Why China’s export ban of rare minerals actually matters?

Five years after the US began to introduce tariffs, quotas, and sanctions on Chinese companies, China apparently decided to strike back. On August 1st, new regulations for the export of rare metals and minerals will take place. China metals export ban include Galium and Germanium, as well as other 36 rare raw materials.

The range of raw materials necessary for the production of advanced chips is quite broad, but the first step is to limit the export of Galium and Germanium, which are used in a wide range of the production of advanced electronics and telecommunications infrastructure.

It’s obvious that this is a retaliatory response to the sanctions that the USA and the EU have been constantly introducing against Chinese companies for the past few years. But it also seems that the breaking point was the recent decision of the Dutch government to limit the export of lithographic machines to China, which are essential for the production of advanced chips. ASML, the largest European technology company by market cap (about $240B), will lose 14% of sales, but there is nothing it can do, considering that it was obvious political pressure from the USA.

In addition to Gallium and Germanium, there are 36 other raw materials on the list of Chinese export controls, essential for American and European industries. Not only in the tech industry but also in the defense sector, according to Business Insider.

Why China metals export ban matters?

The reason why Gallium and Germanium are in focus is the fact that they are obtained by processing the ore, which China currently controls with over 90% of the world market share, which affects supply chains accordingly. The mentioned materials are also present in other regions, but their refining, i.e. the production process to bring them to the form in which they can be used, is simply not possible in a short period of time.

The US and the EU have been working on diversifying the production of raw materials and components for some time now, which is a legitimate decision. But after all the sanctions and restrictions introduced against Chinese companies, they should have expected the response.

As reported by Asiatimes, analysts believe that this move by the Chinese government will not have a long-term impact on the supply of American, European, and Japanese companies, but could cause short-term shocks in supply chains and possibly lead to new shortages.

The real problem is the price increase, which will certainly occur if the US and the EU try to produce these raw materials on their soil. At the moment, neither the US nor the EU is capable of such a turn. This means that the process, which apparently must start from scratch, could take several years.

Business Insider argues that this decision will not harm the USA and the EU too much, but what China is doing, is buying time, as it hopes to catch up with the current top players in the semiconductor industry in the next few years.