Tech wars: Why has China banned exports of rare minerals to US? | Trade War News

China has banned the export of rare but critical earth minerals used in the manufacture of important semiconductors to the United States in the latest move in an ongoing tech war between the two superpowers.

Beijing’s announcement on Tuesday came just one day after the US ramped up restrictions on the export of advanced chips to China, which affects the country’s ability to develop advanced weapons systems and artificial intelligence.

So why is a “tech war” brewing between China and the US, and why does it matter?

Why are China and the US embroiled in a ‘tech war’?

For months, the two countries have been involved in tit-for-tat export restrictions. The US hopes to cripple China’s military and artificial intelligence (AI) advances as well as hamper its ambitions to become a global leader in clean energy and other technologies.

The trade war is affecting global supply chains for chip and semiconductor manufacturers and pushing prices up.

US trade and diplomatic relations with China under President Joe Biden have declined to their lowest point in recent years, largely because of disputes about technology; China’s military growth; human rights record; what the US calls China’s aggressive actions in the region, such as its military drills in the South China Sea, which it lays claim to; and several other issues.

This week’s trade dispute comes before US President-elect Donald Trump is sworn into office in January. He also takes a hawkish stance towards China and has promised to impose even heavier sanctions on Beijing as well as a whopping 60 percent tariff on all Chinese goods.

What happened this week?

On Monday, the US triggered the latest round of tensions when it expanded export restrictions on chip-making equipment going to China and sanctioned scores of Chinese companies.

The package included restrictions on China-bound shipments of high bandwidth memory (HBM) chips, which are essential for high-end applications, including AI training; 24 additional chipmaking tools and three software tools; and chipmaking equipment made in countries such as Singapore and Malaysia.

The aim, officials said, was to slow China’s development of advanced AI and hamper its ability to produce semiconductors that are important for high-tech products.

Washington’s ban also added 140 companies to its “entity list” of firms banned from trade with US companies and firms from nations allied with the US. The affected firms are either Chinese-based or Chinese-owned businesses in Japan, South Korea and Singapore. The Shenyang-based chip-producing firm Piotech and SiCarrier, which works closely with Huawei, a Chinese tech conglomerate, are among the newly sanctioned companies.

In a statement, US National Security Adviser Jake Sullivan said the bans were necessary for “national security”.

“Washington would keep working with allies and partners to proactively and aggressively safeguard our world-leading technologies and know-how so they aren’t used to undermine our national security,” he said.

Since 2022, the Biden administration has been trying to restrict China’s ability to buy advanced US semiconductors, chip-making equipment and other technologies. This approach, named by US officials as “small yard, high fence”, was broadened using Trump-era restrictive trade and technology policies. The last round of sanctions was in October 2023.

Such bans don’t affect only US companies. They can also apply to companies within countries that have agreed to enforce US bans relating to China. For example, the US has lobbied Japan and the Netherlands, which also produce significant amounts of advanced semiconductors, to restrict exports to China.

In September 2023, the Netherlands agreed to begin enforcing US export curbs on advanced semiconductors. Presently, US officials are also in talks with Japan to do the same although an official agreement has not been signed yet.

In response to the latest American ban on exports to China on Monday, the Netherlands said it shared the US security concerns and was studying the latest restrictions to see if it will also increase its own curbs on China in line with the US.

How has China responded to the latest US restrictions and sanctions?

After the US announcement this week, officials in Beijing said they would protect their country’s “rights and interests” by imposing new regulations on exports of dual-use products (those that have both military and civilian uses).

In its announcement on Tuesday, the Chinese Ministry of Commerce said it had banned exports of key minerals like gallium, germanium and antimony to the US. These are important for manufacturing semiconductors, military equipment and for general industrial use.

The move is a broadening of restrictions already in place. In July 2023, China introduced a requirement for exporters to apply for special licences to export gallium and germanium to the US. In October 2023, Beijing also tightly regulated sales of graphite products, which are required to produce car batteries.

Super-hard materials, such as lab-grown diamonds and other synthetic materials that are used industrially, are also on China’s ban list announced this week.

New rules now also require exporters to disclose who the end users of their products are to enable Beijing to identify connections with US firms.

Chinese officials said this was necessary because the US is “abusing export controls“. They added that the continued US restrictions and bans amounted to a “malicious suppression” of China’s technological advancements.

“I want to reiterate that China firmly opposes the US overstretching the concept of national security, abuse of export control measures and illegal unilateral sanctions and long-arm jurisdiction against Chinese companies,” Lin Jian, a Chinese Ministry of Foreign Affairs spokesperson, told reporters on Tuesday.

Chinese industry associations have also condemned Washington’s sanctions, which, they said, affect global supply chains while also inflating costs for US companies.

In a statement, the China Association of Automobile Manufacturers said the US’s behaviour “violates the laws of the market and the principle of fair competition, undermines the international economic and trade order, disrupts the stability of the global industrial chain, and ultimately harms the interests of all countries”.

Why are these materials so important?

Some of the materials in question are rare earth elements that can be mined only in small quantities but are essential for the production of a wide range of weapons systems and technological products, such as semiconductors or computer chips, electric vehicles and other electronics. Chips are critical for artificial intelligence.

Gallium, for example, is a soft, silvery metal used in the production of LED screens. It is also used in more advanced products such as automobiles, solar cells and next-generation weapons.

Antimony is used in the production of batteries as well as of military equipment, night-vision goggles and artillery shells.

Minerals like these are difficult to mine because they can be polluting and toxic. China is currently the largest global producer of gallium, producing 600 tonnes in 2022 and controlling 98 percent of gallium exports. China is also one of the world’s biggest semiconductor producers.

The US obtains about half its supply of gallium and germanium directly from China, according to the US Geological Survey, and has not produced gallium of its own in years because those minerals don’t occur in high deposits in the country. In March, a US mining company said it had discovered high-grade gallium deposits in the state of Montana.

The US also relies heavily on exports from Taiwan, which produces more than 60 percent of the world’s most advanced chips. The autonomous island is also at the centre of US-China tensions: Beijing claims Taiwan as part of its territory, but the US backs Taiwan’s self-declared independence.

What will happen next?

Experts said the US under Trump is likely to impose more restrictions on chips and related technologies, hoping to derail Beijing’s ambitions.

However, companies manufacturing or relying on semiconductors globally could pay the price because export restrictions are causing prices to rise. The price of antimony more than doubled this year to more than $25,000 per tonne, for example. Gallium, germanium and graphite have also become more costly.