Trade officials assessed the impact of the latest escalation between the US and China in the technology war after Beijing announced it would restrict the exports metals used for chipmaking.
The South Korean commerce ministry called an emergency meeting on Thursday to discuss China’s recent decision to limit the exports of germanium and gallium, two metals that are used in semiconductors, electric vehicles, and a variety of telecoms products.
Joo Young-joon said that the deputy South Korean commerce minister, Joo Youngjoon, did not rule out the possibility that the measure would be extended to other products.
Yasutoshi Nishimura, the Japanese trade minister, said Tokyo was examining the effects on its own companies and checking Beijing’s plans to implement the controls. Tokyo warned that it was open to taking action in the World Trade Organization and would fight any violation of international rules.
Samsung and TSMC are based in South Korea and Taiwan, and they dominate manufacturing. Japanese companies play a key role in the chip supply chains.
Roy Lee, Taiwan’s vice-foreign minister, said that Beijing’s decision was likely to cause some short-term effects including price increases. Lee said that the export controls would “be a kind accelerator” for countries such as Taiwan, South Korea and Japan in order to reduce their dependence on China.
Wolfgang Niedermark of industrial lobby group BDI in Germany, Europe’s largest metal importer, said that the controls showed how dangerous Europe’s dependence on China is.
He added that “it is urgent for Europe and Germany” to reduce their dependence on China in terms of critical raw materials. Intel will receive EUR10bn from the German government as subsidies to help build a manufacturing plant in Magdeburg.
Beijing’s announcement Monday shows how President Xi Jinping’s administration is willing to target western interests as a response to Washington’s tightening of curbs on China’s access to advanced technology. Metal restrictions are important because China dominates production of raw materials that are critical for modern technology and infrastructure.
Mao Ning, a spokesperson for the Chinese foreign ministry, said that China has “always taken fair and reasonable export control measures without discrimination”. She stated that the measures are “common international practice” and don’t target any particular country.
The US government has classified dozens of minerals as being critical to national and economic security. The US State Department did not respond immediately to a comment request.
This move comes days before US Treasury Secretary Janet Yellen visits Beijing on Thursday. The trip is billed as a way to stabilize the tumultuous US-China relations.
Analyst CW Chung at Nomura in Singapore said: “This is a punch that China has thrown to the US. It’s a warning of what disruptions to supply chains can do for inflation, interest rates, and the presidential elections.”
Officials and experts in China expect Beijing to take further retaliatory actions in response to the extension of US led controls for technology exports.
One senior official in the Chinese Commerce Ministry said that “there will be more retaliatory actions against the snowballing controls on semiconductor exports from the western countries.”
The price of germanium and gallium in China rose after the announcement on Tuesday, as traders expected the export controls would push the price up.
The gallium used in semiconductor wafers is important for advanced circuitry, solar cells and light-emitting components. They are used in many technologies including high-performance computers and medical devices.
This metal is recovered as a byproduct from the processing bauxite, zinc and then transformed into gallium arsenide which is used to manufacture wafers.
China is estimated to control 98 percent of the global production in 2021, which will be 430,000kg. Gallium is processed in North America, Europe and Asia. Metal is not recyclable at this time and it is used in certain products.
Germanium is used in the production of a silicon-based alloy that can be found in many electrical devices, such as solar panels, electronics and fibre optics.
China is estimated to control 68 percent of global refinery output, or 140,000 kg in 2021. The remaining processing takes place in Europe and North America.
Germanium is available in greater quantities than gallium. Around 30 percent of the global supply comes from recycled materials. In 2021, the US held reserves of 80,000kg germanium. Other compounds such as silicon and others can be substituted for germanium but they often compromise performance.
Yunnan Lincang Xinyuan Germanium Industrial shares closed Tuesday by the maximum allowed 10 percent in Shenzhen, while Yunnan Chihong Zinc & Germanium shares closed 6 percent higher. The rally increased the combined market capitalization of both companies by $350mn.
“We will see China engage in extraterritorial applications of its laws, reneging treaty obligations, as well as imposing countermeasures on a tit for tat basis — all in the interest of China’s perceived public security and national security,” said James Zimmerman.
Zimmerman pointed out also that China passed last week a Foreign Relations Law which, according to Beijing, strengthened the legal base for countermeasures taken against threats from the west that threaten national and economic security.
Kim Yang-paeng is a researcher with the Korea Institute for Industrial Economics and Trade. He said that the restrictions are “worrying” for South Korean manufacturers of chips.
“Korean Companies can find alternate sources, but it takes time.” . . “If you don’t have some materials, it could affect chip production, regardless of how important these materials are,” he said.
Samsung and SK Hynix – the two largest memory chip producers in the world – declined to comment.
Infineon, a major supplier of semiconductors for the automotive industry, stated that it had not seen any “major impacts” on the material supply. The Munich-based firm added that the “multi-sourcing” strategy included suppliers from different geographical areas.
Global Times, a Chinese nationalist newspaper, said that the export controls were imposed after the US and its allies “relentlessly increased crackdowns” on China’s technology development.
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