· China's Ministry of Commerce said in a statement Monday night that starting Aug. 1, some exports of gallium and germanium compounds will require a license.

· The move is part of a growing battle for global technological supremacy —— China is the world's largest source of both metals, according to a European Union study of key raw materials this year.

· Eurasia Group analysts say China's move will have little impact on global supply and more of a warning about retaliation options in the U.S. and Europe.

Beijing will impose export controls on two rare elements necessary to make semiconductors: gallium and germanium, in an apparent retaliation for U.S. and European restrictions on chip exports to China.

China's Ministry of Commerce said in a statement July 3 that gallium and germanium will be subject to export controls starting Aug. 1 "in order to protect national security and interests."

Exporters of these raw materials will need to apply for "special permission from the state" to ship them out of the country, the statement said.

What is gallium and germanium?

Gallium is a soft, silvery metal that can be easily cut with a knife. It is commonly used as a compound to produce key materials for semiconductors and light-emitting diodes.

Germanium is a hard, off-white and brittle non-metal used in the production of optical fibers that transmit light and electronic data.

Gallium and germanium are used in a variety of products, including computer chips and solar panels. Both are on the EU's list of key raw materials considered "vital to the European economy.

These export controls are compared to China's reported attempts to restrict rare earth exports in early 2021. Rare earths are made up of 17 elements, and China controls more than half of the global supply.

Gallium and germanium are not among these minerals. Like rare earths, they can be costly to mine or produce. This is because they are usually a byproduct of mining more common metals (mainly aluminum, zinc and copper) and are processed in the countries that produce them.

China is the world's largest producer of gallium and germanium, according to the U.S. Geological Survey. The country accounts for 98 percent of global gallium production, as well as 68 percent of global germanium refining production.

"The economies of scale of China's extensive and increasingly integrated mining and processing operations, coupled with state subsidies, allow it to export processed minerals at costs unmatched by operators elsewhere, allowing the country to maintain market dominance in many key commodities." Eurasia Group analysts said Tuesday.

Shares of Chinese producers of the two raw materials soared 10 percent on Tuesday.

In addition to China, Australian rare earth producers also rose as investors anticipated that Beijing could expand export restrictions on the strategically important minerals. Linus Rare Earths Corporation (LYSCF) rose 1.5%.

Biden Administration Kicks Off Chip War

Last October, the Biden administration unveiled a series of export controls that prohibit Chinese companies from buying advanced chips and chip manufacturing equipment without permission.

Chips are critical to everything from smartphones and self-driving cars to advanced computing and weapons manufacturing. U.S. officials have called the move a measure to protect national security interests.

But things don't stop there. For the restrictions to work, Washington needed other major suppliers based in the Netherlands and Japan to join. They did.

China eventually retaliated. In April, it launched a cybersecurity investigation into Micron Technology and then banned the company from selling products to Chinese companies working on critical infrastructure projects. On Monday, Beijing announced restrictions on gallium and germanium.

China's second counter-sanctions measure

The measure is the latest development in the global battle to control chip-making technology, which is critical to everything from smartphones and self-driving cars to advanced computing and weapons manufacturing.

Jefferies analysts said, "We see this as China's second, larger countermeasure in response to the tech war and possibly a response to a possible tightening of the U.S. ban on artificial intelligence chips." They said the May sanctions against Micron Technology (MU), one of the largest U.S. makers of memory chips, were the first.

The move by Beijing comes just days after the Dutch government announced new restrictions on exports of some semiconductor equipment, prompting an angry response from Beijing, according to Reuters. The new rules mean that Europe's largest technology company, Asmayr (ASML), will need to apply for an export license for products used to make microchips.

Japan and the United States have also taken steps to restrict Chinese companies' access to chips and chip-making equipment. Italy last month imposed several restrictions on Pirelli's largest shareholder, Sinochem, to prevent the Chinese government from acquiring sensitive chip technology.

An editorial in the prominent state-owned newspaper China Daily on Monday suggested that Beijing's new policy was a retaliation for similar moves by Washington and its allies.

Critics of the decision "could ask the U.S. government why it owns the world's largest germanium mines, but rarely exploits them. Or they could ask the Netherlands why it includes certain semiconductor-related products on its export control list," the editorial said.

China's announcement of the new export restrictions coincides with U.S. Treasury Secretary Janet Yellen's visit to Beijing from July 6 to 9. A statement from the U.S. Treasury Department said Yellen will meet with senior Communist Party officials.

Analysts at Eurasia Group noted that China may be the industry leader, but there are alternative producers, as well as available substitutes for both minerals.

The U.S. also imports one-fifth of its gallium from the U.K. and Germany, and buys more than 30 percent of its germanium from Belgium and Germany.

Will there be more restrictions?

If Beijing's moves to control gallium and germanium fail to convince the U.S. to budge, analysts say, it could escalate its response further. Rare earths, which aren't hard to find but are complex to process and also critical to making semiconductors, could be the next target.

Analysts at Jefferies said, "If this action fails to change U.S.-China relations, more rare earth export controls are expected to be implemented."

However, analysts at Eurasia Group warned that export restrictions are a "double-edged sword.

China has tried to take advantage of its dominant position in rare earths in the past, but that has led to a reduction in supply and higher prices. Higher prices have made mining and processing companies outside China more cost-competitive, they say, spurring more intense competition.

In 2010, China cut its rare earth export quotas due to tensions with the United States.

That led foreign companies to ramp up production of the metal. U.S. data show that China's global market share fell from 97 percent in 2010 to about 60 percent in 2019.

Analysts at Eurasia Group said, "The imposition of export restrictions could weaken market dominance."