Time in the Market
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FULL ‘ METAL’ JACKET – THE TECH RACE

The global technological landscape has recently been braced with an escalating contention between the United States and China.

A critical aspect of this tussle orbits around the trading and handling of essential raw materials that are pivotal for the progression of the tech sector. At the heart of this debate are gallium and germanium, two crucial elements heavily incorporated in manufacturing various technological products, including computer chips and solar panels. According to the Critical Raw Materials Alliance, China has been the predominant supplier of these elements, contributing to 80% of the world’s gallium and 60% of germanium production. However, a significant shift was noted last month when China refrained from trading these elements on the global platform, as the recent Chinese customs data revealed.

The stakes are high in this scenario. As commodity traders and macro-economic enthusiasts would appreciate, the movement of such materials across borders heavily impacts the tech sector and the economies at play. In July, records showed that China had exported 5.15 metric tons of forged gallium products and 8.1 metric tons of developed germanium products. Fast forward to a month later, the export charts for these materials plummeted to zero. This abrupt transition indicates China’s retaliatory stance against the US export controls, notwithstanding the looming economic growth concerns amidst a tech war backdrop.

The economic tremors of this halt are already palpable. The domestic market in China saw a dip in gallium prices owing to the accumulation of inventories spurred by export controls. As per Shanghai Metal Market data, gallium prices tumbled nearly 20% to 1,900 yuan ($260) per metric ton from early July. Conversely, germanium prices nudged upward due to the tightened supply, clocking in at 10,050 yuan ($1,376) per metric ton. The contrasting price trajectories of these two elements underscore the complex dynamics engaged when pivotal raw materials are held from the global market.

On a broader economic canvas, the repercussions stretch beyond just price shifts. The halt in exports struck a fresh blow to China’s already delicate economic recovery pathway, grappling with weak domestic demand and an overhanging housing crisis. The export dip in the last month marked the most substantial drop witnessed in over three years, embedding further complications in the economic fabric.

The standoff goes beyond a mere trade skirmish. It emblematic of a more significant technological rivalry between the US and China. Beijing’s initiation of export controls on August 1, demanding special permissions for shipping out gallium and germanium, essentially weaponizes these crucial tech commodities in the ongoing tech cold war. This move is a countermeasure to the US’s earlier unveiled export controls, which barred Chinese firms from procuring advanced chips and chip-making apparatus without a license.

A riveting development in this saga was the release of Huawei’s Mate 60 Pro smartphone last month. Despite the US sanctions aimed at severing China’s access to cutting-edge chip technology, the tech giant managed to roll out a model powered by an advanced chip. The episode has not only sent shockwaves through the tech realm but has also intensified political pressure on the US to amp up sanctions on Chinese tech entities like Huawei and SMIC believed to have fabricated the semiconductor for the new smartphone model.

For Washington’s campaign to indeed bear fruit, a collaborative effort from other nations was indispensable. In resonance with this, Japan and the Netherlands had joined forces with the US earlier, tightening the noose on chip-making exports to China. Beijing, however, retaliated by launching a cybersecurity probe into US chipmaker Micron in April, followed by a ban on its sales to Chinese firms engaged in crucial infrastructure projects.

The unfolding scenario posits a series of contemplations for commodity traders and those vested in macroeconomics. The altered flow of gallium and germanium, entwined with the broader tech war narrative, encapsulates a significant economic storyline. It’s a telling commentary on how critical raw materials, tech advancements, and international trade policies are intertwined and how their interplay will likely script the following chapters of global economic and technological discourse.

Furthermore, the burgeoning tech war adds a layer of unpredictability to the already volatile commodity markets. The onus now lies on market players and policy architects to navigate this complex, evolving narrative with a blend of foresight and strategic agility. The road ahead beckons a more profound comprehension and meticulous analysis of these unfolding economic and tech-political theatrics, with a keen eye on the macroeconomic ramifications poised to follow

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