G-7 Seeks Alternative to China Due to Risk of Backfire from Xi’s Metal Restrictions

China’s move to control the export of two crucial metals is seen as a potential retaliation against the US, Japan, and Europe for their efforts to limit China’s access to advanced technology. While this decision highlights China’s dominant position in global gallium and germanium production, it also carries the risk of backfiring.

The timing of the new export licensing system, unveiled just before US Treasury Secretary Janet Yellen’s visit to Beijing, appears intended to provide leverage to China as it seeks to persuade the US to remove export controls that could hinder its development.

However, this measure is a double-edged sword. If China were to restrict shipments and cut supply to other nations, it would likely lead to increased prices and incentivize countries like Japan, Canada, and the US to boost their own output, thereby reducing their dependence on China.

The move reflects the challenge facing President Xi Jinping as he aims to counter US efforts to prevent China from accessing essential chips for technology dominance. Any reciprocal actions by China would only strengthen the US and Europe’s resolve to reduce reliance on China, which runs counter to Xi’s government’s goals.

China’s previous attempts to restrict the sale of rare earths resulted in diminished market share as other countries sought alternative supplies. The incident in 2010, when China temporarily halted exports to Japan, prompted a race to secure rare earth supplies from non-Chinese sources, leading to increased output in Australia and the US. China’s share of global mining output declined from 98% in 2010 to 70% in 2022.

While China currently accounts for about 94% of global gallium production, these metals are not particularly rare or difficult to find. The imposition of export restrictions risks reducing China’s market dominance and may accelerate the trend of supply chain diversification.

China’s justification for the new export licensing system, citing national security concerns, aligns with the same rationale used by the US and its allies for their export controls. The announcement has raised concerns in Europe regarding potential supply chain disruptions and is likely to stimulate discussions on reducing the bloc’s reliance on China.

In response to these developments, the European Union has implemented an economic security strategy and launched a Critical Raw Materials Act to facilitate financing and permitting for mining projects, as well as establish trade alliances to reduce reliance on Chinese suppliers. Any escalation of tensions resulting from export restrictions could impede the bloc’s transition to a more environmentally friendly economy.

While the immediate impact of these changes seems limited, as there are alternative supplies of the metals, China potentially has more to lose than the US in the long run. The mounting economic challenges faced by China raise questions about its ability to become the world’s largest economy and cutting off access to its vast market or limiting exports of strategically important goods could undermine its goals of technological dominance and global supply chain significance.

Currently, the ideological struggle between the US and China takes precedence over globalization. The priority lies in national security, technology, and economic leadership rather than collaboration.