China's export restrictions on critical semiconductor materials shake global markets

[Skye Jacobs]

Why it matters: Exports of crucial semiconductor materials germanium and gallium have been caught up in a game of cat and mouse between the US and China, with Beijing's primary motivation to show that it is able to retaliate against US-led pressures on Chinese companies. China has not been shy about imposing these controls, announcing export restrictions this month on antimony, a mineral used in armor-piercing ammunition, night-vision goggles, and precision optics. Last year, China also introduced controls on exports of graphite and technologies used in rare earth extraction and separation.

China imposed stringent export controls on two critical semiconductor materials, germanium and gallium, in 2023, a move that has since rippled through global markets. These materials are vital for the production of advanced microprocessors and military optical hardware, and the restrictions have raised alarms over potential shortages in Western production capabilities.

The impact of these controls has been profound, with prices the prices of germanium and gallium nearly doubling in Europe over the past year. The Chinese government introduced these restrictions in response to US-led controls on the sale of advanced chips and chip-making equipment to China, citing the need to safeguard its "national security and interests."

China's dominance in the global supply of these materials is formidable, producing 98% of the world's gallium and 60% of germanium. This has left Western industries heavily reliant on the Asian nation's exports.

Since the implementation of the controls, the availability of these materials outside China has plummeted. Gallium exports, for example, have dropped by about half. Jan Giese, a senior manager at Tradium, told the Financial Times that the amount of gallium and germanium obtained through China's new export licensing program is merely a "fraction of what we bought in the past."

The export controls have added complexity to already challenging markets, and continued restrictions could disrupt the production of a wide range of goods from fiber-optic products to night-vision goggles. Long-term supply contracts are now almost impossible to obtain due to the uncertainty involved, according to Terence Bell, manager of Vancouver-based Strategic Metal Investments, who notes that the requirement for shipment approval can take between 30 to 80 days.

The situation has been exacerbated by accusations of Chinese stockpiling, which traders blame for the 52% surge in germanium prices since June. While the extent of stockpiling remains speculative, it is believed to represent a significant share of China's annual production.

US companies, such as Indium Corporation, are grappling with the challenges of obtaining export licenses and facing a limited stock of germanium and gallium. "Right now, on germanium, there's definitely a risk of running out of supply," said Markus Roas, metals business manager at the company.

In response to these challenges, efforts are underway to increase local production and find substitutes for these critical minerals.

For instance, the Greek group Mytilineos is considering a project to extract gallium, aiming to meet EU demand within 18 months. Nyrstar, a zinc producer based in Belgium, is exploring potential projects for recovering gallium and germanium in Europe. However, their efforts are more advanced in the United States, where they are considering a project valued at $150 million.

Also, in some applications, gallium can be substituted with silicon or indium, while zinc selenide can replace germanium in certain uses. Additionally, recycling initiatives are being considered to recover these metals from scrap, although the scale of recycling is currently limited.

However, these alternative avenues come at a significant cost. Marina Zhang, an associate professor at the University of Technology Sydney, estimates that developing a separate supply chain for processing gallium and germanium for the US and its allies could cost a "staggering" $20 billion, an effort that could span several years.

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China's export restrictions on critical semiconductor materials shake global markets

 

[Uncle Al]

The US and other NATO countries need to effect an immediate ban on ALL good from China and requires suppliers to offer proof of the origin of all goods to insure Chinese products are kept out. We have put up with China's BS for long enough and understanding the trade imbalance, we can starve them out relatively quickly. The US needs to create an environment of self sustaining goods in order to prevent this from happening again with any country. Yes, we will pay more but will have the security of knowing the goods will always be available.

 

[seeprime]

The US and other NATO countries need to effect an immediate ban on ALL good from China and requires suppliers to offer proof of the origin of all goods to insure Chinese products are kept out. We have put up with China's BS for long enough and understanding the trade imbalance, we can starve them out relatively quickly. The US needs to create an environment of self sustaining goods in order to prevent this from happening again with any country. Yes, we will pay more but will have the security of knowing the goods will always be available.

With most electronics made in China and zero infrastructure in the West to quickly pivot to, your suggestion, will create severe inflation and possibly a depression. Instead, the West needs to first rebuild what it let rot for decades. The problem is no company wants to pay the cost to get the job done.

 

[gamerk2]

The US and other NATO countries need to effect an immediate ban on ALL good from China and requires suppliers to offer proof of the origin of all goods to insure Chinese products are kept out. We have put up with China's BS for long enough and understanding the trade imbalance, we can starve them out relatively quickly. The US needs to create an environment of self sustaining goods in order to prevent this from happening again with any country. Yes, we will pay more but will have the security of knowing the goods will always be available.

So...you want a 1929 style depression?

Its a worldwide market now; the concept of "American" and "not-American" companies is little more then a novelty, when corporations operate in most all industrialized countries. You can't just remove a market and expect no net effects; economies are too tightly interwoven now.

Nevermind the US will lose any trade war to China. China alone has invested heavily in Africa to ensure they control most all of the mining operations that result in their monopoly on rare earths. Without those, say goodbye to any significant production of the same advanced technologies that US consumers crave.

Nevermind more expensive goods is called "inflation", and you see how much the voting public hates it. Any "get tough on China" rhetoric will die in face of "I'm suddenly poorer".

 

[Watzupken]

The US and other NATO countries need to effect an immediate ban on ALL good from China and requires suppliers to offer proof of the origin of all goods to insure Chinese products are kept out. We have put up with China's BS for long enough and understanding the trade imbalance, we can starve them out relatively quickly. The US needs to create an environment of self sustaining goods in order to prevent this from happening again with any country. Yes, we will pay more but will have the security of knowing the goods will always be available.

I think you failed to understand that you live in a very connected world. You can make a reckless decision, but there will be consequences to bear. Ultimately, all these politics impact all of us. You hit a nation with a sanction means you have a smaller market to sell your products to, and in return, the sanctioned nation can also hit back with sanctions. In the end, we all pay more for everything. If you forcefully cut off all imports, you can be sure of hyperinflation because most goods are either wholly or partially manufactured in China, whether you like it or not.

 

[Endymio]

Nevermind the US will lose any trade war to China.

Rubbish. China has an export-driven economy; that alone ensures it'll take an order of magnitude more harm from trade restrictions than its trading partners. Ban consumer goods from China, and western consumers pay more for consumer goods -- but China loses half its GDP overnight.

 

[snOrdquist]

That's some radical Libertarianism, being the USA corporation to always make what you want available. Also (opposed, rather) command trade regulation, thinking China or traders or customs could turn on a dime. Fun.

Looking forward to hearing all your Sb mining plans. That one definitely needs a side gig to be profitable.

 

[toooooot]

I am sure they calculate twice whenever they ban exporting certain products.
This germanium, they most likely process it in the country, so the ban
does not change much.

 

[Mikey2984]

All smoke and mirrors for the peasant class. Trade and economy are illusion and the word government means to CONTROL THE INTELLIGENCE OR INTELLECT. You are born into slavery via your birth certificate and fiat currency is printed at will by vermin with beanies in an unregulated monopoly. The solution is WW3 where only the parasitic class at the top are targeted instead of innocent people who can't afford bread

 

[Mikey2984]

The US and other NATO countries need to effect an immediate ban on ALL good from China and requires suppliers to offer proof of the origin of all goods to insure Chinese products are kept out. We have put up with China's BS for long enough and understanding the trade imbalance, we can starve them out relatively quickly. The US needs to create an environment of self sustaining goods in order to prevent this from happening again with any country. Yes, we will pay more but will have the security of knowing the goods will always be available.

Ridiculous. China would have your children in a work camp before you could get your chin off the balls

 

[gamerk2]

Rubbish. China has an export-driven economy; that alone ensures it'll take an order of magnitude more harm from trade restrictions than its trading partners. Ban consumer goods from China, and western consumers pay more for consumer goods -- but China loses half its GDP overnight.

Yeah, no. American consumers have shown time and time again they will *always* go for lower prices, and will back whoever is against making them pay more for literally everything.

You also need to consider that it would take literally *years*, if not decades, to replace the lost manufacturing capacity. It isn't always a matter of "buy American"; there's a lot of instances where there isn't a viable American alternative. Especially for "basic" industrial goods that are the building blocks for everything else. So you break the bottom rung of the entire supply chain, and the economy literally stops.

Meanwhile, people like you are the first to cry "Socialism" if we ever try to encourage manufacturing here by helping to cover some of the costs. You oppose government funding for agencies that are designed to make American goods more attractive to foreign nations. You oppose literally *every* effort to come up with an actual workable solution, then yell "BREAK EVERYTHING" as your only viable alternative.

 

[Endymio]

People like you are the first to cry "Socialism" if we ever try to encourage manufacturing here...You oppose government funding for agencies that are designed to make American goods more attractive to foreign nations.

You're confused on the issues here. Basic economic theory tells us clearly that all such government programs -- be they subsidies, price supports, tariffs, etc -- are inefficient from an economic perspective. You can't build a strong economy by propping it up with government mandates, period.

However, such analyses don't take into account warfare. Put in the simplest possible terms, if your nation's competitive advantage lies entirely with butter, while your neighbor's lies with guns, then you might have even ten times the GDP producing all butter and no guns -- but that doesn't prevent your well-armed neighbor from taking your butter by force.

The CHIPs Act makes zero economic sense. None whatsoever. Evaluated from a standpoint of national security, however, it's a far different matter. The US needing to ask China for permission to build its own smart weapons is a recipe for disaster.

 

[gamerk2]

You're confused on the issues here. Basic economic theory tells us clearly that all such government programs -- be they subsidies, price supports, tariffs, etc -- are inefficient from an economic perspective. You can't build a strong economy by propping it up with government mandates, period.

*Very* inefficient.

Subsidies just hide the fact people can't afford a certain product/service, and worse then that, they cost-justify those same prices. They can be good in the short term (propping up a new industry, helping a company that absorbed a ton of debt, etc.) to keep business afloat, but are giant economic losers over a long enough time frame.

That being said, at least some implementations are money winners. Unemployment, for example, has been consistently found to be an economic winner (Eg: The cost of maintaining the program is less then the economic loss that would be sustained if it didn't exist), and the long-running Kenyan UBI experiment shows that a Universal Basic Income can feasibly work if implemented correctly. Unfortunately, throwing money at a problem to make it go away (in the short term) is generally the least politically bad option, so that's the option that naturally gets chosen.

Frankly, I expect the entire economic house of cards we've made to collapse sometime in the next few decades; what we're doing isn't going to be sustainable for too much longer.

However, such analyses don't take into account warfare. Put in the simplest possible terms, if your nation's competitive advantage lies entirely with butter, while your neighbor's lies with guns, then you might have even ten times the GDP producing all butter and no guns -- but that doesn't prevent your well-armed neighbor from taking your butter by force.

The CHIPs Act makes zero economic sense. None whatsoever. Evaluated from a standpoint of national security, however, it's a far different matter. The US needing to ask China for permission to build its own smart weapons is a recipe for disaster.

As someone who works in said industry: Where I work, we make our own circuit board designs. But the day we finish a design, we're on *at least* a two year wait period before we can begin production.

Why is that? Because we're on a two-year wait period for capacitors. Because a certain fruit-named company has pre-ordered so much to satisfy their market demands. The one from Korea doesn't help things either. Between the two of those, as well as the other named players, defense production is basically backlogged for the next decade or so (as everyone is fast finding out with Ukraine).

But yes, the US semi-conductor industry is a giant dumpster fire, and that's where the CHIPs act is necessary if the US wants to remain a world power. It makes little economic sense (few jobs, making a product that can be made cheaper elsewhere, etc.), but it makes 100% national security sense, and I would call it a requirement.

[As an aside, this would also likely mean bailing out Intel's fab division if it comes to it, given they're basically the only player in town right now...]

 

[Subset6]

It’s ironic, we invest billions in chips act money and can’t even build them because China holds the keys to the rare earth kingdom.

 

[netman]

"China imposed stringent export controls on two critical semiconductor materials, germanium and gallium, in 2023, a move that has since rippled through global markets. These materials are vital for the production of advanced microprocessors and military optical hardware, and the restrictions have raised alarms over potential shortages in Western production capabilities."

China should ban export of All critical semiconductor material to West...!