Trade War Heats Up With China's Export Restrictions on Two Critical Minerals
China and the U.S. are locked in a mutually destructive economic conflict.
Once upon a time, Joe Biden ran for the presidency on, in part, promises to end the Trump administration's trade war with China. Instead, once in the White House, the Biden administration doubled down on its predecessor's tariffs and picked new fights in an effort to isolate the Chinese economy. China's political leadership contributes to this conflict, and its latest move is to restrict the export of two minerals critical to the production of computer chips.
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Chokehold on Critical Minerals
"China will impose export restrictions on industrial products and materials containing gallium and germanium from August 1 to ensure its national security and interests," China Daily, a mouthpiece for the Chinese Communist Party, announced this week. "According to the relevant provisions of China's Export Control Law, Foreign Trade Law and Customs Law, gallium, which is used in the production of semiconductors and optoelectronic devices, and germanium, an important raw material for the semiconductor industry, as well as their related products, cannot be exported without permission after July. Export of other industrial materials such as gallium nitride, gallium oxide and zone-refined germanium ingot have also been prohibited."
That's a big deal because, according to the Observatory of Economic Complexity, "in 2021 the top exporters of Gallium, germanium, hafnium, indium, niobium (columbium), rhenium and vanadium: articles thereof, unwrought, including waste and scrap, powders were China ($170M), Chinese Taipei ($53.2M), Germany ($52.4M), Brazil ($43.1M), and South Korea ($32.4M)." China alone is responsible for 29.4 percent of the total (the U.S. is also an exporter, with a 5.47 percent share.)
Specifically breaking out the two restricted minerals, Reuters adds that China produces roughly 60 percent of the world's germanium and 80 percent of gallium. So, there's a lot at stake here for computer chip producers and for governments trying to promote domestic producers at the expense of Chinese competitors.
The Latest Trade-War Escalation
China's export restrictions come against a backdrop of growing political and economic tensions between the United States government and its counterpart in Beijing. On the campaign trail in 2020, Joe Biden correctly criticized the Trump administration's tariffs on Chinese goods as harmful to Americans. Economists pointed out that high tariffs cost jobs, distorted the economy, and made people poorer; Biden promised to repeal them. But once in office, the new administration maintained trade barriers and set out to cut China off from high-tech computer chips and advanced cloud computing. Ham-handed industrial policy was crafted to expand U.S. government control of the economy while squeezing China out of tech, especially the manufacture of computer chips.
But it's hard to push competitors to the sidelines of an industry if those competitors control major sources of materials that the industry needs. Restricting the flow of gallium and germanium won't increase the use of Chinese-made semiconductors around the world, but it could ensure that nobody else's semiconductors get manufactured and shipped either—at least until new sources are developed.
As the new export restrictions suggest, China's government hasn't confined itself to the role of innocent victim in its dispute with the U.S. As the National Bureau of Economic Research Digest noted last year, "China and the United States began mutually escalating tariffs on $450 billion in trade flows in 2018 and 2019." Additionally, China's often government-linked firms have a reputation for stealing technology, counterfeiting, and economic espionage.
"One in three North American corporations allege that Chinese-based companies have stolen their intellectual property in the past decade, while one in five allege that it has happened in the past year," according to a 2019 analysis by Michigan State University's Center for Anti-Counterfeiting and Product Protection.
Beijing has also flirted with turning the trade war into actual war, threatening "confrontation and conflict" with the United States. The country's regime clearly wants to absorb Taiwan (though U.S. officials are not without fault in building these tensions).
Fortunately, tensions have largely remained in the realm of saber–rattling and trade barriers. With its latest move, China may even be turning a necessity into an advantage. This week, the South China Morning Post reported that China is running out of gallium and "could be forced to recycle gallium from Japan and the US instead of producing it domestically." If they were ever going to use trade in the metal as a bargaining chip, the country's ruling officials may be running out of time to do so.
Mutually Assured Economic Destruction
Economic warfare is damaging enough. "Since it began in earnest just over a year ago, the trade war with China has cost an estimated 0.3 percentage point in U.S. real GDP and almost 300,000 jobs," Moody's Analytics reported in 2019. A United States International Trade Commission report issued in May of this year found that tariff costs "passed through fully into U.S. importer prices." That is, they are ultimately picked up by American consumers.
China's people have also suffered from the trade war between the two governments.
"US consumers of imported goods have borne the brunt of the tariffs through higher prices," found a 2021 paper published by the National Bureau of Economic Research. "The trade war has lowered aggregate real income in both the US and China."
"The verdict is unremittingly negative for both countries—with one important exception," The Economist noted last year. That exception has been the diversification of trade beyond China-based manufacturers. Those new sources tend to be less efficient and more expensive but adding them to the mix reduces exposure to the sort of supply chain disruption we've seen since the start of the pandemic.
Diversifying supply chains is a good thing, but that process was already happening in response to production and shipping snags; it didn't need a trade war that hiked prices and made people poorer to give it a goose. But all of the results, few positive and mostly negative, of trade war are likely to get a boost in the months and years to come.
Expect More Conflict in the Future
"This is just the beginning of China's countermeasures, and China's tool box has many more types of measures available," Wei Jianguo, China's former vice-minister of commerce, told China Daily after the announcement of restrictions on the export of gallium and germanium. "If the high-tech restrictions on China become tougher in the future, China's countermeasures will also escalate."
With U.S. officials also committed to using commerce as a battlefield for governments rather than as a means for individuals and businesses to build prosperity, expect escalating economic warfare and the sacrifice of wealth and opportunity to continue.
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False. China and Joe Biden (D), a politician that several Reason editors voted for, are locked in a contest that involves Biden’s ego. If you want to see how this plays out, check out Afghanistan 2020.
2021 🙂
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To be fair, the alternative in 2020 wasn’t exactly different on trade and tariffs.
I think this is less about ego and more about economic ignorance. Biden thinks he can simply will US dominance in microchip manufacturing. It turns out that his hamfisted attempt at directing economic activity has backfired… just like nearly every other attempt at central planning. Nobody should be surprised.
Biden unilaterally extended the agreement with the Taliban ostensibly so he could have a “mission accomplished” presser on 9/11/21 not understanding the other party wasn’t going along with his desires. The press gave Biden’s ego carte blanche resulting in him thinking if he said something, it would be true.
I agree that Biden is ignorant of economics but it is his ego that drives these activities.
I agree that most politicians including Biden and Trump are ignorant of economics but it is their ego that drives these activities.
FTFY
Shrike, you’re weak and your takes are too. Go back to cosplaying the gimp with pluggo.
I’m still not shrike, fuckwit.
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“Only Nixon could have gone to China.”
“But he shouldn’t have.”
One in three North American corporations allege that Chinese-based companies have stolen their intellectual property in the past decade, while one in five allege that it has happened in the past year.
I dunno. Does it really count as “stealing” intellectual property when you ship it over there and ask Chinese firms to manufacture it for you?
I don’t know, but we have a plant in China manufacturing primarily for the Chinese market, and something like 95% of our network security is devoted to making sure all our IP doesn’t get vacuumed up via their connection to it.
I mean, I do network security as well and they’ve definitely done a lot of bad acting. I’m just thinking of all the US companies who outsource their manufacturing to a country run by people who despise us, and thinking this is not a good recipe for trade secret keeping.
Why haven’t you gone to China?
Read the headline, read the author’s name, skip the article, laugh at the comments.
Welcome to ‘Reason’.
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But once in office, the new administration maintained trade barriers and set out to cut China off from high-tech computer chips and advanced cloud computing… But it’s hard to push competitors to the sidelines of an industry if those competitors control major sources of materials that the industry needs.
Shocking, a politician acts without actually thinking about the consequences.
Do they have the transport fleet to ferry hundreds of thousands of troops to Formosa? I recall seeing they were at least a few years away from that capability.
Looks like they are going to re-purpose civilian ships.
https://news.usni.org/2022/09/28/chinese-launch-assault-craft-from-civilian-car-ferries-in-mass-amphibious-invasion-drill-satellite-photos-show
That was an option discussed where that could accelerate the timetable from maybe 2027 to perhaps even current. The supposed insider baseball is that China expects the conflict to last ten years. They will need their hypersonic missiles to function reliably and in numbers before proceeding to remove US carriers from the board.
Xi’s term is up October of 2027. US Military is thinking that’s the year he’ll move on Taiwan.
https://www.youtube.com/watch?v=rEc5hsWNsCQ
This statement is proven wrong right when it’s uttered. They exported a bio weapon with no restrictions in 2019.
For sound economic perspective go to https://honesteconomics.substack.com/
Instead, once in the White House, the Biden administration doubled down on its predecessor’s tariffs and picked new fights in an effort to isolate the Chinese economy.
Principled Trump supporters who put policy before personality praise Biden for continuing Trump’s wise “Stick it to China” policies. Being the true economically literate amongst us, they understand that tariffs on China hurt China, not America. I can see them now, giving credit to the Biden administration for going back on their promises of freer trade, and instead protecting American producers from Communism and slave labor. There they are, marching in support for Democrats. Glad to see it wasn’t a cult of personality around Trump, but in fact adherence to principle.
Chinese Taipei
You misspelled “Taiwan”.
I noticed that too.
“”China will impose export restrictions on industrial products and materials containing gallium and germanium from August 1 to ensure its national security and interests…”
Yeah, and like nobody saw this coming?
the Biden administration doubled down on its predecessor’s tariffs and picked new fights in an effort to isolate the Chinese economy.
When he’s not bowing and scraping for Xi.
Reuters adds that China produces roughly 60 percent of the world’s germanium and 80 percent of gallium.
If only there was some kind of economic signal that might tell other countries to develop their own resources.
DRC and Namibia apparently have huge reserves of germanium:
https://www.usgs.gov/data/germanium-deposits-united-statehttps://www.usgs.gov/data/germanium-deposits-united-states
AFAICT gallium is produced when people can be bothered to produce it. 🙂
And those will likely will be developed in cooperation with or by CCP companies. They will still control it.
Shush your mouf, border cock-blocker of *checks previous comment threads* brown people!
Turning out their lights should get their attention. The best and brightest LED bulbs are entirely dependent on gallium nitride, and the only upside is that they last almost long enough to redevelop domestic production.
The only difference between Mutually Assured Destruction as a policy for nuclear weapons and Mutually Assured Destruction as a trade and economic policy is that nobody has been crazy enough so far to launch a nuclear war to achieve some questionable international advantage, while our “ham-handed” officials are constantly launching trade wars that don’t even achieve what they claim they are intended to accomplish. Is it actually possible that they really don’t understand the reality here? Surely they aren’t harming their own economies intentionally! So much for “the best and the brightest” …
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“According to the relevant provisions of China’s Export Control Law, Foreign Trade Law and Customs Law, gallium, which is used in the production of semiconductors and optoelectronic devices
Um, creative destruction, guys?
[…]
So, we outsourced all this in 1987, and the country we outsourced it to doesn’t want to play ball.
*dons libertarian hat* build your own Gallium mine. This looks like an awesome business opportunity, no?
There’s a functioning lithium mine in the USA, but no refining capacity. Guess what country the ore gets shipped to?
build your own Gallium mine. This looks like an awesome business opportunity, no?
Once your paid assassins get rid of the envirofreaks that have no problem with the same mining in another country, you’re good to go!
Note to foreign readers: This deployment of programmed illiterate brainwashees to stop all technological industries in noncommunist countries has been going on for five decades. Just as American mystics are stampeded into adopting economy-wrecking Qing prohibitionism, so the younger generation is induced to retaliate by banning all trade and production in things that aren’t enjoyable drugs. A is A, prohibition is totalitarian and national socialism is socialism with extra superstition added.
Because of course; Gov-Guns make everything!!!??
Well no; actually in the USA Gov-Guns are blocking resources.https://www.usgs.gov/data/germanium-deposits-united-states
Sounds like a China induced jobs/wealth initiative in the USA.
Now US citizens can start mining germanium and get filthy rich and wealthy so long as *OUR* Gov-Guns don’t get in the way.
Taiwan doesn’t want to be invaded. How are we inflaming tensions by giving them stuff to defend themselves with?
China has a spy base on Cuba, why aren’t we invading Cuba? It would make a great 51st State and we’ve got a decent claim on it, as much as China has on Taiwan (to be fair, the Taiwan Chinese don’t have a great claim on Taiwan, either)
I mean, obviously it’s not, but somehow it’s okay for China to want to (and possibly someday will) invade Taiwan, but we can’t do the same for Cuba
I’m pretty sure the US signed an agreement not to meddle in Cuba, albeit with a soviet satrapy that has since reverted to a meddlesome, invading Czarist monarchy.
The time is ripe for Taiwan to invade Guantanamo.
Whataboutism doesn’t solve any actual problems in the real world. Expecting principled consistency from government policymakers is likewise fruitless. Communist China is the scapegoat of the moment so all of the propaganda narrative is aimed at them. Our fearless leaders need a “foreign peril” subject with which to scare the sheeple into toeing the official line. The threat from mainland China has not changed in any meaningful way since Mao established the PRC in 1949, but whenever our politicians need fresh grist for their mills their narrative changes from, “We’re at war with Russia. We’ve always been at war with Russia,” to “We’re at war with China. We’ve always been at war with China.”
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