China restricts rare earths exports

China has decided to retaliate in the trade battle it is having with the US and the EU over computer chips,solar panels and electric vehicles. It has announced a reduction in the quotas of the export of certain rare earth metals which are used in the manufacture of these products.
The reduction in supplies of germanium and gallium from China to Western countries has resulted in a significant increase in prices for these minerals in Europe, with prices rising by approximately 100% compared to previous levels. Experts believe that the trade standoff between the US and China will continue to intensify. What further strategies might Beijing employ in this conflict with the West?
The Financial Times reports that Beijing's restrictions on germanium and gallium supplies have resulted in a near doubling of the price of these minerals in Europe over the past year. Germanium and gallium are essential for the production of advanced microprocessors, fibre optics, solar panels and night vision devices. Any further export restrictions by Beijing could have an adverse effect on the production of these goods which is China's way of retaliation. I do wonder at the though processes of those who impose tarrifs and restrictions on the Chinese,do they not realise that A the Chinese will retaliate with sanctions of their own that are painful for those who imposed them like restricting certain chips to the Chinese they just restrict your access to some of the key ingredients. Then off course they find away way around the sanctions and Russia has proved is not that difficult. .
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According to the US Geological Survey, China is responsible for 98% of global gallium production and 60% of germanium production. The West is heavily reliant on Chinese supplies. Following Beijing's retaliatory measures, exports declined by approximately 50% while prices doubled.
China offers the lowest prices for rare earth metals, making exports from China to Europe and the USA the most popular for many years. "The restrictions have resulted in a negative impact, primarily in the form of increased prices for the final products" states Ekaterina Novikova, Professor of Economic Theory at the Russian University of Economics.

The restriction on the export of germanium and gallium has resulted in a near doubling of their prices over the past year.

In 2023, the price of one kilogram of gallium increased from $300 to $600, which resulted in a significant increase in the cost of producing semiconductors. "This has a direct impact on the cost of producing high-tech goods," states Yaroslav Kabakov, Director of Strategy at Finam Investment Company.

This trend is particularly evident in Europe, where as the US has been able to mitigate the situation by establishing relations with Vietnam, which has sufficient rare earth metals to meet American demand, according to Novikova.

However, the US was the first to take action against the Chinese economy when it imposed controls on the sale of advanced chips and manufacturing equipment. The measures imposed by the Chinese government had a detrimental impact on the development of Chinese tech companies, limiting their access to critical components. For instance, Huawei revealed a 30% decline in revenue for 2023, attributed to sanctions and restrictions on access to chips from Western countries. Nevertheless, China is actively investing in the development of its own semiconductor sector with the aim of reducing its dependence on imports.

China introduced the restrictions last year in response to U.S. controls on the sale of advanced chips and the equipment used to manufacture them. The Chinese government stated that this was being done to protect its national security and interests. China has since implemented a licensing system for the export of these metals.

However, there are indications that the West's dependence on Chinese rare earth metals may also be decreasing. China maintains a dominant position in the global rare earth metals market, with the largest reserves. Approximately 70% of the world's rare earth metals are mined in this country, and China also has the largest capacity for the production of rare earth elements, at around 90%. However, China's dominance is waning. Its share of the global rare earth metals market has declined from 90% in 2011 to 60% amid a backdrop of various export restrictions, according to Vladimir Chernov, an analyst at Freedom Finance Global.
There are deposits of rare earth metals on all continents. While development and extraction in Australia, South America and Russia are currently limited by consumer demand and low profitability, new production projects can be launched if new demand emerges that China will not satisfy.
The production of gallium and germanium can be easily established in any country with high aluminium production capacities. Following the anticipated cooling of global inflation and a relaxation of global central banks' monetary policies, demand for these metals and elements is expected to increase in line with the recovery of the electric vehicle and "green" energy markets, according to Chernov.

Ultimately, the ban on rare earth metals from China could stimulate the opening of new production facilities in other countries, including the US and EU.
Novikova estimates that China controls approximately 35% of the world's total rare earth metal reserves, amounting to 44 million tons. This figure includes gallium, germanium, lithium, and other rare earth metals. Vietnam, Russia and Brazil are each estimated to have approximately 20 million tons. India has nearly 7 million tons, Australia has 4.2 million tons, and the United States has more than 2 million tons.

Experts believe that the trade war between the US and China will intensify rather than subside. A report by Oxford Economics indicates that the imposition of restrictive US tariffs has already resulted in a reduction of imports from China by 35-40%. It is anticipated that tariffs on Chinese goods will continue to rise regardless of who becomes US president in 2024.

It seems likely that the trade war will intensify as both parties seek to safeguard their national interests. In 2024, seaborne shipments arriving in the U.S. from China increased by more than 4% from the previous year, indicating that companies are stockpiling supplies in anticipation of new tariffs, according to Yaroslav Kabakov. He identifies three sectors that could be adversely affected by the trade conflict: electronics, automotive manufacturing and renewable energy.
The export of rare earth elements may be subject to restrictions, which could have an impact on the production of electronic components such as chips and transistors. Mr. Kabakov notes that a shortage of semiconductors in 2023 has already resulted in delays in the production of automobiles and electronics.

Furthermore, rare earth metals are essential for the production of electric vehicle batteries. Should exports be prohibited, this could result in higher prices and production delays. The expert also notes that the cost of lithium-ion batteries has already increased by 20% in 2023 due to the shortage.

Additionally, China could impose export restrictions on other materials used in solar panels and wind turbines, which would impede the development of renewable energy sources in other countries, according to Kabakov. The cost of solar panels has already increased by 15% in 2023 due to supply restrictions from China. For the EU, which is aiming to be at the forefront of renewable energy, this is a significant setback.

"In the near future, we should not anticipate a resolution to this conflict. Instead, we are likely to see a gradual fragmentation of the global economy, with the emergence of at least two key centres of trade interaction: The two key centres of trade interaction are China and the United States. "All other countries will eventually align with one of the two key trade centres, either directly or indirectly," concludes Ekaterina Novikova.
So the future is probably the BRICS plus which has the natural resoiurces,cheap energy and manufaturing ability to win the trade wars with the US, EU and G7.