China's curbs on shipments of germanium and gallium, which are used to make chips, have led to an almost 2x increase in prices in Europe over the past year
Western customers say restrictions on supply could hit production of advanced microprocessors and optical products
Context & Ripple Effects
China’s restrictions began with export limits on the two chip metals in 2023, turning a materials-sourcing issue into a direct input-cost risk for electronics makers outside China.
Europe had already sought to assess domestic options through an EU-backed inquiry into producing these chip metals. The reported price jump shows that alternative supply has not yet insulated buyers from the restrictions.
First-order effects
- European purchasers of gallium and germanium face sharply higher material costs and tighter availability.
- Producers of advanced microprocessors and optical products must manage a more volatile supply of two specialized inputs, with potential pressure on production planning.
Second-order effects
- Chip and optical-component suppliers may seek alternative sources, adjust inventories, or pass higher input costs through where contracts permit.
- The price signal strengthens the business case for European production and processing initiatives, but new supply is unlikely to offer an immediate substitute.
Third-order effects
- If controls persist, semiconductor supply-chain resilience will increasingly depend on upstream materials access rather than fabrication capacity alone.
- The episode points to export controls driving geographic diversification of critical-mineral supply, though concentrated production can make that transition slow and costly.
The trend: Strategic competition is extending from finished chips to the specialized materials that determine whether global electronics supply chains can operate.