As a countermeasure to a series of US-led tech restrictions, China’s ministry of commerce and general administration of customs recently announced export controls on industrial products and materials containing two critical elements — Gallium (Ga) and Germanium (Ge). The export of these elements will now be subject to governmental clearance. The ministry justified the restriction on national security grounds, owing to the elements’ dual-use nature.
The decision raised concerns about the global availability of these two critical elements, given their
As a countermeasure to a series of US-led tech restrictions, China’s ministry of commerce and general administration of customs recently announced export controls on industrial products and materials containing two critical elements — Gallium (Ga) and Germanium (Ge). The export of these elements will now be subject to governmental clearance. The ministry justified the restriction on national security grounds, owing to the elements’ dual-use nature.
The decision raised concerns about the global availability of these two critical elements, given their wide-ranging high-tech applications. Both Ga and Ge have applications in high-speed chips, solar and photovoltaic panels, infrared radiation, night-vision devices, LED, optical fibres, and satellite imagery sensors.
Many analysts saw this as the first round of a war between the US and China over the dominance of the semiconductor industry. Some suggested that these export controls are a reminder of Beijing’s strength in the high-tech domain. However, these export controls are unlikely to yield any significant advantage for China, and expose its weaknesses, rather than strengths.
Evaluating the two sets of export controls requires assessing them across three parameters: Substitutability, supply chain dominance and acquired capability/technological gap.
On the first benchmark, the US is clearly ahead. High-end semiconductors are irreplaceable, and their supplies are also controlled by the US and its allies, effectively making the advanced chip value chain a monopoly of the US-led ecosystem. China now has to innovate on its own without significant international support across various stages of the semiconductor supply chain. A favourable geopolitical climate was a key reason behind China’s tech catch-up over the last two decades. That being no longer the case, China will find it difficult to tackle simultaneous export controls on Electronic Design Automation (EDA) tools, semiconductor manufacturing equipment, and intellectual property design, all at once. While achieving a comparative advantage in any one of these stages is challenging enough, creating an entire parallel supply chain is nearly impossible.
On the other hand, source alternatives are not as big a problem with Ga/Ge. There are other players in the market that process these elements — such as Finland, Russia and the UK. The US and Japan also process both elements.
On the second too, Washington has the edge. The US and its allies — Japan, the Netherlands, South Korea, and Taiwan — closely guard all the key technologies and varying segments of the supply chain: Materials, designing, EDA, lithography, and fabrication of high-end chips. Besides, US allies are dependent on American technology to maintain their respective specialisation and marker leadership, allowing the US to influence, and even coerce alignment with its export restrictions.
This became apparent in a recent trilateral deal where the US, Dutch, and Japanese came together to restrict the export of sophisticated lithography tools.
China does not have a similar or comparable advantage when it comes to the supply chain of Ga and Ge. While China currently services 80% and 60% of the global Ga and Ge requirements respectively, other players in the market have the potential to scale up the production of these two elements. Given that both elements are recovered as the byproducts of processing zinc ores, coal, and fly ash, along with bauxite being the largest source of Ga, the possibility of their extraction is not limited to China. The reason why refineries outside China do not engage in the recovery of Ga and Ge is because of low profitability and inefficient recovery techniques that often come at the cost of the extraction of the primary metal being mined. If necessary strategic direction and incentives are provided by the rival States, there is no reason why other players cannot ramp up production.
With China’s export controls, prices of these commodities will rise. Consumers will be adversely affected globally. But from a strategic angle, countries will prioritise the production of these materials. The increase in prices will automatically incentivise diversification.
In fact, China’s own Gallium production prowess is a result of a similar phase 10 years ago. By 2011, the boom in smartphones pushed Gallium prices to $1000/kg. Immediately more suppliers emerged, including in China, to fill the gap. Today, Gallium prices are hovering around $375/kg. The same story also played out with Ukrainian Neon and Russian Palladium once the war started. Prices rose, and alternative supplies also came up in other countries.
On the third, again, the US is ahead. China is years behind the US and its allies in the race to build advanced chips, thereby making it critically dependent on Washington to fuel its plans for an innovation-based economy and, therefore, vulnerable to US tech restrictions.
The same cannot be argued about China’s capabilities vis-a-vis others with regard to the processing of Ga and Ge. China does not control any specific secretly guarded know-how that can prevent other countries from extracting these elements elsewhere. It is reasonable to expect other countries to develop alternative production sites and techniques soon.
The three-pronged assessment of the two sets of export restrictions indicates that China’s countermeasures are far more limited in impact and scale compared to that of the US. If anything, Beijing’s actions reveal how narrow its options are in a US-China tech war. The fact that China chose to impose controls on upstream elements rather than knowledge products shows that it has a weak hand in high-tech. For now, it’s advantage Washington.
Amit Kumar is a research analyst with the Takshashila Institution’s Indo-Pacific Programme. Pranay Kotasthane is the deputy director, Takshashila Institution and heads the High-Tech Geopolitics Programme. The views expressed are personal
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