China’s banning of germanium, gallium, and antimony exports to the U.S. and what it signals to the incoming Trump administration

29 December 2024 - Written by Amirza B. Batubara

Introduction

Earlier this month, Beijing’s tech industry further cracked down on its critical semiconductor and chip trade as it ramps up policy safeguards against impending Washington tariffs. This escalation involved China barred gallium, germanium, and antimony exports to the US, hoping to strengthen the enforcement of existing limits on critical mineral exports that Beijing had begun rolling out only to the US. Perceived as an escalation of trade tensions between the two giants, China is seemingly shielding itself from a one-sided “trade war” rhetoric that Trump will unleash upon his ascendancy into office once more. However, is it truly a defensive policy regime that it wants to portray itself? Or is this also virtue signalling for China’s pitch to help assist America’s broader ambitions to be more enclosed economically for self-pride and nationalistic, patriotic interests?

Why are rare earth minerals so important?

All three aforementioned minerals are metalloids crucial to semiconductors - a chip that controls much of our electronic gadgets or devices today, from GPS to phones, TVs, and computers. Gallium’s properties fabricate light-emitting diodes and can act as photovoltaics, on top of semiconducting. Germanium makes excellent conductors and insulators, hence its utility in semiconductors. Antimony could be used in bullets on top of creating alloys, fire retardants and infrared detectors within the all-powerful semiconductor chip.

To date, over 90% of the world’s semiconductors come from the East Asia region, and 31.4% of the global market share belongs to China alone. With China being a major producer of the elements, given its rare-earth mining industry, it almost holds a total monopoly over its resources. Semiconductor sales are not expected to deplete in the foreseeable, given the rise of AI and robotics technology that has been heralded as the fourth industrial revolution (Industry 4.0), which makes this issue of potential resource shortage all the while more pressing for nations that opt to vilify China.

Contextual Analysis

A “trade war” between the US and China has occurred since at least October 2017, when a United States Trade Representative (USTR)-led investigation directed by Trump targeted Chinese economic practices. The resulting reports brought out focused tariffs against numerous Chinese companies from March 2018 onward initially - eventually coalescing into sector-wide sanctions. With little budging from the US’ last two presidencies, this radical change can be perceived as a signal to the incoming Trump administration that Beijing can act pragmatically and is no longer cautious in its retaliation, especially with recent strides in relatively “successful” policy aspects such as “reclaiming” Hong Kong, expansion of BRICS, and the Belt and Road Initiative projects that are not just completed transnationally, but also transcontinentally since the first Trump entry.

Despite the mutual feelings of suspicion, the conflict has relatively been low-intensity and was, on China’s end, one that signalled its potential in weaponising critical rare earth materials if the US was to fail in compliance and rescind long-standing tariffs even with the change of presidency to Biden. With Biden failing to dismantle the sanctions regime and the soon-to-be transfer of power back to China, restrictions on many goods have since escalated - including disparate restrictions on gallium and germanium from a year ago and antimony turning into an all-rounded ban on the export of these materials with no exception.

In 2023, China produced 240,000 metric tons of rare-earth oxides combined - a large margin outnumbering the United States by fourfold. This places China on a competitive edge, one that the US has to catch up with newfound mining endeavours. Echoing once more sentiments made by Chinese senior diplomat Yang Jiechi in a 2017 Alaska visit, China believes the US “abuses so-called notions of national security to obstruct normal trade exchanges, and incite some countries to attack China” - and these rare metals become bargaining chips the way it has no forego to the country anymore.

Key players & stakeholders

China: Host of some of the world’s largest rare-earth mineral deposits, China is consequently a leading power in the chip and semiconductor sector, so much so it can even be said to have monopolised it. A gargantuan amid a recurrent trade war that especially flares with Trump’s anti-CCP rhetoric, it has the stakes for much of the world’s production in the former.

United States: Notoriously growing more isolationist as a result of higher favourability toward Trump’s “domestic awakening“ policies, his cabinet’s rhetoric includes vilifying China for stealing “intellectual property theft” and lack of US company access in the massive Chinese market.

Economic, Military & Social dimensions

Economic: With the new tariff entry for antimony, prices for the ore have surged already as China stifles exports. With rare earths being the most crucial set of minerals targeted thus far in this tit-for-tat between the two in setting trade limits, the sky is the limit. Though worst-case scenarios such as a total sanction of manufactured goods can create a fatal blow for America’s commodity market, the rare-earth will be the most serious sanction China takes in a while, and act as an impetus to America’s protectionist policy regimes to get “serious” if it wanted to close its borders. With the fear of repeated repudiation of and withdrawal from the Paris Agreement, we may prove the increase of aggressive rare earth extraction in place of the lack of rare-earth trade - emulating import-substitute industrialisation in the sector and filling in the gaps.

Military: Notably, this barring of infrastructural trade catalyses a disruption in the defence supply chain, especially given antimony’s purpose on ammunition, germanium’s infrared capacities and gallium’s extensive usage in advanced radar systems. With America likely to retain its largest military title soon, it must seek its allies to feed its high ultra-attentive demands, particularly Australia. America fears a need to substitute the material or recalibrate its vulnerabilities in incentivising China to exploit this leverage further and therefore open negotiation channels out of necessity.

Social: Out of all the doom and gloom painted in these scenarios, there may be a silver lining in the social aspect. Down and derelict areas, impoverished due to the depravity of economic growth, such as the Rust Belt, may have their communities move as internal economic migrants to areas where rare earths are to be found. However, tertiary sector hubs such as Silicon Valley may face industry-specific challenges, where the production of 5G networks, smartphones and therefore research tied to them may diminish as competitiveness slows down. Furthermore, there will be a reprisal of contamination and pollution concerns in mining hubs, as they are primarily concentrated around previously-pristine rural areas, rich in pastoral heritage. The US must be careful in signalling its big mining corporations from treading shortly after heading for the pickaxes.

Opportunities & risks

Opportunities:

• Expansion of innovation in domestic semiconductor markets.

  • Just as much as China signals to the US to back off, this is also a signal for them to become the self-reliant power they longed for. This is a chance for investors to trailblaze innovating the semiconductor field, itself already projected to triple its semiconductor-building capacity by 2032 - the highest rate in the world .

• Forge new angles for rapport-building with long-standing allies.

  • As controversial as exploiting of destructive sectors is, the rare earth sectors are lucrative in whatever nations it touches. And America could leverage this as new areas for cooperation, as its soft power returns will always appeal to the appetite of its especially Western allies. Australia in particular has a pioneering rare earth refinery and smelter industry which could transfer with the US’ infrastructure given its similar capacities. To synthesise new agreements with states like Australia may grant America access to their tail mines and newfound technology needed to patch up the resource disparities.

Risks:

• A blow to environmental policy progress and UN 2030 SDG goals via renewed mining licenses out of necessity.

  • Companies are already positing mining rights over rare earth deposits in West Texas and is due to start excavating in 2025. With Trump’s plans to rejuvenate the economy, this may galvanise the mining industry to uplift societies reminiscent of the Rust Belt - much to the expense of progress in the field of environmental policy (unless nuclear fission was to be taken more seriously)

• Increased production costs on chips can lead to an uptick in retail prices on electronics.

  • Virtually any electronic gadget is threatened and expected to see an increase in market prices, should policymakers fail to impose contingency measures. With noted scarcity, R&D may have to find a way to have chips shrink in size or minimise their conducting or insulating properties to adapt.

  • Market adaptation to retracted rare earth trade and renewed models can cost the US over $3.4 billion in its GDP.

Recommendations - Policy Considerations

Strengthen extant domestic supply chains on alternative and substitute materials:

Without permitting too much domestic mining on the critical minerals, the US must learn to utilise its extensive scrap metal market to create alternatives. The US discards 140 million cell phones a year. This gives massive leeway to reuse chips within the old phones and an opportunity for recycling. Their recycling will bring a new lease of life to the semiconductor market that has long been imported from China and other East Asian states.

Build federal stockpiles of critical minerals to buffer against future disruptions:

Like the bullions of gold the US Federal Reserve stashed pre-1929, it is good to stockpile on critical minerals as a means to keep them at bay. Unlike gold stocks, however, they are less likely to be depleted from fierce “up-for-grabs” competition or contestation as they do not have any fiscal value, only utilitarian - therefore reducing the risk of a stock market crash scenario and giving its existence as one that’s predominantly symbolic to incentivise recycling.

Diversify global partnerships:

Establishing NAFTA-like trade agreements with resource-rich allies like Australia or Canada may go against Trump’s precedent on isolating America, however it could still retain Republican interests by having it centred on investing capacity-building for America’s internal market, while stopping short from participating in international frameworks they have long disdained. This trade-off will fit well with the Republicans narrative of limiting government intervention, free market policies and perpetual growth.

Invest in innovation and alternatives:

Fund R&D more on alternative, primitive minerals such as copper - abundant in throwaway devices. This will ensure there is still a chip sector or market that isn’t inherently semiconductor in shape.

Conclusion

China’s banning of germanium, gallium and antimony exports can at the very least be perceived as intimidatory to the US. At the very worst, the newfound sanctions are to reassure the Trump administration that it would not be shaken and undermined by its “trade war”, and to provoke market forces to adapt to Trump’s hyper-nationalistic desires. In a way, China is thus signalling America’s incoming regime to walk the talk, as America has long relied on Chinese manufacturing and services. However, the ambit shall be met with a heavy cost on the socio-economic section, as supply chains will take a blow - one that will eventually circulate worldwide given our still high levels of dependency on the East Asian state (and region to a certain extent) for its supply.

Should these sanctions remain stringent with no wiggle room, the world must be prepared for a repeat of the 2020-23 global chip shortage (or worse), or more tangibly what Europe faced following its Russia-directed sanctions on oil and gas following the 2022 invasion in Ukraine - an imminent semiconductor crisis, leading to rising electronic prices that push the tech industry into crisis-levels shortage in years to come as states scurry for rare-earth reserves wherever they could find. Nonetheless, this crisis would lead to a bounce back and is not likely to carry on past the 4-year mark, as Trump will no longer be eligible to run for the presidency again in 2028. One can only hope his successor will understand the significance of these minerals without the need to mine more.