Xi’s Metal Curbs Risk Backfiring as G-7 Seeks China Alternative

(Bloomberg) -- China’s decision to control the export of two key metals showed it has some power to retaliate against moves by the US, Japan and Europe to cut Beijing off from advanced technology. But it also risks backfiring.

The new export licensing system unveiled late Monday highlighted China’s dominant position in global production of gallium and germanium, which are used to make chips, electric cars and telecommunications equipment. The announcement — just days before US Treasury Secretary Janet Yellen visits Beijing — appears timed to give China leverage as it pushes the White House to remove export controls that risk hobbling the nation’s development.

Yet the measure is a double-edged sword, and may simply accelerate efforts by those countries to reduce dependence on the world’s second-biggest economy. If Beijing did at some point uses these new rules to restrict shipments and cut supply to other nations, prices would likely rise and make it more economical to boost output in Japan, Canada, the US or elsewhere.

“It’s part of the tit-for-tat the PRC is playing with the US and its allies,” said Ja Ian Chong, an associate professor of political science at the National University of Singapore. He was referring to the country’s formal name, the People’s Republic of China. “There may be some initial shock to the markets and firms but over time, should these restrictions persist, markets and firms adjust.”

The move underscores the dilemma facing President Xi Jinping as he seeks to counter US efforts to prevent China from accessing the chips needed to dominate technology like artificial intelligence and quantum computing. Any reciprocal actions only give the US and Europe more ammunition to push for derisking, something Xi’s government has sought to counter.