Caixin Weekly | China's Counterstrike: What Does Export Control on Critical Minerals to the U.S. Signify? (AI Translation)

财新周刊｜中国的回击：关键矿产对美出口管制意味几何？

As the U.S. presidential transition approaches, tensions between China and the U.S. have intensified, particularly in the technology and trade sectors. Notably, both nations have implemented policies impacting each other’s industries. China has imposed the strictest metal export controls in history against the United States, targeting elements critical to advanced technologies, while the U.S. has heightened restrictions on semiconductor exports to China, marking the most forceful measures to date[para. 1].

China's Ministry of Commerce has added 28 U.S. entities to an export control list, effectively banning exports of dual-use items to these companies. This move occurred alongside the regulation of metal exports, particularly crucial minerals like gallium, germanium, and antimony—key to semiconductor production. These actions are perceived as China's direct response to U.S. semiconductor export limitations. As a result, global metals markets reacted strongly, with rising prices for germanium, antimony, and gallium, marking a significant shift in previously stable markets[para. 2][para. 3].

China’s dominance in the production of these materials is substantial—supplying 98% of the world’s primary low-purity gallium, 60% of germanium, and 48% of antimony in 2023. Such control poses a strategic challenge for the U.S. military-industrial and semiconductor sectors, which rely heavily on these minerals. The restrictions have driven massive price surges, with gallium prices increasing by 15.4%, germanium by 4%, and antimony by 7.7% within a month[para. 3][para. 5].

The United States' reliance on Chinese minerals is highlighted in commercial sectors, particularly in semiconductor manufacturing, with significant economic losses anticipated if exports are further restricted. The U.S. Geological Survey projects that a full export ban from China might lead to a $3.4 billion decrease in U.S. GDP, emphasizing how strategic minerals are now a part of the ongoing tech trade war between the two nations[para. 6][para. 7].

Strategically, these materials are crucial in high-tech industries such as information technology and defense. The dual-use nature of these materials—suitable for both civilian and military applications—renders them strategically pivotal, and China's restrictions have targeted these uses explicitly. As a result, overseas traders have become cautious with shipping to the U.S., wary of breaching these new regulations[para. 8][para. 9].

The U.S. has reacted by fast-tracking its plans to secure alternative supply chains for critical minerals, even before China's recent countermeasures. Initiatives have been launched to establish supply chains outside of China through partnerships like the Minerals Security Partnership (MSP), encompassing countries rich in minerals[para. 10][para. 12].

China's legislative measures, including the "Export Control Law," stipulate stringent regulations requiring firms to obtain licenses for these exports, further complicating procurement. These controls are seen internationally as retaliatory against U.S. semiconductor export policies. The U.S., which lacks domestic production for many of these critical materials, remains concerned about potential shortfalls in essential sectors, including technology and defense[para. 9][para. 11].

Despite foreign companies stockpiling and managing inventories to counteract China's controls, the long-term effects of these supply chain disruptions remain uncertain. Any substantial shift in downstream industries due to the rising costs of raw materials like gallium, germanium, and antimony depends on the varied bargaining power and adaptability of firms within global supply chains[para. 13][para. 15]. The dynamic continues to evolve, highlighting the interdependence and vulnerabilities present in the global tech industry amidst geopolitical strife.