Us and Dutch chip containment? China restricts exports of semiconductor metals

The chip war between China and the United States continues to escalate, and China announced that it will restrict the export of gallium and germanium. These two metals are important materials for making semiconductors. German Federal Economy Minister Joachim Habeck said on Tuesday that Germany would be in "big trouble" if China further expanded restrictions on exports of rare metals, such as lithium.

China's Ministry of Commerce and General Administration of Customs said in a statement on Monday (July 3) that in order to "safeguard national security and interests", from August 1, gallium and germanium related items will be imposed export control restrictions. After that, exporters who want to export the relevant goods are required to apply for a license from the ministry and report details of overseas buyers.

These two metals can replace traditional silicon wafers in some special applications, or be made into components in military and communications equipment. China's move was thus interpreted as a riposte to the Western world's semiconductor restrictions.

Just a few days ago, the Netherlands announced a series of controls restricting the overseas sale of high-end chip manufacturing equipment, and the United States also said it would restrict certain Chinese manufacturers from obtaining Dutch semiconductor equipment. This is not the first time that Western countries, led by the United States, have imposed restrictions on the semiconductor industry; At the same time, countries around the world are also trying to wean their supply chains from dependence on overseas equipment.

The Financial Times reported that Beijing's sharpest response so far was to ban the use of products from US memory chipmaker Micron in its "critical national infrastructure" in May.

Speaking at an event on Tuesday, German Federal Economy Minister Joachim Habeck said Germany would have a "completely different [degree of] problem" if China were to further expand restrictions on exports of rare metals, such as lithium. "We should learn from the experience of recent years that a certain degree of autonomy in the field of production is necessary to maintain energy and economic security," he stressed.

Neither China nor the US will let the other?

The Wall Street Journal reported that Alastair Neill, a board member of the Critical Mineral Institute who has nearly 30 years of experience in the Chinese metals industry, said that China's export controls on gallium and germanium "will have an immediate ripple effect on the semiconductor industry, Especially in high-performance chips."

He added that the chip war between China and the United States had led him to see a pattern of tit-for-tat tat between China and the United States, with trade sanctions often followed by countermeasures from Beijing: "If you don't let high-end chips go to China, China won't provide you with the high-performance elements you need for these chips."

Paul Triolo, senior vice president for China at the Albright Stonebridge Group, a U.S. consulting firm, said the export controls would allow Beijing to make more decisions about individual companies and specific industries based on geopolitical considerations. This is a signal to the United States that China intends to establish a new bilateral dialogue on export controls, and this latest measure may also provide Beijing with more bargaining leverage.

Nazak Nikakhtar, a trade lawyer who has worked in the national security and goods and trade industries, told the Wall Street Journal that China's move was indeed a reminder of "how much control they have over our supply chain," but she did not think it was enough to be a bargaining chip.

Nikakhtar said Washington should take the opportunity to remind China that the United States can also further tighten loopholes in its current export controls and further strengthen the power of economic sanctions.

Gallium, germanium export restrictions, how much impact?

According to the U.S. Geological Survey, China is the world's largest producer of gallium and germanium; Data from the UK's Key Mineral Information Center also shows that China accounts for about 94% of the world's gallium production.

Both metals, which are by-products of processing coal or producing aluminum, are not particularly rare or difficult to obtain, but mining costs are relatively high and Chinese sources have kept prices low. If the country's exports of gallium and germanium are reduced, it may lead to a slowdown in production capacity and a rise in prices in related industries such as global technology, telecommunications, energy and automobiles.

However, Recon Analytics LLC analyst Roger Entner was quoted as saying that the impact of China's move on the global technology industry "depends on the inventory of existing equipment." "It's more about flexing your muscles over the next year or so. If it takes longer, prices will go up."

Christopher Ecclestone, head of investment bank Hallgarten&Company in New York City, said China's move may temporarily raise the price of gallium and germanium, but China will also lose its market dominance. "When they [China] stop pushing prices down, it becomes imperative for the west to mine these metals and China has scored another own goal," he said. "The same has happened before with antimony, tungsten and other rare earth products."

The Financial Times also said that some Chinese companies are concerned that the export controls could backfire. An executive at a Chinese semiconductor materials company said: "In an economic downturn, [the move] may instead affect the business of Chinese manufacturers, but the short-term impact on the international market will be limited."

Other producers of gallium include Japan, South Korea, Russia and Ukraine, according to metals industry intelligence provider CRU Group; Germanium is also produced in Canada, Belgium, the United States and Russia.