China’s response to Western restrictions on its chip manufacturing industry has been to ban the export of gallium and germanium, two key elements for that same industry, which manufacturing companies will now have to try to source from other countries.
Gallium and germanium are generally obtained from zinc and aluminum mining, from which they are extracted as by-products. China produces between 80% and 95% of the total gallium mined and about 60% of the germanium, which may complicate supply chains considerably and lead to new semiconductor supply crises. Although it is possible to source these components from other countries, China’s withdrawal from the market generates significant tensions and very complex effects: at present, gallium and germanium have fallen considerably in price in the Chinese market as their domestic availability has increased due to the cessation of exports, but they have risen in the rest of the world.
China’s restrictions are a product of reciprocity: the consideration of companies such as SMIC as potential suppliers of chips for the military industry led the United States to impose restrictions as early as 2020, and to ask trading partners such as Germany or the Netherlands to do the same by using, for example, the chemicals needed for these processes, particularly in the case of those that enable the production of advanced chips such as three-nanometer chips.
The supply of this type of element is quite complex. Relatively small quantities, in the order of hundreds of tons, are produced worldwide, and in some cases there is extensive use of recycling: more than a third of the germanium used by industry comes from this type of process.
In addition to chip manufacturing, the restrictions potentially also affect components used in the electric vehicle and solar panel industries. China is also considering banning the export of other minerals such as neodymium, used to produce the powerful magnets that are also used in many manufacturing processes.
We are facing an increasingly convoluted scenario: the difficulties in the supply chain posed by a trade war mean that highly strategic industries are facing supply problems and may eventually slow down the production of some of the key technologies for decarbonization, undoubtedly the most important technological transition process in the history of mankind and on which the possibility of slowing down the climate emergency depends. In this sense, China has placed itself in an absolutely strategic position in components such as solar panels and batteries, and is managing to achieve much more significant reductions in its emissions than those being achieved by other countries, despite starting from a much more worrying situation.
When talking about such important issues, it is essential to understand that we must act globally and use the resources of all countries to respond to a crisis that affects us all. To jeopardize the evolution towards an increasingly decarbonized economy because of trade concerns or concerns about global technological leadership is clearly deeply irresponsible. Trade wars never have winners; they only produce many losers. We’ll see if this one doesn’t end up making losers of us all.