China Halts Shipments to U.S. of Tech-Crucial Minerals
From LiveScience by Jeremy Hsu
A nasty trade dispute appears to have prompted Chinese customs officials to block shipments of rare earth minerals to the U.S.
The move underscores a deepening U.S. vulnerability because of its dependence upon China for tech-crucial rare earth minerals (also known as rare earth elements). Small but significant amounts of the minerals go into creating everything from PCs and cellphones to wind turbines and hybrid cars, as well as U.S. military technologies such as missile guidance systems.
This latest news came from three rare earth industry officials cited by the New York Times. The officials spoke on the condition of anonymity for fear of backlash from China.
China currently controls about 97 percent of rare earth production.
…
U.S. rare earth companies have begun looking to reopen old mines and search for new deposits, but industry experts say that relaunching an independent U.S. supply chain could take 15 years.
The latest Chinese action follows a similar move last month, when China halted shipments to Japan during a political dispute over Japan’s arrest of Chinese fishermen. Among the affected Japanese companies was Toyota, maker of the popular Prius hybrid cars which incorporate the rare earth element neodymium, among others.
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So the big green quandary is: Prius, or practice what you preach and do without?
Addendum – This license plate I photographed on California’s Interstate 5 back in 2008 may prove prescient:
I was surprised by the number of Gung Ho posts on this thread.
Usually, in trade wars there are only losers.
I am not a political animal and I have the utmost distain and contempt for politicians and their ilk. I know that this is not a desirable characteristic, but I just can’t help it when you see that politicians have no real regard for orinary people and are unaffected by their own policies (which usually shaft ordinary people) and appear in the game simply for what they can get out of it. Politicians have far less power than they think that they have, and in general are only capable of changing things for the worse, not for the better.
Leaving my gripes aside, I consider that it would be prudent to lead China (nudge her in the right direction) not confront China. All of this reminds me of the observation by Napoleon Bonapart:
“There lies China sleeping, let her lie for when she awakes the world will tremble”
James Sexton says:
October 22, 2010 at 4:55 am
“Whether the [Chinese] have or haven’t isn’t really the issue.”
Surely crying wolf is an issue here? There is no crisis, and no likelihood of one unless the politicians get stirred up into doing something even stupider than usual.
“The alarmists have put the U.S.(and many other nations) in a position quite similar to U.S.’ position with OPEC. All in the name of a Quixotic venture they were told wouldn’t work to begin with.”
Not really. It takes a continuous flow of oil to keep the home fires burning (so to speak). Even a temporary embargo would hurt quite a bit. But the cessation of imports of products containing rare earths would have essentially no immediate impact. The windmills would keep turning, the hybrids would keep running, consumer electronics would keep functioning. The construction of new windmills and the sale of new hybrids might stall, but that could only be a problem (if at all) over the long term (though, in fact, it would probably be beneficial, since less capital would be wastefully invested).
“The question isn’t whether China did or didn’t do anything, the question is why have people intentionally put us an a position to care?”
Because buying from China is cheaper, and paradoxically more secure than relying upon domestic supplies (given the political realities). China won’t stop selling, because that would be tantamount to committing suicide, and, unlike some of OPEC, they are no longer ideologically driven. They may still be notionally communist, but in practical terms they are now less communist than Obama or Cameron. That said, I do think that selling off strategic reserves is foolish; every country should keep emergency supplies in case of war.
“Surely crying wolf is an issue here? There is no crisis, and no likelihood of one unless the politicians get stirred up into doing something even stupider than usual. ”
I’m not at all certain that anyone’s crying wolf. First, yes, there is no “embargo”, but what the Chinese did was cut export quotas of REE to the ROW (rest of world).
You can read about that in many places, here’s one from down under:
http://www.theaureport.com/pub/na/6821
And it makes perfect sense at this time for China to do this. It virtually ensures continued success for their manufacturing base, especially in the area of windmills, batteries, and EVs, all of which are in relatively high demand right now due to the ridiculous energy policies put in place by much of the industrialized nations.
Want to buy a hybrid/electric vehicle? Sure…no problem, as long as you buy a Chinese car that was manufactured in China, using China’s resources and labor.
And if I were an economic advisor in China?…I’d be advising exactly the same thing, and laughing all the way to the bank…and then I’d continue to lend the money I made BACK to the U.S., cuz it’s such a great investment!
Sounding sort of like the “company store” scenario? 😉
“16 tons, and what do you get?”
Oh, the irony…
JimB
Our economic relationship with other nations has muted warlike tendencies on all sides. That is why we spend so much time worrying about trifling variations in climate, which is the new outlet for our aggressive tendencies.
JimB says:
October 22, 2010 at 7:15 am
“I’m not at all certain that anyone’s crying wolf. ”
Then you haven’t been reading this thread!
“First, yes, there is no “embargo”, but what the Chinese did was cut export quotas of REE to the ROW (rest of world).”
Yes, but so what? That’s the natural consequence of the growth of their own manufacturing industries. Which in turn is a natural consequence of the fact that they’re producing those goods more cheaply than anyone else is doing. Which in turn is a natural consequence of the fact that they’ve invested the capital to produce them more cheaply. Which in turn is a natural consequence of the fact that China is now a less communist country than the US. That’s not a crisis; it’s the market doing what it’s supposed to do.
“And if I were an economic advisor in China?…I’d be advising exactly the same thing, and laughing all the way to the bank…and then I’d continue to lend the money I made BACK to the U.S., cuz it’s such a great investment!”
It’s not a great investment. It’s a trap the Chinese are caught in, because the US produces relatively little that they actually want, yet they have to do something with all those dollars. In the longer term they should be looking to a less export lead economy, in which their own domestic demand is dominant and they can afford to let the US crash; but at the moment, they can’t.
Didn’t we (the USofA) do the very same kind of thing to a country or two back in the 1930’s? What goes around sure does seem to come around, don’t it? Now how was that resolved way back then? I can’t remember, anyone have a clue?
Yet another question – Can we get any of that ‘rare earth’ stuff out of all those land fills we got?
It’s worth while clicking through the LiveScience link to the original NYTs story, and there are many comments there, some quite insightful.
A point made here and by NYTs commentators is that restrictions on supply by China will lead to greater production in the US and elsewhere, sort of an Econ 101 conclusion.
That may be true if China’s economic advantage is relatively small. However if they have a large advantage in production costs they are in a similar situation to us as OPEC: As a low-cost monopoly supplier they can, as entrepreneurs attempt to develop highly capital-intensive new supplies, with long time to production projects, drop prices back until new competitors are forced out of capital markets or bankrupt.
Then China, like OPEC, is in a position to restrict supplies or raise prices again.
There are tariff, subsidy, and trade policies that could be adapted to deal with strategic economic enemies like China and OPEC, but that would require at least partial abrogation or renegotiation of trade agreements and US political leaders who were willing to take a long view and resist corporate importer and green interests.
We’re in the early stages of a trade war. Who knows where it’ll end up…
(Actually, some would argue that the trade war’s been going on for decades, just at a low level — and it’s’ heating up’ a bit).
Relying on China for critical resources is a recipe for conflict.
Now that’s funny!
What are the odds that “Obozo” would do that?
Don’t confuse rare earth elements with rarely found elements. RREs are pretty much everywhere. It’s a matter of who can mine and refine it the cheapest and that in turn is dependent on how willing you are to exploit the labor force and pollute the environment around the mines. China doesn’t lead the world in exploiting its labor force and disregard for polluting the environment but it has far less of those concerns than the United States.
This is not a strategic concern. California between 1960 and 1980 was the world’s largest producer of RREs and it was only shut down when China flooded the market with lower cost RREs. California mines can be back in production within a year if there’s any strategic need for them and there are undoubtedly many other sources in the contenental US and Alaska if anyone were to bother looking for them.
China is very limited in what damage it can intentionally or even unintentionally inflict on the United States lest the US choose to default on dollar denominated debt or inflate its currency until the debt service is essentially worthless (which China fears will happen anyway with continuance of US government printing Obamabucks like there’s no tomorrow). It’s an economic Mexican stand-off.
Oh?
I think that protectionism is the best idea since
bag milksliced bread and I am Canadian.Charity begin at home and environmental stewardship too. Respect the need and worth of having the rest of the world to take care of itself as well.
This why what’s called dumping or predatory pricing is proscribed by international law and enforced through the World Trade Organization even though it runs counter to fundamentalist free trade. It’s often a precurser to the formation of monopolies which are also proscribed in direct contravention to fundmentalist free trade. Capitalism and free trade are not things that work well without some constraints to keep things like dumping and monopoly formation to a minimum.
Dumping is essentially defined as the selling of any product below its cost of production in order to force other sellers out of the market. With China and the US it becomes difficult to demonstrate in many cases. The production cost of RREs in the US is constrained by things like minimum wage, OSHA regulatory burdens, EPA regulatory burdens, and so forth. China’s cost of production would be essentially the same as US cost of production if China imposed the same regulatory burdens. Personally I believe in import tariffs designed to level the regulatory burdens and would force China to either exit the market or stop exploiting its labor force and polluting the environment in order to keep a share of the US market for those goods. That applies to a great many countries which have large markets in the US. Unfortunately there are far too many others with NIMBY (not in my back yard) syndrome happy to have access to inexpensive goods so long as the labor and environments exploited to reduce the price are not United States citizens or territory. Thus the United States was happy enough to let the RRE operations in California be forced to shut down while the supply was replaced by much cheaper imported RREs from China.
China is playing hardball. My company got hit with an anti-dumping suit last year in China. It has really affected our business.
War has been historically the political answer for a failed political system.
In Korea, we (Americans) lost about 35,000 KIA. China lost well over 1,000,000 KIA.
China could easily afford to lose 10 million KIA, as they have an excess population and have essentially a dictatorship, whatever term is used politically. Could our present society lose 350,000 KIA and remain a “free” nation (which the US isn’t all that much of anymore)? That would be 40% more than America lost KIA during WWII, which was in reality, a near thing for the Allies.
Free enterprise has almost been entirely destroyed here in the US (I was alive and cognizant and of a working age when the US still had that quaint concept. took advantage of it when I was a lad of no more than 8 years old.) I, by the way, was a hard working farm boy back in WWII.
China is, in fact, playing hard ball as MattN says, and it would seem to me as if no one at our federal government, particularly at the State Department, knows how to play that game anymore. Puff-balls at 20 feet would be more like it, for the fools we have put in charge of our government.
But back to the “science” part. When did our colleges and universities stop teaching the fundamentals of physics and chemistry? When was it that fundamental rules of basic arithmetic were abandoned?
As an aside, I had occasion to drive past that new and magnificant highway bridge over the Colorado River just south of Hoover Dam a couple of days ago. It sure was nice to see that at least some civil engineers know what they are up to.
Seeing the levels of economic illiteracy present in this comment thread is seriously disheartening. The prevalence of mythological thinking is nearly complete.
1) Myth The U.S. doesn’t make anything anymore.
Fact The value of U.S. manufacturing output is no. 1 in the world and equals the output of the BRIC nations(Brazil, Russia, India, and China) combined.
2) Myth U.S. corporations are heartlessly exporting all our jobs overseas.
Fact A study of 2500 U.S. corporations over a decade from the early 90s to the early 00s did show them adding 2.8 million jobs offshore, but it also showed them adding 5.5 million jobs in country, a nearly 2:1 ratio. While the prospect of lower cost labor entered into the decision to outsource, the onerous tax, regulation, and litigation environment in the U. S., created by the the same politicians and activists that seek to use the outsourcing to demonize capitalism, was as much or more of a factor in the decisions.
3) Myth China is taking advantage of us by manipulating the Yuan to make their exports to us cheaper( a favorite of the boneheads in the Administration)
Fact By selling us stuff cheap China has been providing us a bigger subsidy than they have through their purchases of T-bills. The money we save on cheap Chinese products is available for more productive uses and allows a better standard of living than we could otherwise afford.
4) Corollary Myth WalMart is the Great Satan
Fact WalMart has done more for low income people than all the deadhead leftists politicians since the Founding of the country all together. The inflation rate for lower tier items that lower income people purchase has been less than the comparable rate for upscale purchases. WalMart has contributed significantly to that fact. When they announced $4 generic prescriptions, virtually the entire pharmacy industry was forced to follow suit. They have been a leader in the move to retail health clinics, which are providing routine medical procedures at rates which even people without health insurance coverage can afford. Employee surveys over the years show that their workers are more satisfied than the employees of their major competitors. The main reason that, despite millions spent to demonize them, the unions have made no headway in organizing their workforce. The pols in Chicago have been fighting their attempts to open stores there for years, despite the strong desire of the population for the stores to be built. Apparently on the theory that it’s better that they have no job, than that they go to work for WalMart.
There is much more , but this rant has run out of steam.
David Jones: “You really do not want to contemplate what would happen to the US economy (and the rest of the G20 economies) if China dumped all their US Treasury holdings.”
Neither do the Chinese. After two generations of Marxism, they forgot one of the oldest axioms of Main Street (constantly updated for inflation): “Borrow a million, the bank owns you. Borrow a billion, you own the bank.”
The disruption of rare earth mineral exports by China, potentially, is just the tip of the iceberg or a canary in a coal mine.
This is a signal from China and preview of more possible actions to come.
(There are numerous other issues where China could take action adverse to American interests.)
Question, does America respond by belly-aching and doing nothing, or does America take concrete steps in the face of this provocation?
Now, taking concrete steps does mean opeing with an all out trade-war, but it does mean stepped-up diplomacy with the prospect of slowly tightening trade policy if the diplomacy is ignored by China.
Likely, China will not take American diplomacy seriously until some concrete step is taken.
(There are numerous possible actions which could constitute a “first step” to demonstrate American diplomacy is serious and not just lip-service or window dressing designed to placate the American electorate.)
And China’s reaction to this “first step” will be where the “rubber meets the road”, and reveals China’s true intensions, whether China wants to negotiate seriously with America or secretly holds America in contempt.
If China holds America in contempt (this is an open question), then China will economically lash out at America.
Identifying & defining the intensions of your rival, competitor, enemy?, is the first step to effective strategies vis-a-vis that nation.
One thing is for sure, the present status quo is not sustainable for America’s relationship with China — unless you want to see (or don’t care) China assume dominence over America…it’s that simple.
Big oops!
“Now, taking concrete steps does mean opeing with an all out trade-war…”
Correction, should read: “Now, taking concrete steps does NOT mean opeing with an all out trade-war…”
My apologies.