Figure 4

Figure 4 Global aluminum production. Source: “Primary Aluminium Production,” International Institute, July 20, 2023, https://international-aluminium.org/statistics/primary-aluminium-production/.

Over the past two decades, China’s rapid industrial buildup has driven an explosion in the country’s aluminum production. Helped along by expansive government subsidies and tax incentives, China’s production of aluminum skyrocketed ten-fold (from 4.2 to 40.2 million tons) between 2000 and 2022.9,10 By 2022, China supplied nearly 60 percent of the world’s aluminum. China’s aluminum production increase versus the rest of the world is shown in Figure 4.

Beginning in the late 2000s, China’s economic planners also put the weight of the state behind the country’s nascent LED and display industries, both of which rely on chips made with gallium. Government support flowed to major aluminum processors like the Aluminum Corporation of China (Chalco) to encourage them to install the equipment needed to extract gallium from aluminum tailings. As a result, from 2005 to 2015, China’s production of low-purity gallium exploded from 22 metric tons to 444 metric tons.11

The flood of cheap gallium from China into global markets created oversupply, triggering severe price fluctuations of the metal throughout the early 2010s. Top suppliers in the U.K., Germany, Hungary and Kazakhstan found it no longer profitable to produce gallium and were forced to shutter production. The U.S., which began offshoring much of its domestic mining capacity in the 1970s and 1980s, saw one of its last remaining refined gallium production facilities shut down in 2020. China was left as virtually the only supplier in the world.

FUTURE RISKS

Beyond primary-stage production of gallium, Beijing is also seeking to develop a competitive domestic industry for higher-value segments of the gallium-based semiconductor supply chain. Chinese experts specializing in wide bandgap or “third-generation” semiconductors have signaled that their efforts are aimed at technologically leapfrogging the U.S., Europe and Japan.12 They are also clearly tied to China’s military modernization goals.

While U.S., European and Japanese firms lead at the cutting-edge of wide bandgap chip production, China has identified the technology as a key focus area and is seeking to close the gap. The country’s 14th Five-Year Plan, its top national economic blueprint released in 2021, explicitly names GaN along with silicon carbide as targets in its technological development plan. Making headway in the development of gallium-based semiconductors could offer China unique opportunities to advance its drive for technological self-sufficiency. In emerging gallium-based compounds like GaN and gallium oxide that are still in the early stages of development, China can potentially lock in early-mover advantages in ways similar to its success at capturing the lead in producing advanced batteries for electric vehicles.

Figure 5

Figure 5 Issues from China’s efforts to target foreign gallium technologies. Source: Authors’ research and analysis based on multiple sources.

It also appears that the drive for technological self-sufficiency and superiority is taking place in more channels than just the development facilities. Alongside political and financial support from Beijing, there have been concerted efforts by Chinese individuals, firms and entities to target GaAs and GaN technologies from companies in the U.S. and other advanced economies that have run afoul of laws and government oversight. The Chinese entities behind some of these activities are often linked to the People’s Liberation Army. Figure 5 illustrates some of the issues that have arisen from China targeting foreign gallium technologies since 2010.

Both China’s civilian and military electronics sectors have reaped the rewards of Beijing’s push to develop its gallium-based semiconductor industry. In 2021, China’s leading military radar manufacturer, China Electronics Technology Group Corporation (CETC), released a family of next-generation GaN-backed radar systems called Lingdong. CETC claims that these systems can easily detect stealth aircraft and cruise missiles.

On the commercial side, China’s top GaN fabrication firm, Innoscience, has reached world-leading status with two eight-in. dedicated GaN foundries. These foundries have come online ahead of competitors in the U.S. and Japan. In addition, Chinese scientists have recently made significant breakthroughs in producing gallium oxide wafers, despite U.S. export controls on the material.13

There are several consequences of China’s emerging capabilities at the cutting-edge of gallium semiconductor manufacturing. A key consequence is that China will grow less dependent on imports from countries like Japan, the U.S. and South Korea for the highly advanced chips needed as inputs for its industrial production. This reduced reliance could help insulate China’s domestic firms from broader supply chain disruptions that would result if it further escalated its export controls on gallium or other raw materials.

TOWARD DE-RISKING

During the G7 summit in May 2023, the leaders of the world’s leading economies collectively advocated for “de-risking” their economic interdependence with competitive nations like China. Addressing the vulnerabilities in gallium supply chains presents a readily achievable objective for U.S. and allied policymakers as they reevaluate their economic ties with Beijing. While no country can achieve complete self-reliance in natural resources, strategic domestic investments and cooperative efforts with both allied governments and the private sector can enable the U.S. to reduce its dependence on China and mitigate the susceptibility of critical supply chains to geopolitical disruptions.

Ramping up the production of gallium outside of China will require time, political will and risk-tolerant investment. Although bauxite is plentiful within the U.S. and several of its allies, most notably Australia, firms face barriers such as environmental regulations, long approval timelines, low profit margins and a lack of expertise that discourage the investments needed to restart production. Additionally, the industry-favored compound used to extract gallium, called Kelex 100, is predominantly supplied by Chinese firms, further complicating efforts to reduce reliance on China for early-stage production.

An effective response would follow five major lines of action:

The U.S. should invest in gallium extraction and refinement capabilities: Supported by Defense Production Act authorities, the U.S. DOD should invest in the conditions for firms to establish and maintain gallium production facilities. Targeted public-private agreements based on investment, tax incentives or other tools could provide the necessary conditions for firms to establish and maintain gallium production facilities. There is currently one active plant in the U.S., based in Louisiana, that processes bauxite into aluminum. Given the proper incentives, this plant could install the equipment needed to extract gallium.

Washington should collaborate with allies and partners to scale up overseas gallium extraction and refinement capacity: Working with partner countries that have previously produced gallium, like Germany, or have known gallium reserves, like Australia, the U.S. government and private firms can support investments to scale up overseas production facilities and establish frameworks to guarantee privileged access.

The federal government should support and promote gallium recycling: Ramping up the recycling of gallium may offer a way of alleviating supply chain issues in the short or medium term. Significant quantities of gallium can be recycled at various stages of the manufacturing process. The U.S. and its partners should invest in building on existing recycling capabilities and support efforts to do so in allied countries like Japan.

The DOD should maintain a minimum one-year stockpile of gallium for the defense industry: The DOD’s Defense Logistics Agency (DLA) lists gallium as a “material of interest” but has not made any purchases for stockpiling within the past decade. Consulting with Congress, DLA should add gallium to the National Defense Stockpile, working with private industry and foreign partners to ensure U.S. defense needs are covered for at least one year.

The U.S. International Trade Commission should enhance data collection and transparency in U.S. gallium production and consumption. Improved access to official data on more steps in the gallium supply chain would help private firms, policymakers and defense officials better assess the state of the market and U.S. vulnerabilities.

References

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