Companies dependent on the world’s second-largest economy are worried about China’s recent decision to put export limits on critical metals.
In light of these worries and the current state of heightened geopolitical unrest, there is a likelihood that additional limitations will soon be implemented.
In an effort to protect national security, Beijing announced on Monday that it would limit exports of products made from the minor metals gallium and germanium.
A top Chinese trade advisor warned that this move was just the beginning.
The decision followed the United States’ imposition of export restrictions aimed at limiting China’s access to key technologies used in artificial intelligence (AI).
The products affected by China’s export restrictions are crucial in industries such as semiconductors and defense technology.
While these metals represent a relatively small portion of China’s overall exports, the move has reignited calls globally for “de-risking” supply chains by finding alternative countries for processing and sourcing key components used in a wide range of goods, including electric vehicle batteries.
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China’s Export Restrictions on Critical Metals Raise Concerns
In a related industry, China possesses about one-third of the world’s rare earth reserves, which are essential for the production of EV batteries and electronics.
The country also has at least 85% of the global capacity to process rare earths into usable materials, a capability that other nations are seeking to develop.
However, if prices rise due to the restrictions, companies may have a stronger incentive to shift their supply chains elsewhere.
Nyrstar, a Netherlands-based company majority-owned by Trafigura, is actively exploring germanium and gallium projects in Australia, Europe, and the United States to mitigate shortages caused by China’s export curbs.
China’s announcement coincided with a visit to Beijing by US Treasury Secretary Janet Yellen, further straining US-China relations as the two countries compete for dominance in key sectors like semiconductors and defense technology.
Taiwan viewed China’s export restrictions on gallium and germanium as “a new wave of retaliation” in an ongoing “tit-for-tat” approach. Roy Lee, Taiwan’s deputy foreign minister, emphasized that export controls accelerate the efforts of countries like Taiwan, South Korea, and Japan to reduce their dependence on China’s critical materials supply.
Japan, which will start limiting exports of chipmaking tools to China starting on July 23, said it is still determining how Beijing’s curbs will affect it.
South Korea expects limited short-term effects, while both countries remain leading chipmakers.
On the effects of China’s metals restrictions, industry analysts have varying perspectives. Some claim that the limitations will cause short-term supply interruptions and price increases, while others contend that China will suffer more serious effects as a result of Washington’s restrictions.
Navitas Semiconductor Corp, a company specializing in chips that use gallium nitride, stated that it anticipates no adverse effects on its business from China’s export controls.
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