SUPPLY CHAIN WARNING: China flexes world domination muscle, restricts mineral exports vital for semiconductors and EV battery production

 As if warning the United States not to overpower China economically, the Chinese Communist Party (CCP) suddenly declared new export restrictions on gallium and germanium, two metals crucial for semiconductor manufacture. The announcement came just days before U.S. Treasury Secretary Janet Yellen headed to China to discuss economic and trade relations.

According to the Wall Street Journal (WSJ), the party's decision to restrict the West's access to the said crucial metals demonstrated CCP's willingness to use its dominant control over mineral resources to disrupt Western supply chains. Neither gallium nor germanium is traded in large quantities and both are important to particular industries, especially the production of semiconductors that are often designed in and for use in the U.S. even if made in Taiwan and South Korea.  

"This is no bouquet of flowers for Janet," geologist and editor at Paradigm Press Byron King told MarketWatch. "The timing and symbolism could not be more clear to just about everybody in Asia, if not the rest of the world." He added that this is a "warning flare" because among the elements in the periodic table, China easily dominates the production and supply chain for most of the metals.

His sentiment is mirrored by said Alastair Neill, a board member of the Critical Mineral Institute who has nearly 30 years of experience with China's metals industry. "This measure will have an immediate ripple effect on the semiconductor industry, especially with regards to high-performance chips," said Neill.

"China has smarted at U.S. efforts to slow the advance of its semiconductor manufacturing, which Washington warns is ultimately aimed at strengthening Beijing's military," WSJ reported. "The Biden administration has made it difficult for China to buy lithography machines needed to produce high-performance chips, and last week scored a win when the Dutch government said its equipment makers like [semiconductor company] ASML would need government permission to ship some products abroad."

During a recent event for Chinese chip makers and suppliers, attendees were in a grim but defiant mood when they learned of a report that U.S. President Joe Biden's administration is considering new restrictions on exports of artificial intelligence chips to China. The limitations on the export of gallium and germanium could be China's retaliation against the U.S.'s plans. China seemed to have acted proactively.

"If you don't send high-end chips to China, China will respond by not sending you the high-performance elements you need for those chips," said Neill, who added that Beijing usually tries to match U.S. trade measures with a countermeasure of equal proportion.

The two minerals are among 50 minerals that the U.S. Geological Survey deemed "critical," as they are essential to the economic or national security of the U.S. and have a supply chain vulnerable to disruption.

China also controls EV battery raw materials supply

It would also be important to note that China refines most of the world's lithium, aluminum, cobalt, manganese, graphite and nickel. Said materials are the main manufacturing essentials for creating electric vehicle (EV) batteries.

Experts argue that if the CCP chooses to also restrict access to them, the entire production of EVs across the world could be widely disrupted. Thus, it could massively affect the U.S. defense industries. "We would be foolish to limit our thinking that that kind of thing is impossible," Morgan Bazilian, director of the Payne Institute for Public Policy, pointed out.

Meanwhile, the U.S. government reportedly has made some effort to reduce America's dependence on Chinese minerals, despite the country having "little processing capacity" itself. "Several American companies are seeking permits to open nickel mines in Minnesota and EV factories in North Dakota. However, mines and EV factories take years to develop," WSJ reported.

SUPPLY CHAIN WARNING: China flexes world domination muscle, restricts mineral exports vital for semiconductors and EV battery production SUPPLY CHAIN WARNING: China flexes world domination muscle, restricts mineral exports vital for semiconductors and EV battery production Reviewed by Your Destination on July 13, 2023 Rating: 5

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