US clean energy and defense will be affected by China’s export restrictions

WASHINGTON: China’s retaliatory export controls could hurt the growing US clean energy sector and its defense industry, analysts say, as a trade dispute between the world’s two largest economies escalates.

Beijing announced this week that it would ban exports of gallium, germanium and antimony to the United States, targeting materials used in everything from semiconductors to solar cells.

China has also tightened restrictions on graphite, which is key to the electric vehicle industry.

The moves, which Beijing said were to ensure national security, quickly followed restrictions by Washington to limit China’s ability to make advanced computer chips.

While trade tensions simmer, US President-elect Donald Trump’s arrival at the White House in January is likely to raise the temperature on trade – with the Republican already promising sweeping tariffs on Chinese imports.

Analysts say it will take time to assess the impact of the new Chinese restrictions on US industries, although any immediate blow should be limited.

Some see Beijing’s moves as symbolic for now, even as the consequences depend on how China enforces the new rules.

“That certainly could increase costs,” said Arun Seraphin of the National Defense Industrial Association. “It could create situations where you can’t produce what you need.”

“It’s certainly going to cause a lot of uncertainty for companies that want to plan their supply chain,” he said. AFP.

China is a major producer of these three metals.

In August, it unveiled export controls on some antimony products, and since then, shipments have fallen.

Restrictions announced in 2023 on gallium and germanium also hit exports to the United States.

Defense technology

“Gallium, germanium, and antimony are vital inputs for defense technologies,” Gracelin Baskaran and Meredith Schwartz of the Center for Strategic and International Studies (CSIS) said in a recent analysis.

Gallium and germanium are increasingly preferred over traditional silicon for high-performance chips used in defense applications, CSIS added.

He noted that these materials have properties that enhance the device’s performance, speed and energy efficiency.

Antimony is used in fire protection and also has defensive uses.

While China is investing in munitions and buying high-end weapons systems faster than the United States, the US industrial base lacks the capacity to meet defense technology production needs, the report warned.

“Bans on vital mineral inputs will allow China to overtake the United States in developing these capabilities,” it said.

The US Geological Survey estimates that if China’s net exports of gallium and germanium were to be completely curtailed at the same time, US GDP could be reduced by $3.4 billion.

Clean energy

In addition to defense, gallium-based semiconductors are used in radio frequency electronics, LEDs for lighting and high-efficiency solar cells, the US Geological Survey noted.

While gasoline-powered vehicles don’t require graphite, electric vehicles (EVs) require an average of 136 pounds (61.7 kg) of the material, CSIS said.

That could prove unpalatable for the United States, which has spurred billions in private-sector investment for its domestic EV supply chain through subsidies through the Inflation Reduction Act.

The act is a policy package for energy transition and social reforms under President Joe Biden.

Serafin said AFP that while Washington has also pushed to attract investment and build U.S. semiconductor manufacturing capacity through the CHIPS and Science Act, those efforts are not yet targeting components like germanium.

Challenges

Beijing’s retaliation this week reinforces restrictions on gallium and germanium announced in 2023 — as China retaliated against earlier controls on US semiconductor exports.

“The industry was probably somewhat surprised by the rapid imposition of a broader ban, but has been conditioned over the past year to expect some restrictions,” said Paul Triolo of Albright Stonebridge Group. AFP.

He noted that China’s commerce ministry had already implemented a licensing regime around these key minerals, including “rolling quarterly licenses to try to prevent stockpiles from building up.”

While some effort has been made to concentrate minerals such as graphite and gallium, this does not appear to be coordinated between US authorities and allies to reduce dependence on China in the long term.

It will be difficult to build capacity to process and produce products based on these minerals outside of China, Triolo believes, due to cost and regulatory challenges.

“Companies are reluctant to enter these markets without long-term subsidy guarantees, given the dominance of Chinese companies,” he said.