Ursula von der Leyen tours microchips hub but stays mum about new Chinese restrictions

July 7, 2023 9News Nigeria Europe 0

Due to enter into force in the autumn, the act aims to mobilise more than €43 billion in investments before the end of the decade, the majority of which is expected to come from the private sector.

“Chips are essential for our green and digital transitions, and for our economies. Our economy would not function without chips,” von der Leyen said on Friday, speaking next to Belgian Prime Minister Alexander De Croo.

The president’s visit comes at an uncomfortable time for the bloc: just four days ago, China took Brussels by surprise when it announced trade restrictions on the exports of gallium and germanium, two rare-earth metals used in the manufacturing of semiconductors, micro-electronics and smartphones, as well as solar panels.

China is estimated to control 80% of the global production of gallium and 60% of that of germanium. The European Commission has identified both materials as having a “strategic” and “critical” importance for the EU’s green and digital transition.

According to the Chinese Ministry of Commerce, national companies that intend to export items containing gallium and germanium will need to first obtain an export licence, which the central government could decline to issue, effectively enforcing a ban.

The rules will apply as of 1 August, the ministry said.

Von der Leyen, who did not take any questions from the press during her visit to IMEC, avoided the topic altogether during her public remarks and instead spoke about the “geopolitical context” in a more general manner.

“We need to reduce our dependency on too few suppliers from East Asia. And we actively have to de-risk our supply chains for chips – it is vital,” the Commission chief said, referring to the strategy she has pioneered.

“We need to promote the design, testing and production here in Europe. For that, the Chips Act is the game changer.”

Earlier this week, the European Commission said it was analysing the Chinese decision, its economic repercussions and its possible incompatibility with the standards set by World Trade Organization (WTO).

The executive cast doubt on Beijing’s reasoning to justify the move, which was based on the protection of “national security interests,” an ill-defined concept that countries around the world frequently use to defend a variety of policy changes.

“The Commission is concerned that these export restrictions are unrelated to the need to protect the global peace and also the stability and the implementation of China’s non-proliferation obligations arising from international treaties,” a spokesperson said on Tuesday.

Resorting to “national security interests” reinforced the impression the trade bans were imposed on a tit-for-tat basis, as they were announced mere days after the Netherlands had expanded its own restrictions on the sale of advanced microchip technology bound to the Chinese market.

It also suggests Beijing is becoming openly willing to exploit its market dominance over rare earths in order to retaliate against the technology curbs that Western allies are introducing at an increasing pace.

But raw materials cannot be equated with high-tech goods, says Jacob Kirkegaard, a senior fellow at German Marshall Fund, because the latter are much more sophisticated and harder to replace than the former.

“The reason that China is so dominant in these particular minerals is not because they’re only found in China, but because China has always heavily subsidised their extraction and production. So they’ve simply undercut the rest of the market,” Kirkegaard told Euronews.

“So what will happen is that prices will go up, but then supply will come online, elsewhere, and then, probably, the prices will go down again,” he added. “It’s clearly a political statement from China, but it’s also a short-sighted one because it will cost them market share in the medium term.”