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China’s Goes Offensive – Ceases Export of Key Semiconductor Minerals

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In recent months, the global chip-making industry has faced an sudden, but perhaps expected twist as China, a key player in the semiconductor raw materials market, ceased the export of two vital minerals – gallium and germanium. This move has exposed the fragility of international supply chains and ignited concerns over China’s potential to exploit its dominance in chip production.

China’s massive production footprint spans approximately 80% of the world’s gallium and 60% of its germanium. These two elements are the unsung heroes of our modern age, powering everything from smartphones and solar panels to sophisticated military equipment. However, in a surprise move in August, Chinese customs data revealed a sudden drop to zero in the export of these critical minerals. This halt came a month after Beijing imposed stringent export controls, citing national security.

Behind this drastic measure lies a broader narrative of technological contention between the US and China. While the world’s second-largest economy struggles with internal issues like diminished domestic demand and a housing crisis, it remains embroiled in an escalating tech war with the United States. This clash has centered around access to advanced chip-making technology, an essential component for modern innovations, from self-driving cars to weapons manufacturing.

Last year, the Biden administration implemented measures prohibiting Chinese companies from purchasing advanced chips and chip-making equipment without a license. To amplify these restrictions, the US garnered support from allies like Japan and the Netherlands, further limiting China’s access to chip-making resources. In retaliation, China countered with actions such as launching a cybersecurity investigation into the US chipmaker, Micron.

While China’s restrictions may initially appear as a powerful retaliation, it’s a strategy fraught with risk. Their decision to halt exports can potentially hurt their own economy. As inventories grow due to export restrictions, the domestic prices of these minerals are affected. Recent data highlights this trend, with gallium prices dropping nearly 20% from early July.

Furthermore, the international community isn’t solely reliant on China. Alternative producers exist, and there are substitutes for both gallium and germanium, thereby offering the world some level of resilience. Yet, with China’s heavy influence on the market, any disruption can send shockwaves through global production lines.

As the tech race heats up, recent developments, like Huawei’s introduction of the advanced-chip powered Mate 60 Pro smartphone, continue to challenge the balance of power in chip technology. Such advancements underscore the urgency for nations to reassess their dependencies and alliances.

Analysts have been watching China acquire more and more control over rare minerals as they attempt to gain monopoly power – for this very purpose. As China becomes more belligerent in the world and attempts to exert power over other nations and steal more technology this could become a power lever to keep the West at bay. Will the strategy work? It remains to be seen.

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