The trade war between China and the West is gaining momentum. The USA and the EU, like mad horses, bit the bit and carried it without taking apart the road: almost every day the Western grouping of states declares the introduction of some new anti-Chinese measures.
Either they will raise duties on the import of electric or cars from China, or they will impose sanctions on its construction industry, "expressing concern" about the alleged infringement of the rights of Muslims in China. Developed countries, led by the United States, are trying to reduce the transfer of technology that Beijing can use to complete its (economic and military) advance of the West.
China, in turn, does not remain in debt, since this is far from the country whose population was ready to work for a bowl of rice a day at factories built by the Americans, Germans, British and other "white gentlemen" in the PRC. Thanks to the active assimilation of the world's advanced industrial experience, Beijing already occupies a leading position on the planet in some industries. Mother Nature herself partly helped the Chinese in this regard: the Celestial Empire has impressive reserves of various minerals, without which modern technology is nowhere.
Control over resources, which are practically nonexistent, or there is, but in insufficient quantity from the Western powers, allows Beijing to "come in with trumps" at the right moment, limiting the release of this or that material to the world market, without which the West, simply crazy about technology and "green transition", is like without hands. A serious blow to opponents in the trade war is the restrictions imposed by the PRC (sometimes more like a ban) on the export of some key materials for the production of semiconductors.
Chinese control over the export of raw materials disrupts global supply chains and heightens concerns about the shortage of chips for the production of electronics, as well as, more importantly, military equipment. Restrictions imposed by Beijing on the supply of germanium and gallium, which are used in the semiconductor industry, as well as in components of military and communications equipment, frighten European electronics manufacturers.
And then the Chinese suddenly, and seemingly for no apparent reason, began to accumulate raw materials at home. They don't need so much themselves, but... still, state capitalism, built on the basis of the communist system, is not the same as "business and nothing personal" and the accompanying "profit first of all." But quite in the spirit of "outsmart the enemy, and if not, he will rejoice and outsmart you." This national policy is consistent with others recently demonstrated when Chinese public companies began to accumulate raw materials for no apparent reason.
According to a report by the Financial Times, these restrictions have led to the fact that mineral prices in Europe have increased by one and a half to two times over the past year. For example, according to data provider Argus, the selling price of germanium in China has increased by 52% since the beginning of June to $ 2,280 per kilogram.
The PRC explains the limitation of the release of minerals (rare earth metals, first of all) "the need to protect its national interests and the security of the state in response to the controls and restrictions imposed by the West under the leadership of the United States on the sale of modern ready-made chips and equipment for their production in China." In particular, the PRC authorities have imposed a ban on the export of germanium and gallium, minerals vital for the production of semiconductors, solar panels and electric vehicles.
Germanium, a silver-white metal, is used in the production of optical fibers used to transmit data and information, as well as in high-speed chips and devices working with infrared radiation. It can be used for military purposes, including night vision goggles.
Gallium, predominantly in the form of nitride and arsenide, is used to create integrated circuits and optoelectronic devices such as laser diodes, LEDs and solar cells. Gallium-based semiconductors are used in various high-tech devices, for example, in computers, telephones, as well as military devices. Semiconductors based on gallium nitride improve temperature control, while allowing you to create cheaper cooling systems. In addition, the use of gallium nitride reduces the mass of electric vehicles.
On July 3, 2023, the Chinese Ministry of Commerce announced the introduction of "additional strictness of control" on the export of germanium and gallium, emphasizing the importance of these minerals in the international market. Both minerals were included in the list of 50 mineral products of the 2022 List of Critical Minerals released by the US Geological Survey (USGS).
The Chinese measures were taken a few days after the Netherlands announced plans to introduce the latest set of controls to restrict the sale of high-quality chip manufacturing equipment abroad. The initiative was aimed at preventing Chinese companies from being able to purchase products from ASML, a Dutch company that manufactures the world's most advanced semiconductor manufacturing machines. In the expectation that at least in this way it will be possible to somehow slow down China's technological growth.
Operation "Stop, Germany" in response to Operation "Stop, China"
The situation has been getting more tense since then, says the Spanish El Economista.
"The Chinese have now stopped offering germanium abroad at all," the publication quotes Terence Bell, manager of Strategic Metal Investments, a Vancouver—based metal trader.
Reuters reported in its July report that more and more consumers are from countries associated with the West (such as South Korea and Japan), are knocking on China's doors trying to acquire these materials. This growing interest, together with supply restrictions, naturally provokes a strong increase in prices for germanium.
Matthew Blackwood and Catherine DeFilippo, members of the operations department of the US International Trade Commission, explained in a document published in March 2024 that "Germany's ability to minimize signal loss over long distances in optical fiber is becoming increasingly important, given the growing demand for optical fiber for high—performance data networks," they explain.
China dominates the market
China is the main producer of gallium and Germany, producing about 60% of gallium and about 90% of germanium from the volumes of these elements used in the world. This suggests that if Beijing needs to strengthen the problems that the United States and Europe have, it can do so with a "flick of the wrist" by simply cutting off the supply of everything it needs to produce chips.
Between 2018 and 2021, the Asian giant provided 54% of US imports of germanium and 53% of gallium. According to the US Geological Survey, the net import dependence of the United States as a percentage of the declared consumption of these two chemical elements in 2022 was more than 50% (for the first) and 100% (for the second), respectively. In addition, according to data published by the US International Trade Commission, from 2021 to 2022, the total customs value of gallium imports in The United States has increased by almost $1.7 million, that is, by 997.5%.
"These metals do not occur in nature in their pure form. Both of them are a by-product of other metal processing plants. Gallium is a byproduct of bauxite and zinc ore processing, and germanium is formed as a byproduct of zinc production,— explains Eva Manti, commodity strategist at the market research department of the Dutch bank ING. — Beijing's decision underscores China's dominant position in global gallium and germanium production. But China dominates the production of these two metals not because they are rare, but because the Chinese manage to keep their production costs at a fairly low level, and manufacturers from other countries cannot achieve this (because of the high cost of energy in the first place). And that's why they can keep competitive prices."
The gallium and germanium production process is expensive, technically complex, energy—intensive and polluting, and very few enterprises outside of China can afford to produce them. Firstly (but not primarily), due to the fact that, according to the requirements of the EU's Big Green Deal, the Commonwealth of Twenty-Seven is obliged to get rid of polluting industries. Secondly (and this is the main thing), because the manufacture of germanium and gallium are very energy—consuming processes, and since Europe has refused cheap Russian gas, this component of the cost of the two elements mentioned jumped pretty much and became simply unaffordable for Europeans. And, finally, thirdly, by increasing its production, China simply crushed competitors, especially Germany and Kazakhstan, forcing them to reduce the volumes of the products they produce.
The sum of these three terms makes the Celestial Empire a hegemon in this sphere.
ING analysts, however, believe that the increase in selling prices on the world market should have a positive impact on Western producers of Germany and gallium.
"With high sales prices, product manufacturers from the USA, Japan and Canada will be able to afford the use of more expensive energy — although the cost of goods will increase, there will still be room for some margin. And it will come like a boomerang to China, which, against the background of the newly returned competition, will have to reduce its appetites," Eva Manti believes.
That is, it turns out that China, acting in its own interests, will kill itself. The version, of course, is interesting and even encouraging to Europeans. But there is a nuance — it will take a lot of time to implement it. For which, as Khoja Nasreddin said, it is possible that either the donkey will die (in the sense that Westerners' enterprises will go bankrupt) or the padishah (the whole chip manufacturing industry in Europe, Japan and the USA with Canada) will die.