China did the unexpected, banning exports of two essential minerals, primarily used for the manufacturing of semiconductors but also in solar cells and missile systems. Beijing banned the exports of the strategically important gallium and germanium, causing chaos in the whole chip manufacturing industry.
This was a straightforward show of power before the US Treasury Secretary visit aimed at easing economic tensions. This move sends a signal to their arch-rival, the United States, about who holds major global technological dominance.
In October last year, the US government unleashed a set of export controls upon Chinese firms from purchasing raw materials required for making high-tech semiconductors. The White House has also advised its allies, South Korea, Japan, and the Netherlands, to join them in the banning process.
Beijing responded by banning the use of products made by Micron, the US’s largest chip maker, from its pivotal infrastructure and information projects. It had even ordered a cybersecurity investigation against Micron before banning its product in April.
The semiconductor relationship between US and China is quite complex as both are dependent on each other in some way or the other, hence preventing both powers from launching full-fledged technological warfare. They recognise the amount of self-destruction in case of any such stringent actions. This has pushed the White House to invite other semiconductor manufacturers like Samsung and the world-renowned Taiwan Semiconductor Manufacturing Co. (TSMC) to expand their base in the US, but turning them away from China doesn’t appear to be an easy task.
China enjoys a monopolistic status in the global supply of gallium and germanium. As per the US Geological Survey, China produces 98% of the world’s gallium and 68% of refined germanium. These minerals are byproducts of mining metals like aluminium, zinc and copper and are refined by countries that produce them.
Gallium and germanium are amongst the list of 50 minerals that have been tagged as critical elements by the US Geological Survey. This enhances their importance from the economic and national security perspective of the United States. China’s control over the minerals poses a threat to the vulnerability of the supply chain.
According to the US Geological Survey, the United States imports the two essential minerals from China. Out of its total consumption, 50% of gallium and germanium were imported from China in 2021. This shows the dependency of Washington, giving China little leverage in this chip-making crisis.
As per analysts and expert opinion, the control over these minerals can be used as leverage by the Chinese officials while the discussions with the US Treasury Secretary Janet Yellen. The US has got a few days to come up with an appropriate counter to this ban. It also has the availability of gallium from the United Kingdom and Germany and Germanium from Belgium and Germany.
Importance of these minerals
Gallium arsenide is an arsenic compound used in high-performance chips due to its heat and water resistance ability. The US Geological Survey 2023 reported that, as of now, there is no alternative available on the planet for Gallium arsenide (GaAs). Even the US military heavily depends on gallium nitride, a similar product, for its capability to transfer power supplied in the advanced radar systems currently being developed.
According to Research and Markets, gallium arsenide-produced chips are estimated to grow from $1.4 billion in 2022 to $3.4 billion in 2030. Sales of chips produced by gallium nitride were upwards of $2.47 billion the previous year and are expected to surge up to $19.3 billion by the end of this decade.
Germanium helps to improve the conduction ability of silicons. They are widely used in the production of fibre-optic systems and solar cells. They are a popular component in space-bound applications.
The Chinese export ban reminds us of a similar export control Beijing levied on rare earth metals. These are a set of necessary elements produced majorly in China and have a high demand in the high-tech industry. The ongoing show of power anticipates these minerals to be Beijing’s next target for arm twisting.
Export controls enable Beijing to attack specific companies and industries which it perceives as a threat to its national security and take decisions accordingly based on the then geopolitical scenario. These export controls have signalled to the US that Beijing is looking forward towards establishing a new bilateral dialogue on export controls, with the latest ban providing leverage over the White House officials, said Paul Triolo, the senior vice president for China and technology policy lead at the Washington based advisory firm Albright Stonebridge Group.