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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
As they jostle for supremacy in semiconductor chips and green technology, America and China have been locked into an increasingly disruptive game of tit-for-tat trade warfare. They have unleashed a panoply of export controls, tariffs, and blacklisting against one another, and their allies, as a Financial Times series has highlighted.
The latest salvo comes from Beijing. From September 15, it will impose export controls on antimony, an obscure metal used in armour-piercing ammunition, night-vision goggles and precision optics. It follows curbs implemented last year on shipments of germanium and gallium, which are needed for chips and military communications.
China produces about 60 per cent of rare earth elements, and processes close to 90 per cent. Beijing cites “national security” as the reason for its measures, but its command over essential raw materials is ultimately its leverage over Washington in the trade war. America’s muscle comes from blocking exports of advanced semiconductor technologies to China, and hindering Chinese manufacturers’ ability to sell into its market.
The cycle of retaliation has buffeted their economies, and set back global growth and innovation. It shows little sign of cooling. That means adapting to the new era of fragmented supply chains is necessary to cushion the economic fallout. For instance, China’s Huawei has worked with domestic chipmaker SMIC to boost cutting-edge chip development. There are also signs that Chinese buyers are finding ways to circumvent US restrictions on advanced processors.
The US and its allies have set up initiatives like the Mineral Security Partnership to improve critical resource collaboration. But such forums need to move quickly from dialogue to action. Businesses fear Beijing will keep adding new critical metals to its restrictions, and are concerned that chip production will suffer under higher prices and without the right inputs.
Stepping up mining and refining efforts is key. China dominates both, but there are still significant critical metal reserves outside the country to exploit, including in the west. Nyrstar, owned by commodities trading group Trafigura, reckons a zinc smelter facility in Tennessee could meet 80 per cent of annual US demand for gallium and germanium. Higher commodity prices, on the back of Beijing’s controls, should also make extraction more attractive.
But western governments need to make it easier for the industry to operate. Price volatility makes extraction risky, and below-cost exports from China are difficult to compete against. Streamlining onerous planning laws and chemical regulations across countries would help, alongside adopting joint environmental standards. Better co-ordination on financial incentives is also warranted. Price insurance and public-private partnerships can help de-risk projects for the rarest metals, while long-term offtake agreements can provide security of demand.
Some critical metals can be costly and hard to recycle or to substitute, but supporting strategic research and development remains important, too. For example, gallium can be extracted from coal fly ash, a waste product from coal combustion. Silicon can also be a less-expensive substitute for germanium in certain electronic applications.
For decades, governments in the west lapped up cheap raw materials from China, while Beijing invested heavily in mining, refining and exploration. The economic hostility between the US and China is highlighting just how short-sighted it was to build up dependence on a single supplier of essential metals. China’s command of the sector looks unassailable. But if America and its allies want to dilute its leverage in the trade war, a more concerted effort on critical minerals would help.