The potential disruption of China’s gallium and germanium exports has significant implications for the US economy, particularly in industries dependent on these critical minerals. Gallium and germanium are essential materials in advanced technologies, including semiconductors, fiber-optic cables, wireless communication systems, and solar cells. As China is a dominant global supplier of these materials, any restriction on its exports could disrupt US industrial supply chains, affect GDP, and potentially increase costs across a wide range of sectors.
The impact of China’s gallium and germanium export restrictions on U.S. Gross Domestic Product (GDP) was assessed using a detailed economic model developed by the United States Geological Survey (USGS). This model accounts for two primary effects: a decrease in industry output due to reduced availability of these minerals and an increase in prices resulting from scarcity. When combined, these effects can significantly reduce US GDP.
In scenarios in which China halts its net exports of these minerals, the model estimated that US GDP could decrease by approximately $3.4 billion, with a range of $1.7 billion to $9.0 billion depending on the assumed sensitivity. The results indicated that the decrease in the quantity of these minerals available had a far greater impact on GDP than the increase in their prices. For gallium, price effects contributed only 6.1% of the GDP reduction, and for germanium, the figure was even lower at 2.2%. These percentages were slightly higher at lower levels of export restrictions but remained relatively modest. The dominant driver of GDP loss was reduced availability of these minerals, rather than price increases (USGS, 2024).
The economic model assessed the sectoral impacts of export restrictions on gallium and germanium, which are vital minerals utilized across various industries, notably semiconductor manufacturing, telecommunications, electronics, and aerospace. According to the findings, certain sectors would be more severely affected due to their reliance on these materials.
In semiconductor manufacturing, gallium, especially in the form of gallium arsenide, plays a crucial role in producing high-performance semiconductors essential to communication devices, radar systems, and various electronic applications. A reduction in the supply of gallium could lead to production delays and slow technological advancement.
Similarly, in the telecommunications sector, both gallium and germanium are integral to the production of fiber optic cables and wireless communication technologies. A shortage of these minerals would impede the development and maintenance of global telecommunications infrastructure, particularly in the US, which relies on these materials for next-generation communication systems, including 5G.
The model also highlighted that industries with a high dependency on gallium and germanium would likely experience significant reductions in their value-added output. For instance, sectors involved in printed circuit assembly and optical equipment manufacturing could incur revenue losses due to supply disruptions. The interconnected nature of modern industries will likely intensify these impacts; restrictions on one mineral can trigger cascading effects across other minerals.
The model also conducted a sensitivity analysis to examine how varying levels of export restrictions on gallium and germanium (ranging from 0% to 100%) affect global supply, price levels, and US GDP. The analysis revealed that the effects on US GDP were nonlinear, with a relatively small effect at lower levels of export restrictions and a more pronounced impact at higher levels.
When both gallium and germanium exports were simultaneously restricted, the GDP loss was estimated to be lower than the sum of the losses from individual restrictions. This is because many industries use both minerals, and a simultaneous disruption affects them in ways that may prevent further output reductions, given interindustry linkages. However, when different minerals affect distinct sectors of the economy, such as gallium affecting electronics and germanium impacting telecommunications, the disruption might be closer to the sum of individual impacts (USGS, 2024).
The analysis assumes that industries and consumers would return to their original consumption patterns once the restrictions are lifted, a simplification that may not hold in practice. It also assumed that gallium and germanium were interchangeable within their respective industries, but this might not hold for all forms of the minerals, particularly for specialized, high-purity forms used in advanced technologies.
Moreover, the model did not account for the downstream effects on finished products containing gallium and germanium. For instance, disruptions in the supply of raw materials could also affect the availability of end products such as smartphones, computers, and solar panels, potentially leading to higher consumer prices or shortages in these markets (USGS, 2024).
The findings from this analysis highlight the critical need for proactive measures to mitigate the risks posed by disruptions in the supply of gallium and germanium. One potential strategy is to increase domestic production of these minerals by recovering them from alternative sources, such as recycled materials and byproducts from other mining operations. Additionally, developing strategic inventories of these minerals could serve as a buffer against supply shocks, and a detailed cost-benefit analysis could provide valuable insights into the maintenance or expansion of stockpiles of these critical resources.
Moreover, exploring alternative supply sources is essential, as evidenced by the emergence of new projects to recover gallium and germanium from sources such as zinc smelting in the United States and slag processing in the Democratic Republic of the Congo. Ultimately, the results of this study will not only inform these strategies but also contribute to the formulation of policies regarding critical minerals. Such policies are particularly relevant in the context of the Infrastructure Investment and Jobs Act (2021) and the Inflation Reduction Act (2022), both of which aim to strengthen the US’s strategic position in the global minerals market.
The potential restrictions on China’s gallium and germanium exports present significant risks to US industries that depend on these minerals. The mUSel suggests that the impact on the US economy could be substantial, particularly for industries such as semiconductor manufacturing and telecommunications. However, these effects are primarily driven by the reduced availability of these materials rather than price increases. While the analysis has several assumptions and limitations, it provides critical insights into how these supply disruptions could affect the broader US economy. It highlights the need for strategic planning to mitigate such risks in the future. By enhancing domestic production, increasing recycling, and developing alternative supply sources, the US can better position itself to handle potential disruptions in the supply of these critical materials (USGS, 2024).