China’s export embargo on high-tech metals indicates that Beijing is bracing for a trade battle with the next US government.
Shortly before Donald Trump’s second term began, China put an export embargo on commodities made of gallium, germanium, antimony, and super-hard materials with dual use items to the United States. In contrast to the previously enacted, more broad and cautious export restrictions on certain high-tech metals, China is sending a clear signal to the United States that it will take more serious measures if the trade battle escalates further. China bolstered its legal base by altering the export control regime, preparing for an escalation of the trade conflict with the United States.
Since August 2023, the Chinese government has consistently imposed export controls on high-tech metals that are critical to both the semiconductor sector and green technology. For example, exports of gallium and germanium have been prohibited starting August 2023, with similar limits on graphite beginning in December 2023 and antimony beginning in September 2024.
Gallium and germanium are employed in semiconductor manufacturing and solar energy applications. Graphite is a crucial raw material for the manufacturing of anodes in lithium-ion batteries (LIB). Antimony is used extensively in the solar sector as well as military applications. China is presently openly considering new measures for export restrictions on technology used to produce LIB cathode materials, extract metallic gallium from alumina, and extract lithium. This is designed to minimize the international transfer of know-how in technologies where China is a global leader.
So far, the newly implemented export curbs have had little impact on global raw material supply networks. Exports did fall in the short term once the control measures were implemented due to the lengthy licensing processes. Exports eventually restored to normal. The global raw material markets have seen significant price changes.
After export limits were imposed, prices in China and outside China moved in different directions. While raw material costs fell in China owing to bleak export prospects and large manufacturing capacity, prices soared elsewhere. High raw material prices make new mining ventures more appealing and give a commercial basis for planned expansion initiatives beyond China. However, for downstream businesses such as semiconductors and solar, this entails higher prices, which impedes digital and green transformation.
China’s current steps might be termed prudent. Instead of outright prohibiting exports, exporters must apply for permits and provide information on end users and intended end uses. These actions are not formally targeted at specific countries. The Chinese government’s reluctance can be explained by the fact that severe export regulations incur local expenses, which have a detrimental impact on Chinese industry and economic growth, because, in addition to diminishing domestic market demand, export options have become restricted.
Furthermore, a blanket export prohibition might spur purchasers’ efforts to decrease risk and diversify supply chains to other nations, undermining China’s long-term advantage. As a result, the policies have been devised to have a signaling impact while having no substantial economic repercussions.
However, China’s December 3, 2024 announcement of a ban on exports of gallium, germanium, antimony, and superhard dual-use minerals to the United States marks a considerably stronger retaliation. The government is not simply reacting to the US’s announcement of export curbs on sophisticated semiconductor manufacturing equipment to China the day before. It also indicates that it can and will take a far stronger stance against the US sanctions. The most stringent kind of export restriction is a ban. The notification stated that these commodities may not be supplied to the United States through third parties or third countries, a limitation that the United States has already imposed on China.
In light of the potential escalation of the trade war with the United States, China has revised its export control regime in recent years, aligning it much more closely with globally accepted export control rules. These include the publication of an export control law, the introduction (standardization) of export control regulations for dual-use goods, the development of an unreliable entity list, laws to protect against foreign sanctions, and the newly updated export control list for dual-use goods, which went into effect on December 1, 2024. The new export control system is more transparent and prepares the groundwork for successful enforcement of future export control restrictions.
It is yet unclear if the export prohibition will generate significant issues for the US economy. It is mainly dependent on how it is implemented. Experts question whether China has the legal authority and enforcement capabilities to compel compliance overseas. For example, commodities affected by the restriction may still reach the United States via foreign nations. The US Geological Survey estimated that if China implemented a comprehensive export ban on gallium and germanium, the US gross domestic product would decline by $3.4 billion.
China’s reliance on imports of some raw commodities from the United States may prohibit it from reacting decisively. For example, China imports high-purity quartz mostly from the United States. It is regarded as the purest of its type and is required, for example, for the manufacturing of a critical component for silicon wafers used in the solar and semiconductor industries. Furthermore, since 2018, the United States has been China’s leading supplier of rare earth ores and concentrates.
Given the new Trump administration’s determination to slow China’s continued rise in high-tech industries, as well as China’s growing willingness to counter US containment measures by restricting the raw materials required to do so, the exchange of export controls between the two countries is likely to continue. China is considerably more prepared for this than it was at the beginning of Trump’s first term.
In the trade battle between the United States and China, both nations are leveraging their dominating market positions in global supply chains. While the United States leads the semiconductor sector, China is a leader in producing critical raw materials for the industry.
Europe is in the midst of this intensifying struggle, which naturally raises the problem of raw material security. Although China’s trade restrictions have not yet had a significant impact on EU members, uncertainty is growing swiftly. As a result, Europe must devise a strategy for dealing with unforeseen threats. After all, the EU is heavily reliant on China for key raw materials and intermediary products critical to the EU’s digital and green revolution.
With the implementation of the Critical Raw Materials Act in May 2024, the EU has proposed methods to improve the resilience of EU supply networks. In addition to increasing raw material extraction, processing, and recycling capacity in Europe, supply sources will be broadened through worldwide collaborations. The German government’s raw resources fund was established in October. It will provide one billion euros to fund initiatives that ensure a long-term supply of vital raw materials for Germany and the EU. It is a significant step toward greater freedom in the long run.
Currently, production capacity outside of China and short-term substitution possibilities for many raw materials are restricted. Creating new sources of supply and increasing processing capacity takes time and money. As a result, while diversification efforts continue, current supply agreements with China should be kept as steady as feasible.
The author Yun Schüler-Zhou is a Hannover-based German economist. (This article first appeared on IPG in German.)
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