Supply Chain Struggle: China’s Move to Restrict Chipmaking Material Exports Adds to US Trade Uncertainty

by / ⠀News / July 4, 2023
Supply Chain Struggle: China's Move to Restrict Chipmaking Material Exports Adds to US Trade Uncertainty

The global tech industry is facing a new challenge as China announces plans to control the exports of metals crucial to the semiconductor industry. This move by Beijing comes in response to escalating tensions with the United States over access to high-tech microchips. The Chinese government claims that these measures are necessary to protect national security and interests. As a result, exporters will now be required to obtain permission to ship gallium and germanium products, both of which are essential in chip manufacturing.

The United States has been considering imposing new restrictions on the shipment of high-tech microchips to China. In addition, the Netherlands will join the effort by further restricting sales of chipmaking equipment to prevent China from strengthening its military capabilities. The combination of these measures will undoubtedly impact China’s chipmakers and add to the uncertainty in the global supply chain.

Starting on August 1, a number of items containing gallium and germanium will be subject to new export restrictions from China. Gallium antimonide, gallium arsenide, gallium phosphide, gallium metal,  gallium oxide, gallium selenide, gallium nitride, and indium gallium arsenide are only eight of the gallium-related goods that require export permits. In addition to germanium metal and germanium tetrachloride, export restrictions will apply to six other germanium products: germanium dioxide, germanium ingot, germanium metal, germanium epitaxial growth substrate, and zinc germanium phosphide. Exporters will be fined if they don’t follow these rules.

The semiconductor industry heavily relies on these metals, particularly gallium and germanium, in the production of microchips. Gallium is used in various semiconductor materials, such as gallium nitride and gallium arsenide, which are critical for high-performance chips. Germanium, on the other hand, finds applications in infrared technology, fiber optic cables, and solar cells. With China’s restrictions on exports, the global supply chain for these crucial materials is likely to be disrupted, leading to potential shortages and increased prices.

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The ongoing trade tensions between China and the United States have far-reaching implications for the global economy. The restrictions on chipmaking material exports from China, combined with the US and Dutch measures to limit sales of chipmaking equipment, further escalate the uncertainty in the tech industry. These actions highlight the geopolitical struggle for dominance in the semiconductor sector and the increasing importance of securing supply chains for strategic industries.

China’s chipmakers will face significant challenges as a result of these export controls. The restrictions on chipmaking materials and equipment will hamper their ability to develop and manufacture advanced semiconductor technologies, potentially hindering their competitiveness in the global market. This setback could further exacerbate China’s reliance on imported chips, which it has been striving to reduce through initiatives like the “Made in China 2025” program.

The recent developments in the semiconductor industry underscore the importance of diversifying supply chains. As countries impose restrictions and tighten control over critical technologies and materials, it becomes crucial for companies to identify alternative sources and suppliers. Diversification can help mitigate the impact of disruptions in the global supply chain and reduce dependence on a single country or region.

In response to the trade uncertainties and supply chain vulnerabilities, many countries are ramping up efforts to bolster their domestic semiconductor capabilities. Governments and industry players are investing in research and development, infrastructure, and talent to enhance their competitiveness in the semiconductor sector. These initiatives aim to reduce reliance on foreign technologies and ensure a stable supply of critical components.

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China’s decision to restrict the exports of gallium and germanium products adds to the ongoing trade uncertainties and supply chain struggles in the semiconductor industry. The geopolitical implications of these actions highlight the race for dominance in the global tech landscape. As the industry faces disruptions and challenges, diversification of supply chains and investments in domestic semiconductor capabilities become crucial for stability and long-term growth. Companies must adapt their strategies to navigate this evolving landscape and secure their access to critical technologies and materials.

First reported on Reuters

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Joe Rothwell
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