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China’s Rare Earth Mineral Sanctions: why have they happened, and what do they mean?

Updated: Nov 29, 2023

Senior Analyst

An Empty Cargo Ship - Credit: Wikimedia Commons

On Monday 3rd July, China announced that it would impose export restrictions on Gallium and Germanium products from August 1st, in a move which drew a surprisingly small amount of attention in global media. This is likely to be highly consequential for the future of green technology and computer chips and places China in a highly strategic position – one it will not budge from willingly.

Rare Earth Minerals, as their name may suggest, are rare, but our world would not exist in its current state without them. These minerals allow humanity to produce the technology which we take for granted in the modern era, from advanced weaponry and wind turbines to electric vehicles and the very smartphone you may be reading this article on. Without these minerals, advancements in technology simply would not happen at the tremendous pace which we have observed.

According to data from the United States Geological Survey (USGS), ‘China accounted for 70% of the world mine production of Rare Earths in 2022’, which provides evidence of its dominant market share. China held at least 85% of the world’s processing power for these minerals in 2019, making it the primary market player for the world’s dependence on these raw materials. Even the United States sources about 74% of its Rare Earth minerals from China, based on data from 2018-2021.

China also holds between 34-38% of the world’s total reserves of Rare Earth minerals, depending on the source. If a state wants a future with Rare Earth minerals, it will almost certainly need to cooperate with China, and potentially its allies. Brazil, Russia, and China are all members of the BRICS confederation of nations, and collectively control more than 2/3 of the world’s Rare Earth metal reserves. Echoes of OPEC ring through the halls of the UN headquarters.

The issue at hand concerns China cementing its position at the centre of an industry that is critical to the world:

It is first worth addressing the direct geopolitical impacts of this move. China and Taiwan have been involved in a long-running dispute as to the nature of the latter's sovereignty, and this move could be seen as an attempt by China to weaken the Taiwanese economy. According to Foreign Brief, a geopolitical risk firm, semiconductors accounted for 15% of Taiwan’s GDP and 40% of its exports, making them an industry crucial for economic viability. Further, according to EIAS, Taiwan held 63% of the total semiconductor market share in 2019.

Gallium is used across the spectrum of semiconductors, from the gallium nitride within LED lights to the gallium arsenide used for the most high-performance semiconductor wafers, made for radar devices and satellites. Germanium, whilst not used in semiconductors specifically, is used in the production of high-speed computer chips. Whilst both can technically be replaced, replacement comes at the cost of greatly reduced appliance performance, creating both demand-side and supply-side issues.

To address the supply issue first, these export controls will decrease the ability of Taiwanese firms to produce semiconductors, thus negating the supply-side price benefits of the global semiconductor shortage at the very least, and crippling production at the very most. Decreased demand from international clients for semiconductors - due to an inability to produce enough to match regular purchase orders - comes as a result of a newfound lack of Germanium. This leads to a lower demand for semiconductors to be produced, further damaging the industry. As a result, consumer electronics and goods using computer chips, such as cars, may become more expensive for the general public, due to falling computer chip availability, This further decreases the original demand for semiconductors, leaving Taiwan in an economically precarious state.

This move also puts at risk the transition to green energy, and the world’s continued fight against man-made climate change. Germanium, for example, is a key ingredient in the most modern solar cells, which are the constituent parts of solar panels. According to Umicore - a materials technology company - Germanium-based solar cells are almost twice as efficient as standard silicon cells, and considerably more resilient to solar radiation, which greatly increases the longevity of a cell. Whilst more expensive initially, Germanium cells are a cheaper investment in the long run and could be a useful option for mass solar farms in uninhabited areas of the world, such as the equatorial deserts. Gallium arsenide solar cells, according to a 2012 paper by Jestin, are some of the most efficient solar cells ever made, with an efficiency of 42.3% unmatched by conventional solar cells. With exports of both of these minerals limited, the potential of solar power in the world’s transition to green energy is severely neutered and may result in a slower transition, and one more likely to incur long-term climate consequences for humanity.

Similarly, batteries used in electric vehicles may come to rely on one of these Rare Earth minerals – Gallium, and specifically gallium nitride. This compound is lighter than lithium (as used in ubiquitous Lithium-ion batteries) and more energy-dense, and has been seen by some manufacturers as the answer to rapidly inflating lithium costs due to surging demand instability in the so-called ‘Lithium Triangle’ (an area comprising Chile, Argentina, and Bolivia) where most of the world’s lithium is mined. In their piece, Delbert argued that Gallium Nitride ‘could do a lot more with less’ with regards to electric vehicle semiconductors.

With world governments, including the UK, planning to phase down or phase out fossil fuel-based internal combustion engines, electric vehicles are being seen as a more viable alternative for long-term personal transport. However, with China’s new restrictions on the export of gallium, this battery option will undoubtedly become less appealing. As a result, electric vehicles will not be able to benefit from the increased range of Gallium batteries, and those batteries which are produced are likely to remain expensive and liable to fast deterioration. This results in electric vehicles being less attractive to the free market, and thus being adopted slower by the general public, meaning that traditional cars will remain on the roads for longer, hampering the Green Transition.

It is important to note, however, that these latest restrictions are not merely an act of aggression by the Chinese government. The US-China ‘Chip War’ has been ongoing since the Trump administration and has only escalated under Biden. In October 2022, for example, the US banned all export of the most cutting-edge computer chips and the machinery necessary to manufacture them to China, to which China responded by imposing sanctions on US firms Raytheon, Lockheed Martin, and Micron – the former two being military contractors, and the latter a chip production company.

Zeyi Yang of the MIT Technology Review argues that ‘China is signalling that it, in turn, can cause pain for the Western tech system and push other countries to rethink the curbs they put on China’, in response to Japan’s doubling down on US policy and banning even more chip-making equipment than the US. Whilst the United States restricted technology for chips fourteen nanometres and under, Japan increased this to forty-five nanometres, which covers much less advanced chips, including those in some car models, which has only heightened tensions in the region.

Neither side of the Chip War appears willing to back down, meaning that we will likely see further escalation before a future détente. When US Treasury Secretary Janet Yellen visited China last week, both sides spoke of concerns about export controls but neither showed a willingness to loosen their own. However, if these issues are not resolved with expedience, the impact on the world at large will be far larger than just semiconductor shortages.

Will China and the US bloc be able to reconcile and put the course of Rare Earth Minerals back on track, or will relations and mineral supplies continue to worsen? Share your views in the comments section below


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