In response, the Netherlands recently imposed new export restrictions on advanced semiconductor equipment, effectively preventing ASML, one of the world’s leading semiconductor companies, from exporting to China. However, it’s important to note that these restrictions do not specifically target ASML.
Amidst this ongoing trade war, several countries are striving to secure their own supply chains and develop their domestic chip industries, leveraging their traditional strengths. Just last week, a Japanese government-backed fund proposed a substantial 903.9 billion yen ($6.3 billion) acquisition of semiconductor materials giant JSR.
Semiconductors are undoubtedly among the most critical technological components, with applications ranging from smartphones and cars to refrigerators. Moreover, they play a pivotal role in military advancements and the progression of artificial intelligence.
As the restrictions on gallium and germanium exports unfold, the world watches with anticipation, hoping for a resolution to the technological trade war that will not only safeguard the global supply chain but also foster international collaboration and innovation in the semiconductor industry.
