China's Critical Minerals Embargo Proves More Stringent Than Anticipated


Concerns are escalating among multinational companies engaged in business with China following Beijing's recent decision to impose a trade embargo on the export of four critical minerals to the United States. A significant aspect of this order is a provision that extends the ban to foreign companies that acquire these minerals from China and subsequently transfer them to American firms.

This regulation marks the first instance of China implementing a broad ban on transshipment within its export policies, highlighting Beijing's readiness to intensify its retaliatory measures against the stricter trade policies anticipated under President-elect Donald J. Trump.

China has consistently criticized other nations, especially the United States, for attempting to impose similar transshipment restrictions on companies operating outside their jurisdictions.

The embargo threatens to further fragment global supply chains, compelling companies to decide whether to supply products containing specific materials exclusively to the American or Chinese markets.

In an effort to attract foreign investment, particularly from Europe, China is advocating for the establishment of supply chains within its borders rather than in the United States.

Jens Eskelund, president of the European Union Chamber of Commerce in China, remarked that this development represents a significant escalation in the ongoing technological conflict between the U.S. and China, with European businesses increasingly apprehensive about becoming collateral damage.

The mineral embargo is part of a broader initiative by China, developed over nearly two decades, aimed at reducing reliance on imports through domestic production.

On the same day the Ministry of Commerce announced the minerals ban, four trade associations linked to the government advised companies to refrain from purchasing American computer chips. Two days later, a draft plan was revealed by the Ministry of Finance to revamp government contract bidding, favoring domestic production.

Joerg Wuttke, a former president of the European Union Chamber of Commerce in China, noted that the closest China had come to prohibiting indirect shipments was a specific case last May, which only targeted one American company.

In a further indication of its tough stance against U.S. policies, the Chinese government recently initiated an antimonopoly investigation into Nvidia, a leading American chip manufacturer crucial for advanced artificial intelligence technologies.

This series of measures may also reflect Beijing's openness to negotiating with the United States.

He Jiandao, spokesperson for China’s Commerce Ministry, defended the new mineral export regulations as “a reasonable measure,” expressing China's willingness to enhance dialogue on export controls to maintain stability in global production and supply chains.

The Biden administration has enacted a range of increasingly stringent restrictions on the export of dual-use products to China, which serve both civilian and military purposes. This includes bans on transshipments.

On December 2, the U.S. added over 100 Chinese companies to a restricted trade list, prohibiting the sale of advanced semiconductors and related manufacturing equipment to China. This action was characterized as a technical adjustment to address issues such as the creation of shell companies to circumvent existing sanctions.

China's Ministry of Commerce imposed the minerals embargo in response to these latest restrictions, stating that any organization or individual violating these provisions by transferring dual-use items from China to U.S. entities would face legal consequences.

Export embargoes on critical minerals have historical precedence in international relations. Notably, in 2010, China halted rare earth metal exports to Japan during a territorial dispute, instructing exporters not to ship directly to Japan or increase shipments to other countries that might re-export to Japan.

Previous embargoes include the 1973 oil embargo by Arab nations against the U.S. in response to American support for Israel, which significantly raised gasoline prices, and the U.S. embargo on oil exports to Japan in 1941, preceding the attack on Pearl Harbor.

China's introduction of a broad transshipment ban could have more significant implications than the specific minerals embargo. The minerals targeted, such as gallium and germanium, are utilized in a limited range of semiconductor applications, although some companies have stockpiled these resources in anticipation of a ban.

China remains a dominant player in the global mining and refining of these minerals, including graphite and antimony, which were also included in the recent embargo.

In addition to the four minerals, the embargo encompasses “superhard materials,” a category of chemical compounds for which China is a leading producer, often sourced from domestically mined minerals.

These superhard materials, like the critical minerals, are essential in semiconductor manufacturing, with some compounds, particularly those containing tungsten, also used in munitions.

China has invested heavily in developing its semiconductor industry and is now a leading manufacturer of semiconductors for automotive and other high-volume applications. However, Chinese companies still face challenges in producing the fastest semiconductors, which the Biden administration has restricted from being exported to China.

Experts suggest that China's critical minerals embargo poses a direct threat to Japanese and European interests, potentially pushing them away from the U.S. while anticipating further actions from the Trump administration. However, concerns remain about the wisdom of such moves for a government seeking to attract foreign investment.





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