As the trade war between the world’s two largest economies intensifies, analysts warn that retaliatory export restrictions by China could negatively impact expanding U.S. clean energy and defense industries.
Targeting materials used in everything from solar cells to semiconductors, Beijing announced this week that it would ban exports of gallium, germanium and antimony to the United States.
China also tightened restrictions on graphite, a key component for the electric vehicle industry.
The measures, which Beijing said were to protect national security, quickly followed Washington’s own sanctions. China’s ability to make advanced computer chips has been hampered.
While trade tensions are rising, US President-elect Donald Trump’s arrival in the White House in January is likely to raise the temperature on trade – the Republican has already promised massive tariffs on Chinese imports.
Analysts say it will take time to assess the impact of new Chinese sanctions on US industries, though any immediate impact should be limited.
Some see Beijing’s move as symbolic for now, even as the effects depend on how China implements the new rules.
“It can certainly increase costs,” said Irwin Serafin of the National Defense Industrial Association. “It can create situations where you can’t produce what you need.”
“It will certainly create a lot of uncertainty for companies that want to plan their supply chain,” he said. AFP.
China is a major producer of the three metals in question.
In August, it unveiled export controls on some antimony products and since then, shipments have fallen.
Bans on gallium and germanium announced in 2023 also affected exports to the United States.
Used by the Defense Department.
“Gallium, germanium, and antimony are critical inputs for defense technologies,” Gracelyn Baskeren and Meredith Schwartz of the Center for Strategic and International Studies (CSIS) said in a recent analysis.
CSIS added that gallium and germanium are preferred over conventional silicon for high-performance chips used in defense applications.
He noted that these materials have properties that increase device performance, speed and energy efficiency.
Antimony is used in fireproofing and also has defensive uses.
The report warned that while China is investing in military equipment and buying weapons systems faster than the US, the US industrial base lacks the capacity to meet defense technology production needs.
“Restrictions on key mineral materials will only allow China to overtake the United States in building these capabilities,” it said.
The U.S. Geological Survey estimates that if China’s net exports of gallium and germanium were to be halted altogether, U.S. GDP could be reduced by $3.4 billion.
Electric vehicles
The US Geological Survey notes that in addition to defense, gallium-based semiconductors are used in radio frequency electronics, LEDs for lighting and high-efficiency solar cells.
While gasoline vehicles do not require graphite, electric vehicles (EVs) require an average of 136 pounds (61.7 kg) of the material, CSIS said.
That could prove difficult for the United States, which has invested billions in private-sector investment into its domestic EV supply chain, subsidized by the Inflation Act.
The act is a package of energy transition policy and social reforms under President Joe Biden.
Surfin said AFP That while Washington has also pushed to attract investment and boost US semiconductor manufacturing capacity through CHIPS and the SCIENCE Act, these efforts do not yet target components such as germanium.
Challenges
Beijing’s retaliation has extended the ban on gallium and germanium announced this week to 2023 – as China retaliated against previous US semiconductor export controls.
“The industry may have been somewhat surprised by the speed with which a wider ban could be implemented, but has been conditioned to expect some bans over the past year,” said Paul Triolo of Albright Stonebridge Group. AFP.
He noted that China’s Ministry of Commerce has already implemented a licensing system around these key minerals, which includes “issuing three-month licenses to try and prevent stockpiling.”
While some efforts have been made to stockpile minerals such as graphite and gallium, there appears to be no coordination among US officials and allies to reduce long-term dependence on China.
Triolo believes it will be difficult to build capacity for the processing and production of these mineral-based products outside of China due to cost and regulatory challenges.
Given the dominance of Chinese firms, companies are reluctant to enter these markets without long-term guarantees of subsidies, he said.