When the US announced it would further tighten its restrictions on exports of advanced semiconductors to China it was always likely that China would retaliate. It took only three days.
China produces about 90 per cent of the world’s synthetic graphite, a material developed from hydrocarbons that has become increasingly popular with EV battery manufacturers because it produces better and more consistent performance than natural graphite. It lasts longer, charges faster and is safer.
China has been stockpiling AI chips but, over time, the impact of the US crackdown will exhaust them, limiting China’s ability to improve its AI models and creating a widening gap between its capabilities and those of the US in what is regarded as a critical and transformative 21st Century technology.
Exports of gallium and germanium, whose production China dominates, have subsequently fallen and prices have risen and there has been a scramble by the US and its allies to find or develop alternate sources of supply. . Only time will tell whether the new export rules are merely a threat or will be deployed. China would be aware that not only does its dominance of strategic minerals generate significant export revenues and technological advantages but withholding them would jeopardise that dominance and the strategic leverage it provides.
China’s dominance of rare earths, and graphite in particular, provide the strongest leverage it has in the trade wars with the US and, increasingly, its allies but there are risks in deploying them and threatening to disrupt the production of EVs around the world.
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