Apple chip production unaffected by Chinese sanctions, but things could get much worse

TSMC‘s Apple chip production is not expected to be affected by China’s decision to restrict exports of two key materials, but there are fears that this could change dramatically if the relationship between China and the US continues to deteriorate.

The biggest fear is that China could take the same step with rare earth elements, like lithium …

Things started with the spy balloon

The mess dates back to May, when the US shot down a suspected Chinese spy balloon flying over the country at high altitude. China denied it was spying on the US, claiming that it was a civilian weather balloon that had blown off course.

Debris was later recovered by the US military, which stated that it contained intelligence gathering equipment inconsistent with a meteorological balloon.

China responded by ordering state-affiliated companies to stop buying chips from US company Micron. The Biden administration, in turn, banned sales of US AI cloud services to China.

Chinese sanctions on gallium and germanium

The latest escalation of the diplomatic war between the two countries is that China has announced export controls on two key materials used for chipmaking: gallium and germanium.

Reuters reported yesterday that companies are scrabbling to secure supplies ahead of the August 1 date when restrictions come into force.

Apple chip production not yet threatened

The same source today cites Apple chipmaker TSMC saying that it doesn’t expect its own production to be affected, at least for now.

Taiwan’s TSMC, the world’s largest contract chipmaker, said on Thursday it does not expect any direct impact on its production from China’s decision to restrict exports of two metals widely used in semiconductors and electric vehicles.

“After evaluation, we do not expect the export restrictions on raw materials gallium and germanium will have any direct impact on TSMC’s production,” Taiwan Semiconductor Manufacturing Co said in an emailed statement.

“We will continue to monitor the situation closely,” it added, without elaborating.

But things could get much worse

However, analysts warn that unless the two countries can resolve the dispute, things could get very much worse.

The greatest fear is that China could also impose export controls on rare earth elements – including lithium, vital to worldwide battery production for almost all electronic devices. CNN reports.

The curbs announced this week are “just the start,” Wei Jianguo, a former deputy commerce minister, told the official China Daily on Wednesday, adding China has more tools in its arsenal with which to retaliate […]

Analysts believe this too. Rare earths, which are not difficult to find but are complicated to process, are also critical in making semiconductors, and could be the next target.

“If this action doesn’t change the US-China dynamics, more rare earth export controls should be expected,” Jefferies analysts said.

China is responsible for around 60% of the world’s rare earth materials, and previously imposed restrictions on them in another dispute back in 2010.

Image: iFixit