The United States and China moved closer to an all-out trade war as China last week banned export of the key high-tech metals antimony, gallium and germanium to the United States. That was in response to the United States banning exports to China of computer chip-making equipment, software and high-bandwidth memory chips (used for advanced applications).
It should come as no surprise that the three metals listed above are all implicated in the production of high-performance chips of the very type the United States won’t send to China. Which leads me to ask: Which is more important for making advanced computer chips, the actual chemical elements needed to make them or the machines required to manufacture them?
More than two years ago I wrote a piece entitled “East vs West, ‘Stuff’ vs ‘Finance'”. My premise was that the United States and European countries (“The West”) have hollowed out their economies by focusing on the finance, insurance and real estate sectors, the so-called FIRE economy, to the neglect of manufacturing, mining and agriculture.
While this most recent trade tiff between the United States and China is not directly about “stuff vs. finance,” it does make clear that this current battle in the overall trade war is NOT really tit for tat. China has all the intellectual infrastructure to produce top engineers and scientists, a vast computer chip manufacturing sector, and large deposits of and refining capacity for critical high-tech related metals. Not having access to U.S. chip-making equipment, software and advanced chips will just be a bump in the road for China.
For the United States, if a genuine and ongoing shortage of antimony, gallium and germanium were to occur, it could cripple the American computer chip industry to a serious degree. Here’s why that could happen. China ranks first in mine production of antimony, producing about half of the world’s antimony. The country has one-quarter of all reserves. For the broadest measure of all antimony imports, China provides 63 percent of all U.S. imports. The United States imports about 84 percent of all the antimony it uses.
For gallium the news is worse. China produces 98 percent of the world’s supply. Not surprisingly, the United States imports all of the gallium it uses from China. For germanium, figures for world production and reserves are difficult to verify. Total germanium imports of all types from China constituted 26 percent of all U.S. germanium imports. The news on U.S. import dependency is a little better for germanium; only 50 percent of the country’s consumption is imported.
The United States still produces actual stuff when it comes to computer chips. But China has essential resources lower on the production chain, namely the elements of antimony, gallium and germanium which as elements cannot be made from anything else. Yes, scientists might ultimately find suitable substitutes at competitive prices. But that takes time and success is uncertain.
Maybe the United States and other countries can develop new mine supply large enough to challenge Chinese dominance. They can certainly try, and the process is likely to take a decade or two, that is, assuming those countries are willing to subsidize and assist the mining industry to hasten development, expedite permitting, and override environmental requirements on a sustained basis over many years while private investors patiently plow money into mining exploration in hopes of an eventual bonanza—unless, of course, Chinese supply crashes the prices of these metals thereby destroying investor confidence as happened with rare earth elements in 2015 and again more recently. Expanding mine production is not as easy as it seems.
So we are back to the illusion that the U.S. and China are merely trading blows of equal importance in an ongoing trade war. My belief is that, in this case, China has the upper hand.
