China ramps up chip war with export controls on key materials

This marks one of the severest reactions from the country following the raft of sanctions Washington and its allies imposed on its chip making abilities. 

The new policy applies from August 1^st and will affect gallium and germanium, two key metals in the makeup of semiconductors, communications and military equipment, and solar panels. Semiconductors that use gallium are essential for electronic devices as they help reduce power loss, and gallium nitride is used for lasers and is expected to become more widely used in power semiconductors for EVs. Germanium, which was used to make the first transistors in the mid-20th century, is sometimes added in small quantities to silicon to facilitate more advanced chip structures. China is the world's biggest producer of these metals, producing around 80% and 60% of global supply, respectively.

China's Ministry of Commerce said the restrictions were needed to "safeguard national security and interests". This announcement comes days before US Treasury Secretary Janet Yellen’s visit to Beijing in ostensible efforts to build ‘healthy’ ties between the nations following growing tensions between the two. Yellen has warned against breaking economic ties between Washington and Beijing, saying it would be "disastrous to attempt to decouple from China".

The chip spat between the two largest economies began as early as 2022, when the US began implementing a number of policies aimed at securing their own domestic supply of chips and limiting China’s, one of its key rivals. One such policy was where Washington implemented licence requirements for companies exporting chips to China using US tools or software, regardless of the country they’re made in.

This atmosphere was prompted by US fears that such chips could be put to military use, by being used for supercomputing and AI. US allies like Netherlands and Japan then followed suit with similar legislation.

Just last week, the Netherlands announced that it would also restrict exports of certain semiconductor manufacturing equipment over ‘national security grounds’. Japan meanwhile plans to restrict some of its computer-chip making exports, affecting 23 types of semiconductor manufacturing equipment.

China called this joint response against it a US 'tech hegemony'. Beijing recently imposed restrictions on US companies linked to the military, such as aerospace company Lockheed Martin and put a ban on use of US chipmaker Micron's products in "critical national infrastructure”. This, however, represents a further ramping up of actions directly taken against the chip sector.

Although there has been no formal response addressing the action directly, the WSJ reports the Biden administration is preparing to restrict Chinese companies’ access to US cloud-computing services. The US is also reportedly mulling further limits on exports of AI chips made by Nvidia and AMD.