The Revenge of Raw Materials
AI’s future is built on rare earth minerals—without them, even the most advanced AI models are just lines of code.
“Everyone has a plan until they get punched in the face” is how Mike Tyson put it.
A military planner might say, “No plan survives first contact” or, “In every engagement, the enemy gets a vote.”
It’s the second one that is relevant in 2025 following the late 2024 announcement that China would be restricting exports of gallium, germanium, and antimony to the US. In an era where tariffs are promised and sanctions are delivered, China gets a vote, and it is voting to restrict the flow of raw materials to the US. This presents an interesting problem for the economic quiver employed by the US internationally. It made significant headway in 2021 with Huawei and ZTE by restricting the sale of finished chips required for those products. But the US doesn’t have access to significant quantities of gallium, germanium, or antimony. In fact, China was the #1 producer of gallium and germanium in 2023.
The standoff between raw materials required for advanced technologies and the finished technologies themselves could become an aspect of the upcoming sanctions and tariffs that are likely to be continued features of 2025. History gives us some interesting insights.
Industrial Revolution
The industrial revolution created the conditions for capitalism and production on a massive scale. Britain is credited with being the incubator of the industrial revolution for many reasons, but a significant one was that they sat on top of significant quantities of the raw materials they needed to power their industrial revolution, coal. Coal had been used for heat for thousands of years, but the heat that was required for steel production required massive quantities, and Britain had it onshore. Coal was also used to project British naval power abroad and to give the navy a worldwide presence through coaling stations. The model set up by coaling stations is in use today as we see American naval bases around the world. The point is that Britain was able to grow both in key industries and militarily because they had domestic access to raw materials.
America followed suit in the industrial revolution by having its own domestic coal and oil production. Eventually, the growth of American industry outpaced its domestic coal and oil production requiring it to secure supplies from elsewhere worldwide.
A History of Raw Materials Protection
It is well documented that the US is willing to go to extraordinary lengths to secure its supply of raw materials for energy. The US even has the Strategic Petroleum Reserve following the oil embargos of the 1970s. Much before the 1970s in February 1945, President Franklin Delano Roosevelt met with Saudi King Abdulaziz ibn Abdul Rahman Al Saud onboard the USS Quincy in Great Bitter Lake in the Suez Canal. Onboard the ship, FDR negotiated a deal that would shape world politics well into the 21st century. The deal guaranteed access to Saudi oil for the US in the post-World War II era in exchange for security of the kingdom. This security relationship would lead the US to come to the defense of the Kingdom of Saud in 1991 after Iraqi President Sadaam Hussein invaded neighboring Kuwait. The following war set the stages for upcoming conflicts during the Global War on Terrorism era across the region.
Without a doubt, the priority of the US in protecting its access to raw materials used for energy, and by extension industry and the economy, is well documented. Much like Britain, the US used both its domestic supply of raw materials and later foreign supplies to fuel its economic and industrial growth and the dominance of its military.
Sanctions on What?
The dominance of the US in global finance and in the creation and design of technology products and systems led the US to find a new arrow in its sanctions quiver. If the US could restrict access to the global financial system through restricting access to banking institutions like SWIFT or cutting off the supply of US dollars, it could impose its power without the use of traditional military hardware. The model has proven effective in several areas while its efficacy in others is debatable. The restriction of financial access was followed by the restriction of access to technological products such as highly advanced semiconductors. In 2021, President Biden imposed sanctions on Huawei and ZTE to restrict their access to exactly these products. The lack of access to these materials by many accounts was economically devastating to the two Chinese companies leading many to believe that the ability to restrict access to technology was yet another arrow in the quiver.
Let’s not forget that the enemy gets a vote. And that vote could lead to the punch in the face that causes the plan to look a lot less desirable.
The US is the world leader in semiconductor design, but not in semiconductor manufacturing. TSMC in Taiwan is the leader in manufacturing while the Dutch company ASML leads in the technology required to etch microscopic patterns on silicon wafers. So, while the US has significant dominance in designing the chips that are later made by TSMC with the aid of ASML, its own ability to manufacture chips is limited. There is real money and real value in the design side of semiconductors, and it puts the US in a favorable position in the semiconductor market, so much so that it was able to cut off supplies to two Chinese companies even though it does not actually build them.
The same is true for other types of technology such as advanced optics, solar panels, and fiber optic cables. The US is a significant consumer of these products and many of its companies design them. These products also require germanium while gallium is required for semiconductor production.
Neither of which the US has access to domestically in quantities that matter.
While the US found ways to impose new sanctions over the past decade using what it is best at, China is taking another path. It is countering the US sanctions on finished products such as semiconductors with its own sanctions on the raw materials that are required to make those finished products. The idea is to neutralize the efficacy of sanctions on finished semiconductors by cutting off the US’s ability to get the raw materials required to build them in the first place. This move by China is timed to coincide with announcement of US onshore semiconductor manufacturing as a result of the CHIPS and Science Act. As the US is beginning to pour billions of dollars into its chip manufacturing and research domestically, China is announcing that it will cut off its supplies of gallium and germanium. The result of this potential punch in the face could be that the facilities built with US taxpayer money are either not able to compete with global manufacturing or may find themselves without the supplies of raw materials they need to run at full capacity. In either case, this could be an important development that could result in spiraling economic sanctions in 2025.
Raw Versus Finished
If China is able to effectively neutralize one of the most effective arrows in the US sanctions quiver, they will set a global precedent that will cause ripple effects around the world. The world has already witnessed Russia attempt to sanctions-proof its economy in the wake of the 2014 invasion of Crimea in preparation for the 2021 invasion of mainland Ukraine. The idea was that if Russia was not dependent on many of the financial institutions that the US would use to apply pressure, the pressure would be reduced. Furthermore, went the logic, Russia’s ability to bring in revenue from energy exports would balance the book. This remains to be seen as European powers have sought to wean themselves from Russian energy, but the strategy was sound.
In 2025, China’s strategy may be an updated and upgraded version. Neutralize US sanctions by countering their ability to have significant influence in critical technology components. This could be achieved by the cutoff of gallium and germanium supplies announced in December 2024. The news passed without much concern by more Americans, but history suggests this may have been a significant event after all.
Cutting off access to raw materials could be the move that causes the US to have to rethink its sanctions strategy, it could also be much more than that. The US will certainly seek supplies of gallium and germanium elsewhere, which leaves the efficacy of the Chinese strategy in doubt. However, it would be a mistake to think that the US will not respond to this in a significant way given the potential downside domestically and abroad. It remains to be seen whether sanctions on raw materials or finished products will be the most effective. History tells us that limits on access to raw materials causes countries to make moves globally. It also tells us that countries with domestic supplies of critical raw materials are able to achieve extraordinary things economically, diplomatically, and militarily. A feature of 2025 may be how this next move by China impacts US actions at home and abroad. It will also determine whether this was the punch in the face that throws the plan right out the window.
Check out the original article: “The Revenge of Raw Materials” at Frontier Foundry!
