China Imposes Export Controls on 2 Crucial Metals, Impacting Tech Industries

China has implemented export restrictions on two essential metals, gallium and germanium, which are crucial to the semiconductor, telecommunications, and electric-vehicle industries.

China has implemented export restrictions on two essential metals, gallium and germanium, which are crucial to the semiconductor, telecommunications, and electric-vehicle industries. This move represents an escalation in the ongoing trade war on technology between China, the United States, and Europe. The Ministry of Commerce of China announced on Monday that starting from August 1, gallium and germanium, as well as their chemical compounds will be subject to export controls aimed at protecting Chinese national security.

Under the new regulations, exporters of these metals will be required to obtain licenses from the commerce ministry in order to ship them out of the country. Additionally, they will need to report details of the overseas buyers and their applications. China’s drive for technological dominance in fields such as quantum computing, artificial intelligence, and chip manufacturing has faced resistance from the United States and its allies. The export restrictions come at a time when countries worldwide are actively working to reduce their dependence on foreign equipment in their supply chains.

The impact of these export controls on the tech industry will depend largely on the existing stockpiles of equipment. Analysts suggest that in the short term, it may serve as a show of strength by China. However, if the restrictions continue for an extended period, prices could increase. Gallium and germanium are critical in the production of compound semiconductors, which are used to enhance transmission speed and efficiency. China is the dominant global producer of these metals, with approximately 94% of the world’s gallium production taking place in China, according to the UK Critical Minerals Intelligence Centre.

While gallium and germanium are not particularly rare, China’s ability to maintain low prices has made them attractive to various industries. However, with restricted supply, production in other countries may increase, leading to higher prices. These metals are typically byproducts of processing other commodities such as coal and bauxite, which is the base for aluminum production. Christopher Ecclestone, a principal at Hallgarten & Co, noted that once the price suppression ends, it becomes more viable to extract these metals in the West. This could ultimately result in a loss of China’s market dominance in the long run, as has happened in other industries like antimony, tungsten, and rare earths.

In addition to China, other countries also produce gallium and germanium. Japan, South Korea, Russia, and Ukraine are among the countries that produce gallium, while germanium is produced in Canada, Belgium, the United States, and Russia, according to the CRU Group, a metals industry intelligence provider.

The announcement of these export controls did not significantly impact the shares of companies involved in the production of compound semiconductors. Companies like Wolfspeed Inc. and NXP Semiconductors NV saw little change or even traded higher when US exchanges opened on Monday. Representatives for Wolfspeed and NXP did not immediately provide comments on the matter.

China’s decision to impose export controls comes in the midst of heightened tensions between the US and its allies against China. The Biden administration is reportedly planning to block sales of certain chips used in artificial intelligence programs. Earlier this year, the Chinese government banned the products of US chipmaker Micron Technology Inc. from critical sectors after citing cybersecurity risks. Furthermore, the Dutch government recently announced measures that would prevent ASML Holding NV, a company with a near-monopoly on the machines needed to produce advanced semiconductors, from selling some of its machines to China. These recent developments highlight the increasing tensions and competition for dominance within the global tech industry as major players strive to safeguard their national interests.