China ready to hit back at U.S. with rare earths
reuters.com
reuters.com
Secondly, these "rare earths" aren't actually rare, most mines were simply shut down because they weren't competitive with China. The Chinese deliberately drove the price of various materials into the ground in order to gain a monopoly (a security risk I think the West should have seen coming). A local example of this was Sheffield steel.
Thirdly, if the cost of such materials was to rise significantly, hopefully it would have the affect of removing planned obsolescence being built into products. A mobile for twice the price might make people hold onto their mobile devices a little longer before upgrading, for example. Hopefully we can also get modular devices popular again with planned upgrade paths, rather than the glued-together mess we currently deliver.
Which not inaccurate.
U.S. propaganda is the mostly the opposite of this. We’re supposed to be an invincible freedom juggernaut who the whole world loves, including the poor, oppressed people of Iran/North Korea who generally love America [actually true in Iran, from what Persian friends tell me] and just want some drone-delivered democracy.
The reality is of course somewhat different.
This is a cliche problem with these "great power" games. On one hand, neither side can publicly "bend." OTOH, public statements and/or implications that "we'll make them bend" are politically popular.^
Concessions are only possible when the volume of disputes are muted. Once they become national pride issues, or leaders put their own image on the line.... At that point, it's no longer about commodities or tariffs or whatnot. It's about winning.
^China is not a democracy, but that does not mean they don't have politics or that public perception is less important.
There's no long term view, China has quite a few things they can use to pressure the US and it will be stupid for them not to use those.
It's a self-harming game and the first one to bend will lose it. The longer US tarifs stays, the more some US companies that depends on those imports will be in trouble. China has plenty of cards to go the same route, controlling a huge part of the western companies production system. It feels to me that this is just a first card, and there's some more damaging ones to both China and the US to come.
And to be honest, with the current US behaviour, between this and Iran, the only thing it achieve is that most of the world will want to be as independant as possible of the dollar in the future
It wants China to give the same market access as it enjoys in other countries in the world, including regulating and treating foreig companies as its own companies are treated. Also, IP theft.
It also seems that in contrast to what you say, other countries are setting up to move away from China, to Vietnam, say.
I wonder what recourse the CCP really has.
No country or bloc has a truly free market. Even the EU has rules preferring and protecting indigenous companies. Criticising China alone is just hypocrisy.
Quite stupidly the US picked a trade battle with Canada and the UK/EU before going after China. Trump's administration had the termidity to call Canada a security threat while the air defence of the US mainland's second in command is a Canadian General.
Now that it makes people unhappy in the US, I get it, it's a different mindset. But as much as the US has the right to disagree with China's policies and vision, China has every right to disagree with the US one. The US government as every right to try to protect its market but China has every right to fight back.
What exactly does that mean?
As living standards in China rise, cost of manufacture in China was bound to rise. The Chinese have been preparing for this for quite some time. They have started automation and have begun an ambitious plan of infrastructure lead development called BRI and countries like Italy has signed up to join the project.
> I wonder what recourse the CCP really has.
I would assume plenty. China can slowly start dumping US treasuries and stop buying more. China can sanction US companies like Apple operating in China. China can start bilateral trade agreements with other countries and use it's financial clout to demand de-dollarization and move international trade to a more neutral currency like the IMF SDR. China can buy more oil from Iran. China can invade Taiwan. China can refuse to honor sanctions against North Korea etc
> They have started automation and have begun an ambitious plan of infrastructure lead development called BRI and countries like Italy has signed up to join the project.
Well the move away from China is not because of costs, but because of politics. Especially companies here (EU) are very worried about the IP theft and protectionist actions. Except if you are Mercedes or BMW, China is likely to copy your product and then push you out of the domestic market through government regulation, at least that's what I hear. Italy is special. On the one hand, its domestic politics. On the other hand, how meaningful can such an agreement truly be with an EU country?
> China can slowly start dumping US treasuries and stop buying more.
They already do that. But since this strengthens the yuan, isn't there a limit? So far, it did not seem to affect the US very much.
> China can sanction US companies like Apple operating in China.
While China is becoming an important market, it is a luxury market segment so I think Apple would survive. On the other hand, this would probably see all other companies leaving China very rapidly. I think this is the most realistic outcome, but I'd see China losing in the long run.
> China can start bilateral trade agreements with other countries and use it's financial clout to demand de-dollarization and move international trade to a more neutral currency like the IMF SDR.
What effect should that have except decrease Chinese exports and an increase in US exports? The EU does not do real aka meaningful trade agreements bilaterally. Anglo-Saxon countries would neither. For all other countries, China has been trying to expand its influence since the last five years, at least. They have had success in Africa, but have gotten a bad reputation from it.
> China can invade Taiwan.
I don't see that happening. If Japan, Korea and the US would defend Taiwain's sovereignity, that war would be over very quickly. And with Trump, would you really want to gamble?
> China can refuse to honor sanctions against North Korea
That is true and we have seen Trump trying to fix the NK situation for that reason. However, I feel like the impact would be rather small. I think we have seen that Kim does not really want nuclear weapons just because. If Trump would have lifted sanctions, he'd probably get rid of them.
I guess I shold have asked whether there is any recourse which would damage the US more than China.
> then escalated
The trade war had already started years before it was declared. China has been strategically taking down Western industries and forcing dependence on them. It was only a matter of time something like this would happen.
> what do you expect China to respond?
Either way this will end the same way, both Countries will have to come to some agreement. The only choice is when. China has had an advantage for quite some time and has gotten away with quite a lot (economic trading status, debt traps, stealing of IP, etc), if they struck a fair deal with the US I'm sure they would write it all off.
This administration had gone great length to convince China what it wants is not just trade, it wants a surrender from China to address its own confidence crisis with itself. And of course, the bill will be 100% on China.
So it is not a game with economical gain any more, it is the game of great powers, and China needs to have its own Trump card and demonstrate the willingness to deploy it. It doesn't suit their best interests, but as comparing to lose the 'war', it is better to try it than not. Because who knows?
If the current global order isn't something that is maintainable, what is clear to me, China/US won't be the worst off if it no longer exists, because they are so big, the new order or orders will have them play the critical part of it anyway, so they are not afraid to burn it to ground themselves.
> confidence crisis with itself
What makes you think this?
It's a local (to me) example of China undercutting an industry in order to destroy it and replace it. This is how they achieved dominance in some of the "rare earth" material trading industries.
Somehow this reminds me of the line in the movie Darkest Hour [1] ;
When will the lesson be learned? When will the lesson be learned? How many more dictators must be wooed, appeased - good God, given immense privileges - before we learn? You cannot reason with a tiger when your head is in its mouth.
(1) https://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine
https://www.reuters.com/article/us-usa-afghanistan-minerals/...
If the US pulls this sort of erratic crap with one of its major trade partners, others will go look for alternatives too. Yes this will hurt China, but I think you underestimate how hard this would hit the US. This is the next economic crisis in the making, and at least some people in the US government seem to realise this, since the best solution for boosting the economy is going to war. Hello Iran?
This is not China that is at fault, it's the US that's being a little cry-baby.
It didn't work. The south didn't appreciate england's disgust with slavery. England developed other suppliers and found replacements.
Nobody is ever quite as special as they think they are. This goes for all sides.
Tantalum is the real jugular of electronics industry.
You should also note that out of all companies, US went to pressure Panasonic — world's biggest maker of advanced capacitors.
That alone hit Huawei way way more than ban on cellphone socs and mosfets.
You can run away from SoC ban on biggest supplier, mosfet ban by switching to domestic makers, but high spec capacitors... they are a real kill switch.
I don't think we are heading in the right direction but let's assume politicians know what they are doing. (Which often turns to be a wrong assumption and almost always they are safe from the consequences)
The Idea that the US is 'losing' due to the trade deficit and that reducing trade with China will benefit America is utter tosh and even the administration's own trade advisers and negotiators are saying so (a bit more politely).
[1] There are some narrow cases where trade can be harmful, or where national interest could legitimately be served by restricting trade, but that excuse is being used vastly disproportionately in the current disputes.
That line is just spin repeated again and again until people accept it without questions.
The actual issue for the US is the rise of China as a global power that does not answer to them.
That's a question of being willing to comply with Chinese contents-control requirements rather than trade per se. And if they comply they face a huge public opinion backlash in the US...
At the same time, it is understandable that a developing country try to develop its own companies rather than handed its market to US companies... Level playing field and all that ;)
Get outta here with your "China can do nothing wrong".
The problem isn't so much the deficit as it is the way the US has been seduced into relying upon the Chinese industrial machine.
The US industrial base has been depleting for decades. This presents a serious systemic risk - the US relies more and more on Chinese industry which can (and probably will, at some point) be cut off. This will result in massive inflation.
In (neoclassical) theory getting cut off isn't a problem because the market will simply bring all of that industry back to the United States. In practice, the flow of goods can be cut off overnight but an industrial base on a par with the pearl river delta would take at least two decades to build.
Which is pretty good growth, all things considered.
Mini-rant, feel free to ignore:
The alternative perspective which assumes total US industrial domination up to the present day (MAGA/Trump) is quite irrational considering world history: the US had almost no real industrial competition post-WW2 when all the other industrialized countries were either:
* shattered by wars in their homelands
* or completely cut-off from the rest of the world for 50 years...
So the industrial prowess of the US 1950 - 1970 (relative to the rest of the world) isn't coming back, now we're just headed for a normal equilibrium. One in which the US is still doing quite well from an industrial point of view.
It's not clear the US actually needs a huge boost in manufacturing jobs. Historically, attempts to preserve or boost jobs artificially through trade manipulations have had limited success at massively disproportionate costs. Anyway in absolute terms manufacturing jobs aren't exactly low, it's at about the same level as in 1949.
I hope there was a reliable way to simulate the outcomes.
1) Inflation is one plausible outcome.
2) The trade deficit exists due to US (and most of the western world's) appetite for consumption I guess. Let's say if the price of a gadget (or any other product/consumable) I "may need" goes up beyond a certain point then I am not buying OR I am curtailing consumption. How long will that take to result in deflation ?
3) The for-profit companies may decide (but I guess not) to accept reduction in profits ? But then the securities markets will see the downward trend.
Unless there are smart people who can simulate and say which outcome is most likely... it seems inflation it is.
This is not a "neutral" behavior.
And this is different from the past when "every country stole ideas" because in those other instances the "thief countries" weren't generally trading those products with their target.
It's fine to steal ideas if you use it to make your own country better. It's not fine to steal things which you then use to undercut the people you stole from.
No, it also works surprisingly well if everyone is acting rationally but purely optimizing for self-interest.
One such relevant negative aspect of all-out competition is that trade wars between superpowers backed by massive nuclear arsenals poses not only a risk to the world economy but also to our survival as a civilization if not species.
Working together for the common good seems indeed preferable in this case.
But if trust in the effectiveness and enforceability of rules is eroded by nationalist bluster and unreasonable demands (e.g balanced current accounts) then there will be nothing left to go back to.
It will just be power politics forever, and that will degrade the world's economic strength and increase the risk of war.
Mountain Pass CA has a reasonably clean process. Even the Sierra Club approved.
Molycorp built the current plant, but once they got going, China cut the price of rare earth metals. Then, once Molycorp went bankrupt, the price from China went up.[3]
[1] http://www.bbc.com/future/story/20150402-the-worst-place-on-...
[2] https://www.google.com/maps/@40.6383411,109.6903271,3872m/da...
[3] https://seekingalpha.com/article/4184580-new-china-rare-eart...
Take iPhone for example, do you think it would cost less if it was manufactured entirely in the USA (down to the components)?
I would love to hear a counter-argument or example. Thanks.
And cargo ships are large sources of pollution and have substantial tax privileges; the costs are externalized.
Tangentially, if you read the “There’s Too Much Stuff” article that was recently on the front page, there’s plenty of cheap junk I’d love to see priced out of existence.
Anyway, the deeper issues we have are not likely to be solved by global trade and cheaper goods. There are other factors which I’d argue are more important.