Instead of halting a rival’s economic activity, restrictions like China’s on gallium and America’s on chip designs might actually accelerate it.
Instead of halting a rival’s economic activity, restrictions like China’s on gallium and America’s on chip designs might actually accelerate it.
S heridan, Wyo., is about as far from Asia’s complex web of semiconductor supply chains as possible. Nestled at the foot of the state’s Bighorn Mountains, the town of about 30,000 residents is more often associated with cowboy chaps than with computer chips. That may change soon. A recent dig near Sheridan, conducted by the U.S. Department of Energy’s National Energy Technology Laboratory, discovered deposits of gallium — a key semiconducting material.
Should the finding yield significant output, it would end a 35-year domestic gallium-production drought in the United States. It would also alleviate acute geo-economic concerns. In July, China, which produced 98 percent of the world’s raw gallium as of 2022, announced new export controls on the mineral, threatening an already imperiled global semiconductor supply chain.
Among other goods for which gallium is used, semiconductors are increasingly designed to exploit its impressive physical properties. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading advanced-chip maker, touts in its most recent annual report that its new gallium-based product “was widely adopted (in 2022) in power supplies for various consumer electronic devices featuring high power efficiency and small footprint.” U.S. Department of Energy researchers second TSMC’s optimism, stating that gallium will “allow power electronic components to be smaller, faster, more reliable, and more efficient than their silicon (Si)-based counterparts” and will “accelerate widespread use of electric vehicles and fuel cells.” By 2025, TSMC anticipates, yet more advanced gallium technology will be ready “to further support automotive applications.”
China’s gallium-export controls disrupt these plans — and those of the Pentagon. According to the Center for Strategic and International Studies, beyond commercial applications, gallium is indispensable for U.S. missile defense, radar systems, and electronic-warfare capabilities. It calls China’s cornering of the global market a “critical vulnerability” for America and has sounded the alarm in the wake of Beijing’s export-control announcement.
In addition to its near monopoly on real production, China possesses 86 percent of global gallium-production capacity. But although gallium is a critical mineral, it is not a rare mineral. Raw gallium is typically recovered as a by-product of making aluminum, mostly from bauxite ore; the Wyoming find contains gallium amid what the mine owner, Ramaco Resources, calls a “a basket of rather valuable elements.”
China’s current industry dominance is not a result of technical triumph but of its own internal subsidies and directives which drove down the global price of the mineral in the 2010s. As recently as 2013, the U.S. Geological Survey listed countries such as Germany, Kazakhstan, and Ukraine alongside China as “leading producers” of gallium, but with the Chinese glut, that production became uneconomical.
Not only does the gallium discovery in Wyoming delight supply-chain hawks in Washington, it also shows the limitations of geo-economic coercion. Commodity traders across the globe have responded to China’s gallium controls by bidding up the price of the mineral, sparking a flurry of new investment in non-China gallium production. Mytilineos, a Greek conglomerate, said in November that it will be able to scale cost-effective gallium extraction within 18 months. Germany, already worried about rising demand for gallium, said it would restart domestic production before the new China policy was even announced.
Beijing’s gallium-export controls are the latest in a string of policies emanating from world capitals that attempt to utilize trade clout for strategic advantage. Time and again, the policies have proven ineffective — even counterproductive. Global markets are nimbler than the proponents of homeland economics realize, and the argument that they will comply with the political directives of big countries is faulty.
In recent years, America too has wielded the trade weapon, only to end up with less-than-expected results. In one example, Russia continued to sell oil at over $80 per barrel for much of 2023, despite a Washington-led price-cap regime, thanks to the mustering of a global-shipping shadow fleet that accepted legal risks. In another exhibit of resilience, Huawei, the Chinese telecommunications company that has been cut off from American chip designs, produced a new phone in August that defied the expectation of stateside decouplers. The Huawei Mate 60 Pro, equipped with advanced chips that use Chinese designs, has surprised reviewers on both sides of the Pacific.
That’s the paradox of geo-economic coercion: By seeking to leverage its advantages, a country often initiates their erosion. Indeed, instead of halting a rival’s economic activity, restrictions like China’s on gallium and America’s on chip designs might actually accelerate it by incentivizing alternative development. As any Wyoming cowboy could tell you, it is a tall task to rein in a wild horse. Global markets are no more acquiescent.