China’s recent decision to restrict the export of crucial chipmaking materials, germanium and gallium, has sent shockwaves through the global tech industry. This article explores the repercussions of this move and its implications for international trade and technology development.

The Power Play

China’s swift reduction of exports in germanium and gallium, key materials for semiconductor production, is a significant development in the ongoing trade tensions. While Beijing has subsequently approved some export licenses, the restrictions serve as a stark reminder of China’s formidable economic leverage in the global tech trade war.

China’s Dominance

China’s dominance in the production of germanium and gallium is striking. It accounted for a staggering 98% of global gallium and 68% of refined germanium production last year. These figures, according to the US Geological Survey (USGS), highlight China’s near monopoly on these elements.

Challenges Ahead

While alternatives do exist for the United States and its allies, establishing an independent supply chain for germanium and gallium processing is a complex and costly endeavor. Marina Zhang, an associate professor at the University of Technology Sydney, estimates it could require an investment of over $20 billion and years of development.

The challenges don’t end there. Refining these elements involves a complex, technically challenging, and environmentally impactful process. Therefore, constructing processing facilities cannot be a hasty undertaking.

Critical Role in Industries

Despite the relatively modest global trade value of “several hundred million dollars,” these materials play a vital role in the supply chains of massive industries. This includes semiconductors, defense, electric vehicles, and communications, each worth hundreds of billions of dollars.

Why China Dominates

China’s dominance in gallium and germanium production is not due to their rarity but rather the country’s ability to maintain competitive production costs. Their leading position in the aluminum industry, along with strategic government policies, has allowed China to establish a significant share of global gallium production.

Alternative Suppliers and Their Challenges

While alternative suppliers exist in Russia, Japan, Korea, Canada, and the United States, switching to these sources would take time and be costly. Some mining and refining firms have shown interest in entering the market, but the transition would not be instant.

Adaptation and Rising Prices

As China restricts supply, global industries may consider alternative materials. Gallium can be substituted with silicon or indium in the wafer making process, and zinc selenide can replace germanium in specific applications.

In the short term, prices of germanium and gallium are expected to rise, potentially increasing competition and reducing China’s dominance in the long run. This shift may take time but will ultimately lead to adjustments in markets and supply chains.

Takeaway

China’s export restrictions on germanium and gallium have illuminated the nation’s dominance in the chipmaking materials industry. The global tech community must now navigate these challenges, explore alternative sources, and adapt to ensure a stable supply of these vital materials.