Miners work at a mine containing rare earth minerals, in Inner Mongolia, China.

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China's export controls on critical minerals aren't starving the United States—at least so far

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Photo Credit: REUTERS/Stringer

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Chinese export controls on gallium, germanium, and graphite were intended to hit US green energy and semiconductor supply chains where it hurts by starving them, or at least complicating the sourcing, of these critical minerals. But as blows in the emerging US-China tech war go, so far, they have been closer to a jab than a haymaker. Analysis of US Customs data indicates that China's shares of total US imports of these commodities haven't moved much, if at all.

The export controls were announced in July (gallium and germanium) and October (graphite) of 2023, respectively. They were widely interpreted as part of a tit-for-tat response to US semiconductor export controls announced in October 2022. Both the opening salvo and the response strategy take advantage of each country's unique positions in global supply chains. The United States controls the commanding heights of global semiconductor innovation, while China is the world's leading producer of many industrial metals – including gallium, germanium, and graphite – that are key building blocks of semiconductors and batteries. If the United States denies China advanced semiconductors, China will deny the United States the basic building blocks of both semiconductors and green tech. And given the United States' industrial policy–fueled ambitions to become a leading producer of both and China's dominance of critical mineral supply chains, this exchange of export controls had all the makings of an effective war of mineral attrition.

So far, that hasn't materialized. China is still exporting graphite and germanium to the United States in amounts similar to those prior to controls. The figure below plots Chinese exports as a share of total US imports for gallium arsenide wafers (HS 3818000010), germanium oxides (HS 282560), and natural graphite in flake or powder form (HS 250410), the type used in electric vehicle (EV) and renewable energy storage batteries. Data are from January 2020 to August 2024, the most recent month for which import data are publicly available.

The graphite data show large monthly declines in October 2023 (the month the controls were announced) and January 2024 (the month after they took effect), with Chinese imports nearly zeroing out in the latter. But from February to August 2024, Chinese suppliers accounted for 65.6 percent of US graphite imports—only a hair lower than in the seven months preceding the announcement of export controls (67.7 percent).

The impact of germanium export controls is much harder to eyeball in the data. US germanium imports from China fell precipitously in October 2023 (two months after the ban on gallium and germanium went into effect) but in the ten months of data since, import shares have restabilized around 22 percent of total, down only 1 percentage point from the ten months preceding the ban.

The one place the export controls do seem to be having an obvious impact is in exports of gallium arsenide (GaA) wafers, which are prized for use in radars, satellites, microwaves, and LEDs. Since the export controls were announced July 2023, US imports of GaA wafers have effectively fallen to zero. But as the chart makes very clear, the United States was never particularly reliant on China for sourcing in the first place. Prior to the export controls, China only accounted for 4.8 percent of US GaA wafer imports on average. At least by this metric, export controls have been most effective for the products for which the United States was least China-reliant.

So, what's going on here? First, China's approach has revolved around export licensing, which is different from an export ban. Export bans are the most stringent export control, allowing no product to legally leave the country. Export licensing, however, is a process that at least in the Chinese case requires exporters to file paperwork that includes export agreements, descriptions and certifications of end consumers and intended end use, information on the importing company, and a variety of technical reports. This process is potentially onerous but clearly navigable. In the short term, an effect of the export controls has likely been to subsidize the hiring of in-house compliance officers for larger firms and the billable hours of international law firms specializing in compliance for smaller ones.

Second, it has never been clear that China's goal was to actually starve US supply chains of critical minerals. Doing so would both deprive Chinese producers of a growing, heavily subsidized market and accelerate US and Western investments in diversifying these supply chains. Building an indigenous leading-edge semiconductor industry is incredibly time- and resource-intensive, and developing expertise and supply chains could take five years or more—though some think only three. Finding new places to mine and process graphite, gallium, and germanium may be costly and time-consuming, but know-how is not as binding a constraint. Beyond flexing some muscle in the tech war, the compliance process provides China with commercial intelligence about how these products are being used and by what consumers, intelligence that may be useful should US-China relations deteriorate further. As of October 2024, China is now requiring Chinese exporting firms to provide more detailed information on end use by foreign firms, which may be a stronger deterrent moving forward.

Chinese export controls may be having broader effects beyond those for US importers. Prices are up, stoking fears of a looming chip shortage. But the resounding chorus from Western miners over the past 18 months, during which prices for many critical minerals have fallen precipitously, is that higher prices are needed to catalyze investment. Indeed, US tariffs on graphite can be interpreted as an attempt to do just that. To the extent Chinese export controls are having the same effect, they are on margin helping Western producers make the business case for diversification without bringing US semiconductor and EV supply chains to halt.

So far, China's export controls on gallium, germanium, and graphite haven't radically altered the US-China trading relationship around these minerals and related products. In the context of the US-China trade war, they seem to have amounted to a flexing of Chinese muscle and a fact-finding mission—not an all-out assault.

Data Disclosure

This publication does not include a replication package.

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