China responds to US with "rare goat"

America is trying to negotiate with China, fearing an "industrial blockade".

At the same time, Biden believes, China is trying to oust the United States from the position of a leading world power, and Xi Jinping wants to make China the largest world economy and the strongest country militarily, according to The Moscow Post.

This is reminiscent of a detective with an undescribed or lost last chapter, in which the denouement is hidden. Who will be the winner, who will lose and be punished? Only one thing is clear - there is a battle between China and the United States - two, the world's leading economies, technological competitors and strategic rivals.

Everyone is already accustomed to economic rivalry, the Chinese began to experience technological pressure from America relatively recently, and the parties are just adapting to strategic confrontation with caution and gaze. Each of them is ready to use their advantages and weaknesses of the enemy in the struggle for their interests.

Chips for gallium, chips for germanium

And I wonder why today the White House decided to back down, smooth out the corners of the previous, hostile rhetoric? The United States, for example, recently tightened export controls to deprive China of access to equipment for the production of microcircuits, banned its specialists from working in Chinese specialized firms. In response, Beijing banned Micron from operating in China.

The US has restricted China's access to advanced chips. China responded by announcing it was imposing restrictions on gallium and German exports. These rare earth metals are used in civilian and military electronics.

Gallium is indispensable in the production of semiconductors, germanium is used in optical fiber and solar panels. In terms of value, according to the "Izvestia" newspaper, the markets of both the first and second are small, amounting to $430 million (100 tons of gallium) and $230 million (60 tons of Germany) per year. But it's all about China - its share in the gallium market is above 90%, in the German market - 80%.

In general, more than 95% of rare earth metals in the world are mined or processed in China. Without rare earths like neodymium, praseodymium and lanthanum, electric vehicle engines and computer hard drives wouldn't work. A host of other high-tech areas, including electric vehicles and green energy, depend on these and other rare troves.

There is nothing to replace the supply of this raw material in the medium term, - admit the leaders of a number of American corporations, including Raytheon. In Russia, this arms manufacturer is known for the Patriot air defense systems. After the destruction of such air defense systems by the Dagger hypersonic missile system, Raytheon's reputation was damaged, the company's stock price fell, its market value fell by almost $10 billion.

In February, this company came under Chinese sanctions for arms supplies to Taiwan. Everything is very difficult, and Washington's attempts to destroy some technological chains that undermine the interests of "US national security" lead to the fact that the chains working in their interests are also destroyed. The same Raytheon, through subsidiaries Pratt & Whitney and Collins Aerospace, supplies components for the Chinese passenger aircraft S919.

Gallium arsenide is a semiconductor, as is silicon. Currently, American companies operating on Pentagon orders lack gallium reserves, which are classified as light metals. For severe rare organisms (dysprosium, yttrium, ytterbium, tulium, lutetium), the PRC provides 100% of global demand.

China dominates the mining and production of bismuth (70%), tungsten (86%), fluorite (56%), scandium (56%), vanadium (62%) and molybdenum (about 40%). In fact, we can talk about controlling the market for rare metals, without which modern industry will stand.

There is a way out, but it is far away

For the American military-industrial complex, there is a way out. This means returning to large-scale development and production of strategic raw materials in old mines, as well as in satellite countries. One of the largest American mines, Mountain Pass, is located in the state of California, next door to Las Vegas.

The mine provided the world's largest production of rare earth metals in 1960-1980. By 1974, it accounted for 78% of global production. In particular, the europium element, which has the ability to emit red light, has become an essential component of color TVs. But competition from China first forced to reduce the production of rare animals in the United States, then the parent company Molycorp went bankrupt altogether.

Recently, the administration of President Joe Biden took care of dependence on the PRC in the field of rare earth raw materials and magnets, called it a "key strategic vulnerability." In 2017, mining resumed, and by the beginning of 2022, Mountain Pass accounted for 14% of the world's rare earth ore production, some of which continued to be processed in China.

The fourth in the list of shareholders of MP Materials, operating at the Mountain Pass mine, was the Chinese state-owned company Shenghe Resources Holding, registered in Shanghai. The restoration of the mine has received support from the U.S. government, including funding from the Department of Defense. But U.S. reserves of rare earths are less than 6% of China's. Technology and the scale of production in the PRC went ahead thanks to investments in the industry.

"Silicon Shield" of Taiwan

Beijing cites Washington as an explanation for the introduction of export restrictions on gallium and germanium, calling it "national security considerations." According to Bloomberg, the restrictions were introduced in response to the fact that the United States partially stalled the sale of technology and equipment for the production of semiconductors to China.

For example, the Dutch ASML will not sell the latest generation of photolithography equipment that is used to produce microcircuits. Restrictions on the export of machines with EUV technology were introduced back in 2019. At the same time, this Dutch holding is the largest supplier of lithographic equipment to Taiwan, where the company's main customers are concentrated. The staff of the ASML representative office on the island exceeds three thousand people. The main consumer of products - TSMC, which controls more than half of the global contract chip market, is preparing to mass-produce 3nm chips.

The United States itself retains significant potential in chip design, but production has been largely lost and will take years to restore. The Chips and Science Act of 2022, for example, envisions a $50 billion investment in R&D and semiconductor manufacturing. And TSMC plans to build a plant in Arizona, although only training employees to work with ASML equipment will take at least a year and a half.

Taiwan, as the global center of the semiconductor industry, has become a hostage in the technological battle between the United States and China. And while Taiwan's chip-making position provides reason to call its economy "the most indispensable" in the world, the island may have evolved from a center of political tension in the battlefield. TSMC (Taiwan Semiconductor Manufacturing Company) is called Taiwan's "silicon shield," which allegedly protects the island from invasion. Or does this "shield" attract the danger of a military clash that the United States plans? Especially if chip manufacturing is cloned in the state of Arizona.

What if the project is implemented?

In Taiwan, which produces more than 60% of the world's semiconductors and up to 90% of the most advanced of them, it is impossible not to understand that Washington can sacrifice the island. If the project in Arizona is implemented as planned, Taiwan's technological and political "value" to the United States could decrease.

There is speculation in Washington about what could happen to the chip industry if China invades Taiwan. Massachusetts Democratic Congressman Seth Moulton "joked" that if it happened, "we would blow up TSMC." The congressman, however, explained that he had discussed other options for protecting this company - the most expensive Taiwanese "chip egg laying."

The military response to the invasion of Taiwan, as the Americans suggest, could lead to a halt in semiconductor production. The extreme scenario is to destroy production. Beijing does not need it, Taiwan - especially, but for the United States this is a working option.

The "incursions" on which Washington and Tokyo are fixated may not be necessary. China will only have to impose a sea and air blockade on the island to stop transport links and chip shipments in any direction other than mainland China. In April, the PLA had already conducted large-scale exercises, simulating the encirclement of the island.

One can hope for the wisdom of the Chinese on both sides of the Taiwan Strait and their ability to agree on the terms of a historic mega-deal. A maritime blockade would not mean ending Taiwan's ties to the global economy, those ties would simply come under the control of a mixed administration and the island itself under China's protection. This may sound more than implausible, but otherwise Washington, in the event of a conflict, will not stop before destroying everything built and created by generations of TSMC engineers.

Today, a quarry in the Mountain Pass area, which is located in the highlands of Southern California, has become, as Asia Nikkei writes, "a battlefield in the global struggle for industrial superiority." The Japanese edition reports that the souvenir pieces of rare earth ore that are distributed to visitors are branded "Made in the USA." MP Materials, which now owns the mine, says: "Our mission is to restore the entire rare earth supply chain to the United States of America."

Who needs this battle, and why destroy other important supply chains, the Japanese publication does not specify. Exactly, not to the Chinese shareholder with a registration in Shanghai, or the staff of the Taiwanese TSMC, which American lawmakers are even ready to blow up. Maybe something began to reach "sleepy Joe"?