China

Earlier this week, China placed export restrictions on gallium and germanium – key components of semiconductor, defense and solar technologies.  The unspecified restrictions are set to take effect on August 1, 2023.

Beijing’s move is considered a “show of force ahead of economic talks between two rivals that increasingly set trade rules to achieve technological dominance,” according to the Wall Street Journal, and is part of a larger global trend of nations resorting to export restrictions on critical materials, which have grown more than five-fold over the last decade and have recently ratcheted upwards between the U.S. and China.

As Alastair Neill, board member of the Critical Minerals Institute, told the Wall Street Journal:

“If you don’t send high-end chips to China, China will respond by not sending you the high-performance elements you need for those chips.” 

Whether or not the U.S. will act in time to secure reliable supply of the critical minerals needed for chip manufacturing and other hi-tech industries, is not, as ARPN’s Daniel McGroarty said in 2020 “a question of science or engineering or who boasts the best single atomic layer deposition techniques.”  According to McGroarty, “it’s a question of political will.  And if the ultimate goal is to reshore American control over our economic destiny and national security, the answer is due right now.”

As followers of ARPN well know, China is no stranger to playing politics with its critical minerals leverage, and ARPN has been tracking the weaponization of trade in the semiconductor segment in the context of the Tech Wards between the United States and China since 2020.

The following is a 2020 piece by McGroarty originally published by The Economic Standard. 

Red Tape Helps China, Hurts Critical U.S. Super-Conductor Chip Manufacturing
By Daniel McGroarty
Re-posted from The Economic Standard

Let the Great Re-Shoring begin:  One of the many ways the COVID pandemic will change the behavior of nations is coming into view, with profound implications for the globalization of trade, and where we make what we buy.  With China controlling the chokepoint on medical devices from ventilators and N-95 masks to all manner of prescription drugs, the U.S. is waking up to the dangers of supply chains outside of our control.

Hence the cheering at this month’s announcement that Taiwan Semiconductor, specialty chip supplier to Apple and many other tech giants, will build a next-gen semiconductor factory in Arizona to manufacture their new 5nm — 5-nanometer — chips.  Construction is slated to begin next year, creating 1,600 jobs at a total investment of $12 billion.  Reports indicate that the U.S. Departments of State and Commerce are involved, meaning the move is part of the post-pandemic “de-coupling” from China.

For Taiwan Semi, the new Arizona plant is another link in its evolving U.S. supply chain, joining the company’s fabrication factory in Washington state and design centers in California and Texas.

High-Speed Computing’s Next New Thing

5nm is the next new thing in high-speed computing.  As experts with the Institute of Electrical and Electronics Engineers explain, for all of the dizzying increases in computing power, not much has changed since the invention of the semiconductor:  “the metal oxide semiconductor field-effect transistor, or MOSFET—the kind of transistor used in microprocessors—has included the same basic structures since its invention in 1959.”  What’s changing now is the engineering of the basic gating structure that channels the flow of electrons across the chip.  On the 5nm platform, “Electrons can move more than 10 times as fast in some of these semiconductors, allowing transistors made from these materials to switch faster. More important, because the electrons move faster, you can operate the device at a lower voltage, which leads to higher energy efficiency and less heat generation.”

Secret Sauce

Little wonder 5nm chips have captured the interest not only of Apple and the tech sector, but the Pentagon as well.

What gives 5nm its secret sauce?  Like gastronomes blending obscure spices, 5nm’s designers looking to push the limits of Moore’s Law have turned to a broader swath of the Periodic Table of Elements to expand their computing palate.  Starting with the familiar silicon substrate “wafer,” 5nm layers in exotic elements like silicon germanium for its super-lattice, adding dielectric hafnium-dioxide and gallium arsenide laced with indium – with a side-look at gallium antimonide as a potential substitute.

And that’s where things get difficult, at least if we’re rooting for the U.S. to become the world’s epicenter of 5-nanometer chip production:  The U.S. produces precisely zero of three of these elements — indium and gallium and arsenic – leaving us 100% import-dependent, while we’re 84% import-dependent for antimony, and more than 50% for germanium.  Data for hafnium, among the rarest of the elements, is notoriously harder to come by, with production guesstimated at a scant 70 tons per year.

So if the U.S. is not producing these 5nm materials, where do these essential ingredients come from?

China is the global leader or top U.S. supplier for all six.

Supply Chain Starts With Supply

It’s a harsh reminder that the first word in supply chain is “supply.”  And given that Beijing is not too happy about Taiwan Semi joining the 5nm U.S. supply chain team – after Apple, banned-in-America Huawei is Taiwan Semiconductor’s biggest customer — it may not be a good idea to source key semi-conductor materials from China.  We’ve already seen Beijing threaten to cut off rare earth supplies to the U.S. as part of their trade war strategy.  Do we need to multiply U.S. vulnerability across another half-dozen metals and minerals essential to next generation high-speed computing?

It doesn’t have to be that way:  The U.S. has “known resources” of all six, and already includes them on the U.S. Government Critical Minerals List.  Are the U.S. sources economic?  Not if U.S. laws governing resource development policy make it a decade long odyssey to bring new resource projects into production.  All the tax breaks in Arizona won’t help Taiwan Semiconductor if U.S. policy fails to take seriously America’s critical mineral dependency on China.

What can the U.S. Government do to bridge this resource gap and encourage American production?  Here’s a place to begin:  Decades ago, Congress gave the president authority to invoke the emergency powers of the Defense Production Act (DPA) – which President Trump has done during the COVID pandemic, and did last summer to address the United States’ rare earths dependency.  If it’s dangerous for the U.S. to be 100% import-dependent for rare earths when the leading global producer is China, why not extend the same DPA designation to the other seven metals and minerals – not just the indium, gallium and arsenic we need for 5nm chips, but graphite, tantalum, fluorspar and manganese – where U.S. dependence is also 100% and China dominates global supply?

There’s no question that Taiwan Semi’s engineering team has the expertise to make its next-gen chip a reality. The question concerns the stuff their dreams are made on.  Will the U.S. act in time to secure reliable supply of 5nm materials, or will mineral and metal availability become the new “single point of failure” – subject to some future cut-off ordered by Beijing or disrupted by the return of COVID 2.0 — that will render the new Arizona chip investment inoperative?

That’s not a question of science or engineering or who boasts the best single atomic layer deposition techniques.  It’s a question of political will.  And if the ultimate goal is to reshore American control over our economic destiny and national security, the answer is due right now.

It’s back to the grind.

The parades, barbecues, pool parties and fireworks to mark this year’s Independence Day are over.  There’s much to be thankful for, especially at a time when the impact of Russia’s war on Ukraine, now in its second year, reverberates around the globe and geopolitical tensions continue to mount.

ARPN has always used the occasion of Independence Day to remind ourselves that “while we cherish the freedom we are blessed with in so many ways, we must not become complacent, as there are areas where we’re increasingly becoming less independent” — with our reliance on foreign mineral resources being a case in point.

Thankfully, stakeholders are increasingly aware of the urgency to strengthen critical mineral supply chains, and, on the heels of a global pandemic, ongoing war between Russia and Ukraine, and growing resource nationalism, a flurry of activity has dominated the critical minerals space, ranging from domestic efforts over bilateral trade agreements to multilateral alliances.

For the U.S., a notable example of domestic efforts is the series of DPA Presidential Determinations involving specific Critical Minerals, beginning with President Trump’s July 2019 designation of the Rare Earth permanent magnet supply chain being designated as “essential for the national defense,” followed by President Biden’s designation of what ARPN calls the “Battery Criticals” as DPA Title III eligible in March 2022, followed by Platinum and Palladium in a DPA Presidential Determination in June 2022.  Earlier this spring, two further Presidential Determinations (February 27, 2023 Presidential Determination, and DPA Presidential Determination (2023-5)), effectively created an entirely new category of critical minerals – the “defense criticals” and designated airbreathing engines, advanced avionics navigation and guidance systems, and hypersonic systems and their “constituent materials” as priority DPA materials.

(for more on the Defense Criticals, read our post here.)

Followers of ARPN are further aware of policy initiatives like the United States’ Inflation Reduction Act (IRA) or the European Union’s Critical Raw Materials Act (CRMA), which are currently being followed by bilateral trade agreements, as well as U.S.-EU discussions to launch a “critical mineral club.”

While the United States and our partners have taken several important steps to decouple critical mineral supply chains from China, Beijing, having systematically built out its dominance across the entire value chain from mining over processing to manufacturing, still has a chokehold on many key critical minerals, and particularly the EV battery supply chain.

And for all of the recent U.S. policy efforts, the latest USGS Mineral Commodity Summaries report confirmed that our critical mineral dependencies still persist.

There is momentum to change this, however, as we have previously argued:

“Those familiar with the inner-workings of Washington, D.C. know all too well that particularly in an election year policy efforts can quickly lose steam or fizzle over attempts to placate certain constituencies. Against all affirmations to strengthen domestic supply chains, the not-in-my-backyard (NIMBY) sentiment is still strong.”

As followers of ARPN well know, the stakes are too high to let the momentum for comprehensive reform fizzle.

With a new “Great Game” afoot in the global mineral resource realm (see our most recent post on the issue here), the U.S. must double down on its push to secure critical mineral supply chains from “soup to nuts” to borrow a term used by U.S. Energy Secretary Jennifer Granholm.

With the West’s resource dependence running deep, and Beijing’s determination to continue its global quest for resource dominance unbroken, the critical mineral arms race will continue to heat up.   Stakeholders here and elsewhere must gear up for the long haul.

As ARPN stated in a previous post, Rome wasn’t built in a day.

Neither was the United States of America.

But built it was, challenges were overcome — and we are celebrating the men and women who have fought for and continue to safeguard our freedoms this week.

Here’s hoping that one day we will be able to say the same for the critical mineral supply chains that anchor the technology economies of the 21st Century.

As nations all across the globe scramble to secure critical mineral supply chains against the backdrop of surging demand in the context of the green energy transition and rising geopolitical tensions, India is stepping up its critical mineral resource policy game. This week, the Indian Ministry of Mines released a comprehensive Critical Minerals List, consisting of 30 [...]

The West is getting serious about reducing its vulnerabilities against the backdrop of an increased threat of China weaponizing its control of critical materials supply chains. As the Financial Times reports, the Minerals Security Partnership, convened by the U.S. in June of 2022 which encompasses 12 countries plus the European Union, is planning to release by [...]

Resource nationalism has arrived in Africa. After Zimbabwe banned lithium ore exports last December in a move that only permits concentrates to be shipped out, Namibia has banned the export of unprocessed lithium and other critical minerals, according to Reuters. The country is largely known as a source for uranium, but also has significant deposits of lithium [...]

Against the backdrop the accelerating global push toward net zero carbon emissions and escalating tensions, worries about strategic vulnerabilities and the specter of supply chain disruptions have prompted the United States and its allies to forge new alliances designed to bolster supply chain security – and, to the extent possible, decouple their critical mineral supply [...]

Even before the Biden Administration announced the “most aggressive” plan to curb tailpipe emissions to date with new vehicle pollution standards proposed by the Environmental Protection Agency (EPA) last month, automotive OEMs and Tier 1 suppliers were facing difficulties getting both the parts and raw materials needed for their electric vehicle (EV) components. The newly proposed rules [...]

Chilean President Gabriel Boric’s April announcement of his plan to nationalize the country’s lithium industry to boost the Latin American nation’s industrial base and protect the environment may have prompted observers to declare his action a “shock move,” but as ARPN outlined in our last post, the “shock seems to result from global observers who are still learning to [...]

The coronavirus pandemic and associated supply shocks, surging demand for critical minerals against the backdrop of an accelerating global push to net zero carbon emissions, as well as rising geopolitical tensions on the heels of Russia’s invasion of Ukraine and the looming tech war between China and the West have catapulted the issue of securing [...]

As the Wall Street Journal reports, a new OECD study has found that export restrictions on Critical Minerals have increased more than fivefold from January 2009 to December 2020, suggesting that “export restrictions may be playing a non-trivial role in international markets for critical raw materials, affecting availability and prices of these materials.”   While this significant shift [...]