Semiconductor Export Controls and Supply Risk

The semiconductor industry has become the most prominent arena for great-power competition over critical minerals. The United States and its allies have imposed sweeping controls on the export of advanced chip-making equipment to China, and China has responded with export restrictions on the very minerals that semiconductor manufacturing requires. This escalating cycle of technology denial and resource leverage has transformed semiconductor minerals from obscure industrial commodities into instruments of geopolitical strategy.

China's Gallium and Germanium Export Controls

On July 3, 2023, China's Ministry of Commerce announced that exports of gallium and germanium products would require government-issued licenses effective August 1, 2023. The move was widely interpreted as a direct response to US-led restrictions on semiconductor equipment exports to China, imposed through the October 2022 export controls and subsequently expanded in coordination with Japan and the Netherlands.

The impact was immediate and significant. Chinese exports of gallium products fell by over 90 percent in the months following the controls, as few licenses were initially approved. Global gallium prices surged, and semiconductor companies worldwide scrambled to secure alternative supply. The controls demonstrated a fundamental asymmetry in the US-China technology competition: while the United States and its allies control access to advanced lithography equipment and chip design tools, China controls access to several of the raw materials from which semiconductor devices are built.

China produces approximately 80 percent of the world's refined gallium and 60 percent of its refined germanium. These extraordinary market shares are not the result of geological monopoly; bauxite (the primary source of gallium) and zinc ores (the primary source of germanium) are mined in many countries. Rather, China's dominance reflects decades of investment in refining and processing infrastructure, low operating costs, and the willingness to develop byproduct recovery capabilities that other nations neglected.

US Semiconductor Equipment Controls

The United States' semiconductor export control strategy, formalized in the Bureau of Industry and Security's October 2022 rules, aims to prevent China from manufacturing advanced chips (roughly 14 nm and below) and to deny access to the equipment needed to develop indigenous manufacturing capability. The controls restrict the sale of advanced lithography systems (principally from ASML), deposition and etching equipment, and the software tools used in advanced chip design.

While these equipment controls do not directly involve critical minerals, they are the proximate cause of China's mineral export restrictions. Understanding the semiconductor supply chain therefore requires recognizing that equipment and materials represent two halves of a strategic equation. The United States holds leverage over the technology needed to fabricate advanced chips, while China holds leverage over the raw materials from which many chip substrates and components are made. Neither side can achieve self-sufficiency in the near term, creating a complex interdependence that constrains both parties' freedom of action.

Broader Mineral Supply Risks for Semiconductors

The gallium-germanium export controls were the most visible example of semiconductor mineral risk, but the vulnerability extends further. Neon gas, essential for excimer lasers used in lithography, was historically sourced predominantly from Ukraine, with roughly half of global supply originating from steel mills in Odessa and Mariupol. Russia's 2022 invasion disrupted neon supply chains, though alternative sources have since been developed. Palladium, used in certain semiconductor packaging processes, is sourced significantly from Russia. Helium, critical for cooling during chip fabrication, faces periodic shortages linked to limited production facilities.

The semiconductor industry's just-in-time supply model, optimized for cost efficiency over resilience, amplifies the impact of any mineral disruption. Fabrication plants costing $10 to $20 billion cannot afford to shut down for lack of a specialized gas or substrate material that represents a tiny fraction of total production costs. The disproportionate impact of even minor mineral supply disruptions on enormously expensive downstream operations is a defining feature of semiconductor supply chain risk.

Diversification and De-Risking Strategies

In response to the gallium and germanium controls, multiple initiatives are underway to develop non-Chinese supply. Japan's Dowa Holdings and several European companies have increased gallium recovery from aluminum refining byproducts. Canada and Germany have explored germanium recovery from zinc refining residues. South Korea has drawn on strategic reserves of both materials while building domestic refining capacity. The United States Department of Defense has funded gallium and germanium supply chain assessments and supported the development of domestic refining capabilities.

These diversification efforts face significant economic challenges. Gallium and germanium are byproduct metals, meaning their production economics are tied to the primary metals (aluminum and zinc) from whose processing they are recovered. Building dedicated gallium or germanium production facilities is possible but expensive, and the small size of the market relative to other critical minerals means that even modest overcapacity can collapse prices and undermine the investment case for new supply.

The Escalation Risk

The most concerning dimension of the semiconductor mineral competition is the potential for escalation. China's 2023 controls on gallium and germanium were calibrated to impose costs without provoking a severe backlash, affecting materials that are important but not immediately irreplaceable at the volumes consumed. However, China also dominates the supply of materials with far greater strategic leverage, including rare earth elements, natural graphite, and several other processed mineral products.

If the US-China technology competition intensifies, China could extend export controls to additional semiconductor-relevant materials, or to critical minerals serving other sectors entirely. The precedent set by the gallium and germanium controls has already reshaped corporate risk assessments across the semiconductor and broader technology industries, accelerating supply chain diversification, strategic stockpiling, and research into alternative materials. The era in which semiconductor mineral supply was treated as a routine procurement function is definitively over.