Reuters reports that the Biden administration is considering tightening its export restrictions to China even further, following China’s legislative move that allows it to essentially bottleneck exports of rare earth metals – gallium and germanium) required for semiconductor fabrication. Except now, the dance isn’t about hardware or tech exports: it’s actually about access to US-based cloud computing capabilities (and especially those with Artificial Intelligence hardware). This is but the latest move in the continuously-escalating economic and logistical tensions, which have historically resulted in higher pricing for hardware components as friction is added to the worldwide supply-chain.
Following years of less-than-stellar results from the US’ imposed technological export rules to China, the US is now seemingly looking to cut into another escape route used by China to acquire access to the latest and greatest processing power: cloud computing. If you can’t acquire the latest chips for your own data center, you can always purchase access to them in a cloud environment; that’s exactly the scenario the White House wants to see end by forcing cloud computing providers such as Microsoft, Google, Amazon and others to seek a licence with the US government in order to serve chinese customers. As usual, the U.S. Department of Commerce will oversee the execution of this added restriction, which is expected to be implemented in the coming weeks.
China was always in an extremely strong position to execute its plans to achieve technological independence from the West due to it controlling around 55% of the world’s rare earth output (as of 2020). While talks have been had regarding the need to procure other supply chain routes other than China, that’s easier said than done. It requires not only finding economically viable rare-earth deposits outside China’s influence, but also the build-up of supporting infrastructure. That’s no small feat to achieve; and China’s power mostly comes from the fact that around 85% of the world’s rare earth metals have to go through processing facilities in the People’s Republic of China.
That leveraging power was finally wielded by China yesterday, as it imposed restrictions on exports for gallium and germanium (germanium being one of the breakout materials that could power next-gen semiconductors). Being the world’s largest producer (and stock holder) for both rare metals, it’s not like there are other sourcing alternatives.
For China, it’s a win-win: the country doesn’t have the technological know-how to fully explore semiconductor designs that make use of gallium or germanium, but they can certainly cut off access to materials and R&D for those that can. In the end, China likely wouldn’t have been able to purchase the silicon whose production it’s now bottlenecking anyway (due to the technological export restrictions), so the country can safely leverage its monopolistic position to stem the required minerals without losing much in the tech arms race itself. Smartly, China isn’t bottlenecking essential, run-of-the-mill materials that could impact its own semiconductor needs; it only aims to smother the bleeding-edge.
There’s seemingly no end to the back and forth between China and the US as both superpowers fight for global hegemony. As friction is added, however, pricing of impacted products is only expected to rise. There are still many routes both countries could take in this particular fight, but in the end, it seems like China has a slight upper-hand: that’s what you get with any sort of monopoly (whether it’s a “deserved” one or not).
