PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Shane Sethi, Jonah Allen and Ian Lange

February 12, 2026

EXECUTIVE SUMMARY

Semiconductors are the foundational components of modern technology; integrated circuits (ICs), which are complex layers of interconnected semiconductors, now dominate global semiconductor trade and underpin most high-value electronics. The geographic center of semiconductor manufacturing has shifted from the U.S. and Japan to East Asia. Taiwan and South Korea lead in advanced IC fabrication, while the U.S. retains dominance in design, research, and equipment manufacturing.

Recent efforts to address supply chain vulnerabilities and rebuild domestic manufacturing depend on a stable and secure supply of critical components; China currently dominates the production and refining of critical upstream inputs. Two critical minerals in particular, germanium and gallium, have been targets of export restrictions and are the most supply-sensitive inputs for compound semiconductors, used in high-frequency integrated circuits, defense optics, and solar technologies.

Both minerals are recovered as byproducts and represent “thin” global markets. Potential G7 recovery capacity is significant compared to demand, but interventions are needed to support production, which will face a steep premium versus production in China.

Governments should adopt precision, not scale, focusing on firm-level partnerships and technical investment support that enhance recovery capacity while minimizing new distortions. Coordinated G7 action targeting specific alumina and zinc refineries could materially reduce dependency on China and strengthen semiconductor supply chain resilience. Support mechanisms should focus on targeted interventions such as capex grants, concessional loans, offtake agreements, and price-stabilization mechanisms that are better suited to address investment and demand uncertainty.

BACKGROUND: THE GLOBAL SEMICONDUCTOR MARKET

Semiconductors are like the nerve cells of modern technology; when layered into integrated circuits, they function like densely interconnected neural networks that power everything from smartphones to supercomputers. There are several types of semiconductors – each designed for specific purposes – and for advanced use applications, they are usually layered as integrated circuits (ICs) (see Table 1).

Source: Jain Family Institute and Payne Institute for Public Policy
Table 1: Types of Semiconductors and Their Uses.

Unlike other semiconductors that can perform only one task at a time, an IC can execute multiple tasks with a high degree of complexity. Layering semiconductors in this way reduces the amount of external connections and components required, thus allowing for a more efficient product, reduced size and cost, and fewer external connections. The invention of flat-screen televisions was enabled by the development of ICs, for example.

The physical structure of integrated circuits is much more complex than single-function semiconductors. An integrated circuit is built on a silicon wafer and contains millions of interconnected components, including transistors, resistors, and capacitors. ICs range from small-scale to ultra-large-scale integration, encompassing anywhere from about 10 transistors to more than 10 million transistors on a single “chip.” Their fabrication involves a series of highly precise processes that transform purified silicon into densely patterned functional devices.

ICs now represent the lion’s share of global trade in semiconductors, and trade value has grown significantly in parallel with the increasing “smartification” and connectivity of the physical world (see Figure 1). 

Fig 1: Global Trade in semiconductor devices and integrated circuits since 1995

As IC technology has advanced, packing exponentially more transistors onto smaller chips, the geographic center of manufacturing has shifted away from the United States and Japan (see Figure 2). While the U.S. continues to dominate in design, research, and equipment manufacturing, it now plays a relatively minor role in fabrication and export. The most advanced manufacturing capacity is concentrated in Taiwan and South Korea, where firms such as TSMC and Samsung have specialized in high-volume, high-yield production. This regional concentration reflects decades of cost optimization, ecosystem clustering, and strategic industrial policy that prioritized manufacturing precision and scale; the U.S. has increasingly outsourced production in favor of higher-value design and intellectual property segments of the supply chain.

Fig 2: Global trade value by country in integrated circuits since 1995.

The U.S. role in the manufacturing and export of “semiconductor devices” is now even smaller than in ICs, due both to the geographic concentration of advanced manufacturing and China’s industrial policies targeting solar manufacturing (see Figure 3). The trade category for “Semiconductor devices” includes not only discrete electronic components but also photovoltaic and photo-sensitive devices used in solar energy applications. This composition biases China’s export share upward. Still, the broader trend highlights that the center of gravity for both conventional semiconductor production and newer semiconductor-related technologies has shifted decisively toward East Asia. At the same time, the U.S. has increasingly focused on upstream design and equipment segments of the value chain, making supply vulnerable to geopolitics and trade policies.

Fig 3: Global trade value by country in semiconductor devices since 1995. Note that “Semiconductor devices” trade code captures discrete electronic components as well as photovoltaic and photo-sensitive devices used in solar energy applications. It does not include semiconductor devices that are layered into more complex “integrated circuits” (Figure 2), commonly referred to as “chips.”

Due to these vulnerabilities, the United States is aiming to rebuild domestic manufacturing of semiconductors, especially advanced chips that are critical to defense and AI applications. This push is being operationalized through a mix of industrial policy and firm-level investments—most notably the CHIPS and Science Act of 2022, which provides the Department of Commerce $52.7 billion over five years (including $39 billion in manufacturing incentives) alongside a 25% Advanced Manufacturing Investment Credit to lower the cost of fab buildouts. Major “reshoring” commitments are already underway: the U.S. Department of Commerce is advancing plans for large CHIPS awards supporting expansions by Intel (across multiple U.S. sites) and new U.S. capacity by TSMC and Samsung Electronics, while TSMC reports that high-volume production at its Arizona facility began in late 2024. In 2025, CHIPS funding was deployed across logic, materials, and packaging segments, with direct awards to Hemlock Semiconductor and HPI Federal, alongside expanded support for advanced packaging and high-purity inputs to strengthen defense-relevant supply chains.

Rebuilding a strong manufacturing base for integrated circuits depends on a secure and stable supply of upstream inputs – especially critical minerals and the wafers fabricated from them. Every stage of semiconductor manufacturing, from wafer production to chip packaging, relies on a suite of small-market minerals such as gallium, germanium, high-purity quartz, and others. Yet China dominates the recovery, refining, and midstream processing of many of these commodities, creating a strategic vulnerability: while semiconductor fabrication itself is geographically concentrated in East Asia, much of the mineral and material foundation that feeds it is even more tightly controlled by China. Understanding which minerals are most essential to semiconductor manufacturing, and which face the highest supply vulnerability, is critical to any effort to strengthen U.S. and allied semiconductor supply resilience.

MINERALS CRITICAL TO SEMICONDUCTORS

Of the several minerals used to manufacture semiconductors and integrated circuits (see Table 2), gallium and germanium are among the most supply-sensitive, reflecting both their concentrated production and the geopolitical tensions surrounding their trade[1]. These elements are produced almost exclusively as byproducts of aluminum and zinc refining, with China controlling most global refining capacity (see Table 4). As a result, relatively small policy changes, such as targeted export restrictions, can create outsized disruptions to downstream industries that depend on high-purity gallium and germanium for advanced chips critical to defense technologies such as fiber-optic systems and infrared optics. Both minerals have been central targets of Chinese export controls since 2023.

Source: USGS: Key Minerals in Data Centers Infographic
Table 2: Minerals Critical to Semiconductors

Gallium and germanium are primarily used in gallium arsenide (GaAs) and gallium nitride (GaN), which underpin applications in telecommunications, power electronics, infrared optics, fiber optics, and advanced sensors.

China produces approximately 98% of the global gallium supply and 88% of the global germanium supply; dominance has been fueled by government intervention. Beijing mandated its rapidly expanding aluminum producers to install the capacity to extract gallium. Between 2005 and 2015, China’s production of low-purity gallium surged from 22 metric tons to 444 metric tons, a nearly 2000 percent increase. This move flooded the market and forced producers in the United Kingdom, Germany, Hungary, and Kazakhstan to shutter their operations.

China has used its dominance to its advantage in global policy negotiations. The most recent example came in 2023, when China restricted exports of gallium and germanium. The move by the Chinese Ministry of Commerce came just one day after the U.S. Bureau of Industry and Security amended the Export Administration Regulations by adding 140 Chinese entities to the Entity List.

GALLIUM ARSENIDE WAFER MANUFACTURE

Gallium arsenide (GaAs) wafers are manufactured through an intricate crystal growth and fabrication process requiring extreme purity and precision. Production is highly concentrated in Asia – particularly China – where most large-scale wafer fabrication and processing facilities are located, though some U.S. and European firms maintain design or R&D operations (see Table 3).

The single wafer manufacturer headquartered in the US, AXT Inc., maintains that all production is conducted in China. In Beijing, the company performs indium phosphide crystal growth and wafer processing. In Kazuo, it carries out gallium arsenide crystal growth, and in Dingxing, it processes both gallium arsenide and germanium wafers. AXT also owns a subsidiary, Tongmei Xtal Technology Co., Ltd., located in Beijing. In 2023, when China imposed restrictions on gallium and germanium exports, AXT had to navigate the necessary legal and commercial requirements to resume shipments of gallium arsenide and germanium substrates to certain customers. Additionally, AXT recently announced plans to list Tongmei on the Shanghai Stock Exchange.

Source: See Appendix B
Table 3: Ga Wafer Manufacturers

 GALLIUM AND GERMANIUM EXTRACTION

Gallium is not mined directly but is recovered as a byproduct during the processing of bauxite and, to a lesser extent, zinc ores. In alumina refineries, gallium accumulates in the Bayer liquor, which is used to dissolve alumina from bauxite. Because the liquor is continuously recycled in a closed loop, small amounts of gallium that enter with each batch of bauxite build up over time until concentrations become high enough to extract economically. Recovery is typically achieved through chemical precipitation, solvent extraction, or electrolysis, separating gallium from the sodium aluminate solution. To be suitable for industrial application, the extracted gallium is then refined further into high-purity metal.

Bayer liquor concentrations typically range from 30 to 80 parts per million (ppm), though long-running circuits and bauxite ores particularly rich in gallium can reach 200–300 ppm. The original bauxite feed generally contains 10–80 ppm gallium, but some Chinese and Kazakh ores exceed 100 ppm. Once concentrations in the Bayer liquor surpass about 80–100 ppm, extraction becomes economical.

Bauxite is produced globally and several countries could enable future gallium production (Figure 4).  

Source: the Jain Family Institute’s (JFI’s) mineral market dashboard utilizing data from S&P Global (which is missing recent data for Guinea and China)
Figure 4: global bauxite production over time

Germanium is recovered primarily as a byproduct of zinc and coal processing. In zinc smelting, germanium is concentrated in the flue dust that forms during the roasting of zinc ores. This flue dust is then leached with acid, and germanium is extracted through solvent extraction or ion exchange before being reduced to germanium dioxide (GeO₂), which is then further refined into metallic germanium. In coal operations, particularly from lignite (brown coal), germanium can be recovered from fly ash or flue gas condensates produced during combustion. Germanium also becomes concentrated in flue dust formed during the roasting of sphalerite in zinc smelting, where content can reach 0.1–0.5% Ge (1,000–5,000 ppm) from ores originally containing 50–150 ppm.

In coal systems, particularly lignite, germanium content averages 200–500 ppm, though some German and Chinese deposits exceed 1,000 ppm. After combustion, fly ash retains 100–500 ppm Ge, while flue gas condensates can contain up to 1,000 ppm. Recovery is typically economical when germanium levels exceed 200 ppm, with extraction achieved through acid leaching, solvent extraction, or ion exchange.

Although Gallium is mostly recovered as a by-product of refining aluminum from bauxite, it can also be extracted from the processing of Zinc ores or zinc-smelter residues. However, because gallium concentrations in zinc feedstocks and residues are extremely low and recovery requires complex, energy-intensive hydrometallurgical steps, the economics of zinc-based extraction are generally unfavorable, making it much less common than aluminum-based gallium recovery. The same is true for extracting germanium from bauxite/alumina feedstocks.

Zinc is produced globally and several countries could enable future germanium extraction (Figure 5).

Source: JFI’s mineral market dashboard utilizing data from S&P Global
Figure 5: global zinc production over time

GALLIUM AND GERMANIUM SOURCING POTENTIAL

Specialized minerals markets such as gallium and germanium are incredibly thin. Further, the United States does not usually import these minerals in their primary form; rather consumption tends to be “embedded” in downstream products. In 2024, the US only imported 12 tons of gallium and 36 tons of germanium, but nearly 200 tons of gallium arsenide (GaAs) wafers, which are used to manufacture compound semiconductors for integrated circuits.

Markets are small even when considering embedded consumption. The USGS valued U.S. imports in 2024 at roughly $4 million for gallium metal and $140 million for gallium arsenide (GaAs) wafers, with no domestic production; germanium metal and germanium dioxide were estimated to be $50 million. For comparison, the estimated value of iron ore production in the U.S. alone was valued at $5.5 billion in 2024 and the copper content of U.S. production was valued at $10 billion.

The largest producers of refined gallium are CHALCO and Zhuhai SEZ Fangyuan Inc; both companies operate bauxite/alumina refining facilities with gallium capture technology. The biggest germanium producers are Yunnan Chihong Zinc & Germanium Co., Ltd, China Germanium Co., Ltd and Yunnan Germanium[2] (see Table 4).

Source: See Appendix B
Table 4: Global Gallium and Germanium Production Capacity in Tons Per Year (tpy)

Several promising projects could help the United States establish a more secure supply chain with a lower risk of disruption. For Gallium, in Germany, there is a planned production capacity involving the company Dadco Alumina. Its AOS Stade facility has historically produced gallium but suspended operations in 2016. In 2021, it was announced that the plant would be brought back online; however, production has not yet resumed. In Australia, Alcoa announced a Joint Development Agreement with Japan Australia Gallium Associates, a venture between Sojitz Corporation and Japan’s JOGMEC. If all goes as planned, a final investment decision is expected by the end of 2025, with production slated to begin in 2026. The goal is to produce more than 55 tons of gallium per year by 2028.

In May 2025, Rio Tinto and its new partner, Indium Corporation, successfully extracted their first primary gallium as part of a joint research and development project. The ultimate goal is to produce 40 tons annually in Quebec. This initial step was completed at Indium Corporation’s research and development facility located in Rome, New York (see Table 5).

Source: See Appendix B
Table 5: Announced Gallium Capacity Additions in Tons Per Year (tpy)

Additionally, there is a proposed funding plan by EXIM to finance Atalco Gramercy LLC, located in Gramercy, Louisiana, with $450 million to build a gallium expansion at its bauxite refinery. As of writing, there is no indication of the projected production volume.

For germanium, in August 2025, Korea Zinc, the world’s largest zinc smelter, signed a Memorandum of Understanding with Lockheed Martin, the world’s leading defense company, for the supply and procurement of the mineral and for cooperation in the critical minerals supply chain. Korea Zinc plans to invest approximately KRW 140 billion in its Onsan Smelter in Ulsan to establish a new germanium plant. Following trial operations in 2027, the company aims to begin production in the first half of 2028, with plans to produce high-purity germanium dioxide equivalent to approximately 10 tons of germanium metal.

In addition to announced gallium and germanium capacity growth, we estimate potential additional co-production capacity of gallium and germanium capacity based on bauxite/alumina and zinc refineries in operation. Table 6 below thus shows potential targets for strategic support within the G7 according to standard conversion factors[3].

Source: See Appendix B
Table 6: Potential Gallium and Germanium Co-Production Capacity in G7 Countries in Tons Per Year

INTERVENING IN GALLIUM AND GERMANIUM MARKETS

Countries are increasingly willing to intervene in mineral markets to counter existing market distortions that challenge national and economic security or development objectives. Policymakers have a broad range of intervention strategies to choose from; at the same time, the geological, chemical, and market dynamics unique to each mineral necessitate that policymakers choose from this strategy set very selectively. Interventions can cause further market distortions and have varying levels of success, so the costs and benefits of strategies need to be weighed carefully. 

Mineral market interventions generally take two forms: supply-side measures that seek to enable more production, and demand-side measures that shape consumption or stabilize prices to create more predictable conditions for producers. The impact of a specific intervention strategy can vary in scope (the number of firms affected by the policy) and depth (government exposure to a firms or projects) (see Figure 6 and Table 7).

Strategies that have a broader scope or higher depth do not imply more effective interventions. For thin markets with high security concerns, such as gallium and germanium, it may be more effective to target a few promising producers with firm-or project-level support than a broader, more passive tax-based strategy. Further, while equity stakes are a “deeper” exposure as the government is essentially a strategic investor in the firm, firms may prefer a concessional loan, as debt can be harder to secure and can be more flexible than equity.

To that end, state participation in production through state-owned mining companies or joint ventures is very high in depth and should be considered with extreme caution, as the government is taking a significant risk. These strategies should also be less applicable in G7 country contexts, where significant industry and specialized knowledge exist, and policy objectives focus more on national and economic security than development goals.

For markets like gallium and germanium, the most effective interventions are those that stabilize prices, guarantee demand, and offset investment risk on a small scale. Thin byproducts markets will benefit from market intervention strategies that (i) offset the costs of capital expenditures necessary to recover and refine the commodity and (ii) provide demand-side certainty such that their investment and production do not crash market prices[4]. For example, concessional loans and capex grants are effective in addressing constraints in capital investments. Meanwhile, direct government offtake, or more indirect support that stabilizes price for producers, such as a floor price or contract-for-difference (CfD), is effective in providing security of demand. Further, for commodities with defense applications, pairing offtake programs with a strategic stockpiling program may be advantageous.

Source: Jain Family Institute and Payne Institute for Public Policy
Table 7: Mineral market interventions strategies and their fit for gallium and germanium markets. Darker green = higher fit. 

Importantly, passive strategies like tax incentives are not a good fit for gallium and germanium supply concerns because they rely on market responses that are unlikely to materialize in thin, price-insensitive markets where investment decisions hinge on guaranteed demand or direct cost offsets rather than incremental tax relief. However, if policymakers are still interested in pursuing tax relief strategies or including them in a more comprehensive approach, it is most advantageous to consider incentives that address the high cost of capital or the higher costs of domestic procurement – such as investment tax credits for refinery upgrades or content-based credits that reward the use of domestically sourced gallium and germanium in downstream manufacturing (see Table 8).

Source: Jain Family Institute and Payne Institute for Public Policy
Table 8: Tax incentives and their fit for gallium and germanium markets. Darker green = higher fit.

Ultimately, addressing supply risks for gallium and germanium requires precision rather than scale. Because these are thin, byproduct-driven markets, broad incentives are unlikely to shift production or investment behavior on their own. When firm- or project-level support is required, governments should choose instruments carefully and ensure that intervention design draws on strong technical, financial, and market expertise. Targeted measures grounded in a sound understanding of refining processes, byproduct economics, and demand chains are far more likely to strengthen supply resilience without introducing new distortions.

Appendix A: Facility-Level Data on Gallium and Germanium Production and Potential Capacity

Appendix B: Sources for Company and Facility Analysis of Current, Planned, and Potential Capacity

[1] While other byproduct metals such as indium share similar production pathways, indium has received less policy attention due to its smaller market size (approximately $1 billion) and more diversified upstream production base, including meaningful output outside China. Indium is therefore not treated as a focal supply-chain risk in this report. Also, in contrast to previous reports, this analysis does not focus on silicon, which, while foundational to semiconductor manufacturing, is not as supply constrained. The United States benefits from a stable domestic source of high-purity quartz from the Spruce Pine mine in North Carolina, supporting electronic-grade silicon production and mitigating exposure to concentrated foreign supply.

[2] Yunnan is likely extracting from germanium from coal and China Germanium is extracting from zinc smelters.

[3] Potential Ga captured (t/yr) = Alumina output (t/yr) × bauxite-per-alumina ratio (2.5) × Ga in bauxite (ppm) (50) × % Ga leached to Bayer liquor (70%) × Ga recovery efficiency (30%) × 10^-6.
Potential Ge captured (t/yr) = Zn metal (t/yr) ​​× Ge ppm (120) × fume frac (90%).× recovery (70%) ×10⁻⁶

[4] This a key concern in thin markets and has been emphasized to the authors by firms with the potential to recover gallium and germanium.

ABOUT THE AUTHORS

Shane Sethi, Graduate of the Mineral and Energy Economics, Colorado School of Mines
Graduate of the Mineral and Energy Economics program at the Colorado School of Mines. He currently works with startups in the mining and metals sector and previously spent several years in financial institutions.

Jonah Allen, Vice President & Lead Researcher for Minerals for Development, Jain Family Institute
Vice President & Lead Researcher for Minerals for Development at the Jain Family Institute. Ph.D. in Mineral and Energy Economics from the Colorado School of Mines, focusing on equitable benefit-sharing in critical resource extraction and trade.

Ian Lange, Professor, Economics and Business, Colorado School of Mines
Ian Lange is the Viola Vestal Coulter Chair of Mineral Economics at the Colorado School of Mines. Additionally, Ian serves as Chair of the U.S. Commodity Futures Trading Commission’s (CFTC) Role of Metals Markets in Transitional Energy Subcommittee. He is a member of the Colorado Governor’s Revenue Estimating Advisory Committee. Previously Ian has served as Senior Economist for Energy at the Council of Economic Advisors for both the Trump and Biden administrations as well as spending time at the U.S. Environmental Protection Agency and the U.S. Department of Energy.

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