By Trevor Howe, Senior Operational Resilience Consultant
China’s imposition of export controls earlier this month on two strategic raw materials could have significant implications for Western manufacturers of electric cars, smartphones and a host of other advanced technology products.
The restrictions require Chinese firms to attain special permits from the government to ship gallium and germanium out of the country. Gallium compounds are commonly used in the manufacture of semiconductors, defense systems, medical devices and solar cells, while germanium is most often used in fiber optics.
Both the United States and the European Union (E.U.) are heavily reliant upon China as a source of these two critical commodities (see table below). So the Chinese government’s move could undermine global supply chains and increase the potential for disruption.
In the short term, these new export controls may add upward pressure to commodity prices in anticipation of constricted supplies to global markets. In the medium to long term, they could further accelerate moves in multiple countries to diversify the raw material supply chain away from China.
U.S. and E.U. Dependence on China for Gallium (Ga) and Germanium (Ge)
|
Net Reliance on Imports for Ga |
Import Reliance on China for Ga |
Net Reliance on Imports for Ge |
Import Reliance on China for Ge |
| U.S. |
100% |
53% |
>50% |
54% |
| E.U. |
98% |
71% |
42% |
45% |
Sources: The United States Geological Survey Mineral Commodities Survey (2023); The European Commission Study on the critical raw materials for the EU (2023)
An Escalating Technology Trade War
China’s action comes as it has been openly sparring with the U.S. in an escalating technology trade war. The export controls on gallium and germanium are widely seen as retaliation for the U.S. government’s restrictions on sales of advanced semiconductors and chip-making equipment to Chinese companies.
As well as its own export controls, the U.S. has been putting pressure on partners such as Japan, South Korea and the Netherlands to limit their sales. The Netherlands, for example, recently implemented controls on the export of advanced semiconductor manufacturing equipment to China from ASML. ASML is currently the only company in the world to produce extreme ultraviolet lithography machines used to produce leading-edge chips.
Given the reliance of American and European firms on Chinese supplies of gallium and germanium, experts are worried about the effect China’ new controls could have on aerospace & defense, energy, telecommunications and other industries affected. Moreover, there is the potential future threat to rare earth elements (REEs), the supply of which China also dominates. REEs are crucial for clean energy technologies, electric vehicles, consumer electronics, and national defense.
Gallium-Related Products Facing Export Controls
Gallium occurs in very small concentrations in ores of other metals. Most gallium is produced as a byproduct of processing bauxite, and the remainder is produced from zinc-processing residues. The metal is not currently recyclable and there is no substitute for its use in some products where increased semiconductor performance and efficiency are required.
Aside from gallium metal itself, China’s new controls will apply to several gallium-related products:
| Material |
Usage Examples
|
| Gallium arsenide (GaAs) |
Uses include as a doping material to manufacture compound semiconductor wafers used in integrated circuits (ICs) and optoelectronic devices, which include laser diodes, light-emitting diodes (LEDs), photodetectors, solar cells, and solid-state devices such as transistors. While several substitutes for GaAs do exist, no effective substitutes exist for GaAs in many defense-related applications where GaAs-based chips are used because of their unique properties.
|
| Gallium nitride
(GaN) |
Uses have been growing in importance because of its ability to offer significantly improved performance across a wide range of applications while reducing the energy and the physical space needed to deliver that performance when compared with conventional silicon technologies. For example, GaN is used in advanced radars such as the AN/TPQ-53 which has been provided to the US military.
|
| Gallium phosphide (GaP) |
Uses include as a semiconductor and optical material for the manufacture of low and standard brightness red, orange, and green light-emitting diodes.
|
| Gallium antimonide
(GaSb) |
Uses include as a compound semiconductor for infra-red (IR) photodetectors used in sensing and imaging applications. The application of GaSb detectors is extensive, encompassing military, industrial, medical, and environmental uses.
|
| Gallium oxide
(Ga2O3) |
Uses take advantage of conduction and luminescence properties; this includes in semiconductors, gas sensing, catalysis, and nanostructures as blue and UV light emitters. Ga2O3 is also ued in spectroscopic analysis.
|
| Gallium selenide
(GaSe) |
Uses include as a nonlinear optical material for frequency conversion of laser light and as a photoconductor.
|
| Indium gallium arsenide (InGaAs) |
Uses include within photodetectors and short-wave infrared imaging (SWIR) devices, solar cells, high-speed electronics, and medical imaging.
|
____________________________________________________________________________________________________
Germanium-Related Products Facing Export Controls
The major use of germanium worldwide is for fiber-optic systems, whereby germanium is added to the pure silica glass core of fiber-optic cables to increase their refractive index, minimizing signal loss over long distances.
The available resources of germanium are associated with certain zinc and lead-zinc-copper sulfide ores. On a global scale, as little as 3% of the germanium contained in zinc concentrates is recovered. Significant amounts of germanium are contained in ash and flue dust generated in the combustion of certain coals for power generation.
Germanium is more available than gallium, with around 30% of global supply produced from recycled materials. However, there is a notable lack of information surrounding the mineral. According to the 2023 Mineral Commodity Summaries published by the U.S. Geological Survey, no data was available pertaining to world refinery production and reserves of germanium.
In addition to germanium metal, ingots, and substrates, China’s new controls will also apply to several germanium products:
| Material |
Usage Examples
|
| Germanium dioxide (GeO2) |
Uses include in phosphors, transistors, diodes, infrared-transmitting glass, and electroplating.
|
| Germanium tetrachloride (GeCl4) |
A colorless liquid, its uses include as an intermediate in the production of purified germanium dioxide and germanium metal. GeCl4 is transparent to infrared light and therefore useful in optical materials. It is also widely used as a semiconductor and as an alloying agent.
|
| Zinc germanium phosphide (ZnGeP2) |
Uses include in high power, high frequency applications and in laser diodes, especially as a component for the laser source of infrared countermeasure systems in military aircraft which protect aircraft from heat-seeking missiles.
|
Substitutes for germanium do exist (e.g., silicon in certain electronic applications and antimony/titanium are substitutes for use as polymerization catalysts), providing a degree of resilience to undercut supplies to global markets.
Government and Company Actions to Manage Strategic Risks
Given the geopolitical context for China’s controls on gallium and germanium exports, and the concentration of global supply, there will inevitably have to be problem solving at the government level to address any shortages. Countries can bolster their resilience by maintaining strategic stockpiles, identifying alternate suppliers, investing in domestic extraction or production, or promoting the expansion of the industry via incentives for the private sector.
South Korea serves as a prime example; officials there reported that the short-term effects on operations in their country would be limited due in part to stockpiling and alternative supplies. The Korea Mine Rehabilitation and Mineral Resources Corporation has approximately 40 days’ stockpile of gallium that domestic manufacturers could use.
Meanwhile, the E.U. is engaging with countries in South America to secure further access the region’s abundant raw materials. If the E.U. can successfully expand its partnership with the Southern Common market (MERCOSUR), it would help achieve its strategic goal of securing a diversified, affordable, and sustainable supply of critical raw materials.
At the same time, the E.U. intends to bolster domestic production through recently proposed legislation such as the Critical Raw Materials Act.
While governments must step in to secure their countries’ respective supply chains, companies can ill afford to sit idly by and not take proactive steps to secure their direct supply chain. Although relatively few companies would be in a position to invest in REE or critical commodity extraction or production, they can still benefit from identifying where these materials are sourced from within their ecosystem.
This type of visibility deep into the supply chain can help uncover concentrated reliance on a supplier or region, and the information leveraged to pursue de-risking methods such as supply base diversification to bolster resilience against certain risks.
With its artificial intelligence-based software, Interos is well positioned to support supply chain risk management programs for companies around the world trying to address this issue, as well as future disruptions that may arise.
