China Limits Chip Metal Exports

China has imposed export controls on gallium and germanium, two minerals critical to the production of semiconductors, missile systems, and solar cells. This strategic move, aimed at safeguarding national security and interests, comes just ahead of significant economic talks between China and the U.S., heightening the tech rivalry between the two global superpowers.

These export restrictions could just be the beginning of escalated retaliatory measures in the tech space, warned Wei Jianguo, a former Vice Commerce Minister told Reuters. He characterized the restrictions as a "well-thought-out heavy punch," hinting that they were "just a start."

"If restrictions targeting China's high-technology sector continue then countermeasures will escalate," added Wei. He is now the vice chairman of the China Center for International Economic Exchanges, a state-backed think tank.

The restrictions are set to take effect from August 1, impacting industries that rely on these metals, including high-speed computer chips, military technology, night-vision devices, satellite imagery sensors, radar and radio communication devices, satellites, LEDs, electric vehicles (EVs), and fiber optic cables.

 Both gallium and germanium are listed among 50 minerals deemed "critical" by the U.S. Geological Survey, signifying their importance to the economic or national security of the U.S and their vulnerability to supply chain disruption.

The timing of China's announcement, just before U.S. Independence Day and the arrival of U.S. Treasury Secretary Janet Yellen in Beijing, is perceived as a pointed message to the Biden administration. The U.S. government has been pressuring China's chip sector and persuading allies such as Japan and the Netherlands to do the same.

“While Beijing is likely to press Yellen to unwind tariffs and lift export controls as a demonstration of good faith, she will not be in a position to do so,” Wendy Cutler, former USTR senior trade negotiator told Politico.

This move by China echoes its previous export-quota system for rare earths, a group of metals majorly produced in China with prized properties for high-tech manufacturers.

Bloomberg reports that the EU wants to make sure that export restrictions on the two metals are based on clear security implications and comply with World Trade Organization rules.

This new wave of controls, demonstrates China's aim to "remind the U.S. how strong they are and to remind us how much control they have over our supply chains," said Nazak Nikakhtar, a former national security and commodity supply chains officer at the Commerce Department in an interview with the Wall Street Journal.

Japan, Germany and the Netherlands are the world's largest importers of Chinese gallium by volume, while Japan, France, Germany and the U.S. lead in germanium imports.

Wall St Journal [Link].  Reuters [Link]