The Microchip conflict: China on the counterattack, Critical and Strategic Raw Materials Alarm

  circular economy | July 6, 2023

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pmi

From August 1, China will impose new restrictions on the export of metals for the production of semiconductors, a commercial weapon in the chip war.

After the export restrictions imposed by the USA and the Netherlands to counter competition on microchips, China counterattacked by imposing restrictions on the export of gallium and germanium from 1 August.

These are critical raw materials for the production of semiconductors and strategic electronic devices such as fiber optics and solar panels. In the background, the game of Artificial Intelligence is also being played out, in addition to the inevitable impact on 5G networks, the Defense, Aerospace and Electric Mobility sectors.

Microchip Special: gallium and germanium at the dropper

The new limits on Chinese exports concern gallium and germanium, necessary to produce microchips, solar panels, lasers, night vision goggles and so on. These are two of the twenty critical raw materials in which China holds a global monopoly for extraction, refining and export.

A war in the name of national competitiveness which, however, risks not only burning the global giants of the sector but also bringing the global market to its knees, slowing down the time-to-market of many industrial products, consumer electronics and other fundamental sectors like the energy one.

New export rules are established

From August 1, Chinese gallium and germanium exporters will have to request a ministerial license to export the two minerals beyond the borders of the people's republic.

The rationale given for the restrictions by Chinese authorities is security and national interest (the exact same rationale as Western export limits), but imposing such a brake on the global supply chain could backfire.

However, China has certainly done its calculations, and for now it seems to be gaining an important competitive advantage, considering that the new restrictions will also be a commercial weapon in the chip war against the USA and the EU.

The reaction of the EU Commission

The response from the European Commission was immediate, summarized in the statements of a spokeswoman released to the press:

We ask China to adopt an approach that includes export restrictions and controls based on clear security considerations, in line with WTO rules.

The EU executive is analyzing the potential impact of the new restrictions on the global supply chain and on the European industry in particular, reserving the right to evaluate the next steps and actions in the legal context of the World Trade Organization, gallium and germanium being qualified in the community legislation critical and also strategic raw materials, even more so looking at the green and digital transition objectives.