Global chip security now hinges on raw material supply

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The US-China rivalry over semiconductors is shifting from the fabrication lab to the mine. Behind every microchip lies a complex chain of raw materials, gallium, germanium, tungsten, and rare earth elements, that make advanced electronics possible. These resources are increasingly being viewed not just as industrial inputs but as strategic assets. In the race for technological leadership, control of minerals may become as important as control of manufacturing capacity.

Why technology powers are scrambling for control of critical minerals

Modern semiconductors rely on a range of minerals that are scarce and geographically concentrated. China accounts for more than 90 percent of the global supply of gallium and germanium. These two materials are essential for advanced electronics, including high-frequency chips used in communications and defense systems.

This reliance comes with economic and security risks. Research from the Center for Strategic and International Studies estimates that a 30 percent disruption in gallium supply alone could lead to global output losses of up to $600 billion. As mineral demand climbs due to the global clean energy transition, the exposure to narrow supply chains is creating a new layer of vulnerability.

By 2040, demand for some critical minerals is projected to increase more than six times current levels. Yet the mining and refining of these resources remain heavily concentrated in a few countries, adding to supply fragility.

Export controls, trade tensions, and the risk of a mineral blockade

Minerals have become tools of economic policy. In 2023, Beijing announced export restrictions on gallium and germanium. Though framed as national security measures, the move was broadly seen as a reaction to US efforts to curb Chinese access to advanced chipmaking tools.

In parallel, Washington has restricted exports of high-performance semiconductors to China. These actions have deepened the separation of supply chains and raised the specter of more aggressive trade maneuvering.

China’s position in the upstream value chain gives it leverage. While the US excels in chip design and fabrication, it lacks domestic control over many of the inputs needed to keep those fabs operational. Without access to refined minerals, even the most advanced chip facilities risk production slowdowns.

Why building chip fabs without mineral security is a flawed strategy

Over the past two years, US industrial policy has focused on expanding chip production. The CHIPS and Science Act has led to more than $50 billion in incentives for companies to build semiconductor plants domestically.

However, these investments have largely overlooked the upstream materials required to operate those facilities. For example, compound semiconductors, which are critical for high-power and high-frequency applications, depend on inputs like gallium and indium. Almost all of these materials are imported.

The risk is that the US will build advanced fabs only to find them underutilized during mineral supply disruptions. Europe faces similar limitations, with most of its critical mineral processing capacity based outside the continent.

Policy fixes that may come too late

Governments are trying to catch up. The US has partnered with allies like Australia and Canada to diversify mineral sourcing. The EU has launched its Critical Raw Materials Act to encourage domestic extraction and processing. These efforts mark a shift in awareness, but timelines are long.

New mining operations typically require 7 to 10 years to become operational. Environmental permitting, local opposition, and financing hurdles often slow development. Recycling is gaining traction, but volumes remain small relative to demand.

Current policies may pay off later in the decade. However, near-term vulnerabilities persist. If geopolitical tensions intensify faster than new capacity becomes available, technology and defense sectors could face shortages.

There is growing political support for reducing dependence on China, but full decoupling is unlikely. China’s dominance in refining, not just mining, creates a structural advantage that is difficult to replace quickly.

Instead of independence, the more practical path may be selective diversification. That includes dual-sourcing critical inputs, building stockpiles, and partnering with countries that offer regulatory stability and resource access.

Completely severing mineral ties with China could also be counterproductive. It might drive up costs and reduce flexibility across industries already under price pressure.

A more balanced strategy would recognize interdependence while minimizing single-point vulnerabilities. In this framework, minerals are treated not just as commodities but as policy tools that shape strategic outcomes.

The next phase of global competition will depend as much on mineral access as it will on manufacturing excellence. As governments plan for the digital and defense needs of the future, they must look beyond the chip and deep into the ground beneath it.

Sources:
Asia Times