A few days ago, China announced the introduction of a special government authorization to export germanium and gallium. The two metals are crucial in the production of microchips, fiber optics and solar panels. In the background is the merciless confrontation with Washington and the (precarious) balance of world trade. But the embargo can be a double-edged sword.
Beijing () – China (re)initiated the metal war with the United States, opening a new front in a global confrontation between the two superpowers that goes from Taiwan to space, from Asia-Pacific to influence in the Middle East, from military supremacy to new technologies, from semiconductors to economic dominance. China’s Ministry of Trade and Customs announced that, starting August 1, exports of certain products, particularly gallium and germanium, will require special authorization from the government to “preserve national security and interests.”
According to data from the US Geological Survey, China is the world leader with 98% of gallium production and 68% of germanium, and even the United States “depends” on the Asian giant to keep the industrial chain alive. In this planetary challenge, supremacy is at stake in key sectors for the future, ranging from the military to supercomputers and artificial intelligence, although -for the moment- the game is focused on the transition towards a sustainable economy, electric power to solar.
The closure policies adopted by the West may seem like a (late) defense measure against the expansionism of Chinese companies, capable of striking down the competition -and hoarding resources and deposits- thanks to subsidies, state aid, protectionism and industrial nationalism. In fact, China had previously confronted Japan for dominance of the metal trade and mining in Africa, a continent dominated by the dragon, and left the Tokyo government particularly exposed in the electronics and automobile sectors.
This week saw the latest act in what can now be effectively described as a cold war between Beijing and Washington (and their Western allies). To the Dutch decision to adhere to the blockade on the export of its “super printers” to China, machines that are needed to make advanced microchips, the dragon responded by imposing the embargo on gallium and germanium. These two materials have wide uses in production, from semiconductors to advanced technology, through fiber optics and solar panels, essential for green energy at a time of fighting fossil fuels to combat climate change. At the same time, China unleashed the mouths of the “state” media to strike back at its Western rivals, with major newspapers and agencies calling the export restrictions on rare metals a “warning” to the United States.
An editorial of the Global Times, the English-language voice of the party, lashed out at Washington and its allies, whom it accuses of wanting to suppress Chinese industry, without taking into account the “potential damage” that the “technological iron curtain can cause to production chains already world industries”. “Now,” the reflection continued, “the question is how long” the Americans can “ignore the warning” about the “consequences” of China’s “legitimate and reasonable” actions to safeguard their national security and interests. One measure, concluded the j’accuse from Beijing, which “could be more than a warning, showing that China will not allow itself to be passively excluded from the global semiconductor supply chain.”
He china daily it also weighed in on the tech war a few days ago, citing a former state official as saying the latest cuts are “just the beginning” of the measures Beijing intends to take in response. Wei Jianguo, a former vice commerce minister, said that “(Chinese) control of exports of chip-making materials was a blow well landed” and that further action must be taken until the restrictions against Beijing are lifted.
Analysts and experts noted that the Chinese embargo, announced on the eve of US Independence Day, July 4, and just days after Treasury Secretary Janet Louise Yellen’s trip, is a “clear message” to the Biden Administration. Many sectors fear an escalation of tension, recalling what happened 12 years ago in the dispute with Tokyo, at a time when Beijing has further strengthened its leadership in the world market for rare earths. It is, in fact, the second and most important response in the fight between the two powers in the technology sector, after national companies were banned from buying Micron chips in May. President Xi Jinping himself intervened in the dispute, repeating his warning in favor of “stable and smooth operation of the industrial process and the supply chain” in a video message addressed to the SCO (Shanghai Cooperation Organization) summit.
It is difficult to make medium-term predictions, but further cuts, sanctions and closures cannot be ruled out in an increasingly bitter global fight. Especially when it comes to rare earths, which, according to experts, although they are not difficult to find, have a complicated production process with a strong environmental impact. With this in mind, Eurasia Group analysts warn that the confrontation is “a double-edged sword”: as has been observed in the past, in fact, the dragon’s attempt to exploit its dominance in the sector reduced its availability and led to higher prices, stimulating competition and making mining and processing companies outside of China more competitive.
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