The informal war for dominance in microchips and technological innovation has so far been fierce between the US and China, with recriminations, tariffs, measures and countermeasures. Now Beijing is targeting Europe as well. It announced it was placing restrictions on exports of two metals that are crucial to the manufacture of semiconductors, telecommunications equipment and electric vehicles. It thus puts obstacles in the way of the Europeans towards the green transition.
The new restrictions – imposed on national security grounds – require Chinese exporters to secure a special license to sell gallium and germanium compounds from August 1, China’s Ministry of Commerce said. Applications for these export licenses must identify the importers and end users and specify how these metals will be used.
Shares of Chinese germanium producers soared on Tuesday morning. Yunnan Lincang Xinyuan Germanium Industrial saw its share limit up in Shenzhen (+10%), while Yunnan Chihong Zinc & Germanium rose 7.5%.
Beijing’s decision to limit exports of critical minerals reveals the limits of Europe and the wider West in shifting supply chains beyond the reach of regimes like China’s. China is the largest producer of gallium and germanium on the planet and by far the leading supplier to the European Union. The E.U. buys from the “tiger” of Asia 71% of its gallium and 45% of its germanium.
China responds to the EU’s new armor strategy
This move is essentially the “answer” of the Chinese to the new economic security strategy, presented weeks ago by the EU. and which seeks to oversee exports critical to national security. The proposal is part of a growing push within the bloc to strengthen its security tools as countries such as China and Russia increasingly use trade and control of critical supply lines to advance political and even military goals.
The lesson of Russia
The Union was taught a hard lesson by Russia’s war in Ukraine and the abrupt interruption of natural gas flows. Europeans’ over-reliance on Russian fuel triggered an energy crisis, soaring inflation and a major cost-of-living crisis that continues to plague the continent today, despite falling energy prices. It became clear that in today’s multipolar world of constant geopolitical tensions and upheavals, no one is wise to depend on a single source. Europeans have so far avoided a head-on clash with China, as the $6.8 trillion market is crucial to their business. Cars, fertilizers, pharmaceutical products, luxury goods are betting on the “appetite” of Chinese consumers. At the same time, European dependence on certain Chinese raw materials is undoubtedly high.
The gap within the Union
Germany – as in the case of Russian energy – is again the economy that would receive the biggest blow from a Sino-European disconnection. France also wants to maintain close ties.
Brussels is on heightened alert. However, Solz and Macron do not share the aggressive rhetoric of the president of the Commission. Commission sources hinted that Brussels may appeal to the World Trade Organization against Chinese restrictions on metal exports. However, it should be noted that such an appeal could take many years to reach a decision.
