US-led 'chip war' will backfire

The recent decision of the Chinese government to control the exports of gallium and germanium, two critical elements needed to make semiconductor chips, starting Aug 1 has evoked responses from the United States, the European Union, Japan, the Netherlands and the Republic of Korea, and leading chip and semiconductor equipment producers.

Gallium and germanium are key elements also for other advanced electronics industries, including electric vehicles, alternate energy and defense. China is the world’s leading producer of the two elements, accounting for 90 percent of the global germanium and over 90 percent of the gallium supply, which makes it very difficult for importing countries to find an alternate source of supply.

Gallium is a by-product of aluminum electrolysis process, and to produce the element in large quantities, a country needs a large supply of alumina, which in turn needs an even larger supply of bauxite. No other country can produce the element in such huge quantities as China. That’s why the US-led West is expressing concern over China’s export control.

But China’s control over the exports of the two strategic elements is not aimed at disturbing the global supply chains or hindering global efforts to promote or intensify green development to fight climate change. Rather, it is a legitimate and reasonable move to safeguard its national security.

Both gallium and germanium are used to make advanced semiconductors, infra-red detectors and night vision devices for military use. So China needs to determine who the end user of the elements are in order to prevent them from being used to make military equipment which ultimately could be used against China.

Article 1 of the recently adopted Law on Foreign Relations of the People’s Republic of China explicitly stipulates: “This law is enacted pursuant to the Constitution of the People’s Republic of China to conduct foreign relations to safeguard China’s sovereignty, national security and development interests.”

Reportedly in 2022 the leading importers of China’s gallium were Japan, Germany and the Netherlands, and germanium Japan, France, Germany and the US.

But despite being an importer of these elements, Washington has been sparing no efforts in restricting the supply of chips and advanced semiconductor equipment to China. The US has fostered a tripartite agreement with Japan and the Netherlands to ban the export of 23 types of semiconductor making equipment, including extreme ultraviolent (EUV) and deep ultraviolet (DUV) lithography to China.

And yet these countries expect China to continue to freely supply gallium and germanium to them so they can make advanced chips and semiconductor equipment, which could be used to advance their defense systems, posing a threat to China’s national security.

Can anything be more ridiculous than this?

China’s export control is based on national security concerns and is not against World Trade Organization rules. First, there is no general ban or restriction on the exports of gallium and germanium, nor is the restriction aimed at a particular country or countries. Any company wishing to export either of the minerals or their chemical compounds needs to apply for and be granted a license to do so.

Second, China is not the first or only country to restrict the exports of certain minerals and technologies due to national security concerns. The US and the EU have been doing this for years. For instance, the White House released a report titled “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Foster Broad-Based Growth” in June 2021, and the EU passed the “EU Key Raw Materials Act” on March 16, 2023, to further restrict the supply of several products and technologies to China.

And third, China’s export control is non-discriminative and doesn’t target any specific importer or country. In contrast, ASML Holding, a Dutch company that supplies photolithography systems for the semiconductor industry, has decided to stop the exports of EUV and DUV lithography to China. As the decision poses a threat to Chinese national security, it is only logical that China will control gallium and germanium export to the Netherlands.

While many gallium and germanium buyers in the US, the EU, Japan and the ROK have expressed their readiness to apply for the imports of the two elements, Washington is moving in the other direction, intensifying its ban on the exports of chips to China. But Washington’s decision will first hit NVIDIA, the American artificial intelligence chipmaking giant which earned a revenue of $4.28 billion from the Chinese market during the first quarter of this year, or 25 percent of its total global revenue. The ban will force the NVIDIA to lose the lucrative Chinese market.

The US Department of Commerce voiced its “firm opposition” to China’s export control on gallium and germanium, saying it will consult its allies to address the issue. Paradoxically, the Commerce Department has neglected the key factor that could help it address the issue: consultation with China. China is open to talks with other countries on gallium and germanium supply and making the supply chains integrated and more resilient, while safeguarding its national security.

As such, the US, Japan and the Netherlands would do better to hold talks with China and rethink their decision to ban the supply of chips and chipmaking equipment to China, and stabilize the supply of gallium and germanium. That would also help make the global chip supply chains more resilient and promote the global development of the chip, clean energy, digital economy sectors.

The author is senior fellow with Center for China and Globalization.

The views don’t necessarily reflect those of China Daily.