Retaliatory move: China has imposed sanctions on U.S. hitech
China has imposed a ban on exports to the United States of a number of materials important in microelectronics and military production. The embargoed elements include gallium, germanium, antimony, and some superhard materials. The move was the PRC's response to another tightening of sanctions against Chinese importers and microchip manufacturers - perhaps the most serious to date. Although the decision will not cause a collapse in the U.S. industry, it will inevitably lead to a new "exchange of blows" and fragmentation of the global semiconductor market. Izvestia reports on the next escalation in the "chip war".
Stop progress
The first salvos of the "chip war" erupted in the U.S. back in the late 2010s, when the Trump administration imposed sanctions against Huawei and a number of other technology companies from China. This, although it caused outrage in Beijing, did not result in significant retaliatory measures. Escalation has already occurred under Joe Biden. In October 2022, Washington announced unprecedented restrictions that were designed to cause irreparable damage to the Chinese semiconductor industry.
All this happened in parallel with the passage of the Chip and Science Act - a series of measures to localize semiconductor production in the U.S. itself, thereby reducing the gap with the industry leaders - South Korea and Taiwan. The measures were implemented against the backdrop of the race for artificial intelligence, the equipment for which requires huge computing power. Although the U.S. explained the restrictions with military considerations, this does not really jibe with reality: microchips based on 90 nm processes, which were considered state-of-the-art in the early 2000s, are more than sufficient for the vast majority of military tasks. The sanctions included both a ban on the supply of chip manufacturing equipment and software and the recall of employees working for or trading with directly Chinese industry firms.
The effect was not as crushing as might have been expected. It soon became clear that the Chinese were still making progress in the production of, for example, memory chips. In addition, Huawei successfully introduced a new model of its phone with a Kirin processor based on a 7 nm process (China is banned from shipping any chips on processes less than 14 nm). The Americans were not able to quickly suppress the semiconductor industry of the PRC. Subsequently, the U.S. began to put pressure on various manufacturers of equipment and components, primarily manufacturers of lithography machines (Dutch ASML). Although machines capable of producing chips using the latest EUV technology could not be supplied to China, ASML was required to more strictly limit the supply of older equipment, which could also be used to produce 7nm chips.
Double-edged weapon
Nevertheless, such measures did not produce any noticeable result. As a result, a few days ago, the U.S. administration announced a new round of restrictions. Export supplies of any equipment and components to 140 Chinese companies, including Naura Technology Group, were banned.
This firm should be singled out in particular because it is engaged in "production means of production," that is, equipment and processes for the production of chips. Since April, the firm has also been trying to get into photolithography equipment manufacturing (the very market that ASML dominates). These attempts to build complete semiconductor sovereignty are likely what alarmed Washington.
For companies that cooperate with China, this is not good news. For many of them, China is their most important market, the loss of which will lead to significant losses and reduced opportunities to invest in further development. In addition, they fear retaliation from China and the loss of their monopoly or near-monopoly position in the market. In the past, however, such players have repeatedly tried to circumvent U.S. restrictions. The Japanese, for example, were threatened with sanctions against themselves as recently as October if they failed to comply with the regulations.
Will America be left without raw materials?
Be that as it may, this time China was not willing to tolerate and a couple of days after the American move took its own countermeasures. On December 3, Beijing completely banned supplies of gallium, germanium and antimony to the US. In addition, some superhard materials also came under the ban. Finally, restrictions on shipments of graphite to the US were tightened.
Researchers develop new sources of gallium and germanium
The supply of materials is indeed the most effective weapon in the hands of the Chinese. This is due to the fact that China has actually taken a monopoly position in the global market in the last 30-40 years. Why this has happened is easy to explain. For example, both gallium and germanium are actually widespread. For example, the proportion of gallium in the Earth's crust is 16 parts per million (ppm), about the same level as lead. Germanium is almost 10 times less common, but it too is a more common element than silver, iodine or mercury. The problem is that they are evenly dispersed throughout the subsurface. In pure form, deposits of gallium and germanium are exceptionally rare, and almost all minerals containing these two elements are found in ores of other metals (such as zinc) and even coal. Accordingly, the production of gallium and germanium is possible almost exclusively as a by-product to the production of something more massive. And here the Chinese, who were ready to develop non-ferrous metal deposits on any terms and very cheaply, quickly took the lead. As a result, the country now controls more than 90% of gallium supplies worldwide, and for germanium the figure is 80%. Exports of gallium and germanium were first restricted back in the summer of 2023, but now it's time for a complete ban against the US.
It is possible in principle to find substitutes for each of these metals, but it will take time and be significantly more expensive. Other suppliers may be able to partially substitute for PRC supplies (Kazakhstan, for example), but this will take even longer. To be fair, there is no panic in the US right now. Consumers of these resources have their own reserves, which will be sufficient for at least several months. But even in this case, the damage to the U.S. economy will be significant - in the neighborhood of $3.4 billion just directly. And delays in the supply of strategically important raw materials can significantly increase costs at a time when the U.S. is trying hard to build its own full-cycle semiconductor industry. In addition, this is a serious blow to some military technologies (for example, the relevant metals are used in the production of night vision devices) and the production of goods in the field of "green" energy.
The applied mutual restrictions bring the chip war to a new level - neither the U.S. nor China have ever imposed sanctions of such breadth and depth against each other. However, the previous measures, at least on the U.S. side, have had a very limited impact. Chinese industry continues to operate and even boasts significant successes. In turn, China's restrictions on the U.S. determination to expand sanctions have not had much effect either.
This is likely to be the case this time as well. By any means necessary, China will be able to ensure the production of its previous generation chips (despite the fact that not so long ago it adopted its alternative to the U.S. Chips and Science Act with a total investment of about $50 billion), and the U.S. will find alternatives to the supply of materials from China, even if it has to pay extra for it. The fact is that the fragmentation of one of the most technologically complex industrial sectors in the world is accelerating. If before there was a complete division of labor on a global scale, now it is getting closer and closer to the situation when two almost independent technological spheres in microchip production - American and Chinese - will emerge. This, on the one hand, will lead to higher production costs and, on the other hand, will intensify competition. From which many countries that are consumers of semiconductors will only benefit.
