Wednesday, May 29, 2019

Will China Play The Rare Earth Card In The Trade War?

The rumor that China might play its "rare earth card" was the rumor today that helped push down both stock and oil markets according to a variety of reports.  The trigger for this seems to have been a visit on May 26 by China's president, Xi  Jinping, to a rare earth facility, along with some rumbling statements associated with that visit.  They may not do it, but the possibility of blocking exports to the US of exports of rare earth metals shows that China has potential weapons if Trump follows through with more vigorous trade barriers.  How serious is this threat?

It is probably not as serious as it might  have been a decade ago.  In 1990 a solid majority of these critical elements were produced outside  of China, with the US being a major source, particularly California.  But production here and in some other nations such as Australia was reduced substantially as mining of many of these involves substantial environmental damage.  At the same time China entered the opening and expanded production, getting to be the source of about 90 percent of all production by 2010.  However, due to events then increased efforts to increase production of them elsewhere, especially Malaysia, Australia, and South Africa, has reduced this to 70 percent.

In 2010 China used the weapon against Japan.  A Chinese fisher was captured by Japanese forces when he  entered a zone controlled by the Japanese but claimed by China.  As the Chinese demanded release of the fisher, they halted exports of several of these metals used to produce electric cars. The Japanese gave up and returned the fisher.

There are 17 of these recognized rare earth elements, although it is often noted that they are not really all that rare.  Some of the more important ones are neodymium,  which is used in lasers and in magnets used in wind turbines and electric motors, yttrium used in superconductors, lanthanum used in cameras and telescope lenses, cerium used in catalytic converters, yttrium used in superconductors, gadolinium used in TV screens and MRIs, and praseodymium used in aircraft engines.

An irony of this situation is that these rare earths are used in technologies that are important to move us off dependence on fossil fuels towards more sustainable energy sources, such as wind and electric cars.  This may be a serious limit to long run growth. It is ironic that this may be getting caught up in a stupid trade war staged by our president against China.

Barkley Rosser


Anonymous said...

Excellent and important essay by BR.

Anonymous said...

May 29, 2019

U.S. risks losing rare earth supply in trade war

BEIJING -- Waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength.

China produces a majority of the world's rare earths, chemical elements that have magnetic and luminescent properties and are used in a range of consumer products and electronics.

While rarely heard, the rare earth elements are the materials that help light up your smartphone, make X-rays possible and ensure the safe use of nuclear reactors.

As the world's biggest supplier of such materials, China has always been upholding the principles of openness, coordination and sharing in developing its rare earth industry.

While meeting domestic demands is a priority, China is willing to try its best to satisfy global demand for rare earths as long as they are used for legitimate purposes.

"We are happy to see that the rare earth resources and related materials can be used in making all kinds of advanced products that help better satisfy the demand for a good life of people from around the world," said an official with the National Development and Reform Commission.

However, if anyone wants to use imported rare earths against China, the Chinese people will not agree.

By making unilateral moves to contain technological development of other countries, the United States seems to have overlooked one fact: the international supply chain is so intertwined that no economy could thrive on its own.

According to the U.S. Geological Survey, from 2014 to 2017 the United States imported 80 percent of its rare earth compounds and metals from China....

Anonymous said...

Notice that along with President Xi was Vice Premier (economist and trade negotiator) Liu He:

May 20, 2019

Xi Jinping makes inspection tour in Jiangxi

Anonymous said...

What was made clear by the United States from the beginning of the setting down of trade "demands" in early 2018, was that the intent was to stop technological advance and so development in China. The Chinese have negotiated properly to reach a mutually agreeable trade platform with the US but have always understood and prepared for the resulting difficulty from the intolerable demands:

May 4, 2018

U.S.-China Trade Talks End With Strong Demands, but Few Signs of a Deal
By Keith Bradsher

May 4, 2018

Trump is asking China to redo just about everything with its economy
By Heather Long - Washington Post

Barkley Rosser said...

Trump has no coherent trade strategy, which reflects his massive ignorance about trade. Signs of this are his insistence o nviewing bilateral trade balances as measures of "who is winning, who islosing," along with his ongoing insistence that it is foreigners exporting to us who pay for our import tariffs on their goods. This leaves him open to oscillating between crazies like Lou Dobbs and Peter Navarro and somehwhat less crazy people like Lighthizer and Mnuchin, with all sorts of long time free traders like Kudlow trying to justify his incoherent and shiftingpolicies.

Anonymous said...

Yes and no, you are right about President Trump and an incoherent trade strategy but on China the objective of the president and advisers is to stop the technology advance of China and in so doing so China's development. The administration objective so far is to ruin China, but that will not be accomplished.

The Chinese leadership understands.

pgl said...

Yttrium mine production worldwide from 2010 to 2013, by country (in metric tons)

The chart tells the story as China produced almost all of the world’s production for yttrium.

Barkley Rosser said...


I think you are ascribing too much coherence to Trump's strategy. He has a lot of goals, including protecting mid-tier US manufacturing as well as pushing US ag and broader power plays. The intellectual property and "stopping China's technological advance" is only part of it, and even on that he has not had a consistent strategy. Lots of economists and politicians have supported defending US intellectual property rights, and a lot of national security types worry about Chinese cyber and military technology, but his attack on Huawei is bringing a lot of people eut who say this is going to damage US tech firms.

A clear sign of his incoherence is his withdrawal from the TPP, which was organized fundamentally as an anti-Chinese grouping. He is now struggling to go it alone, with nobody helping him, especially as he picks trade fights with some of the TPP participants (which is going on along on its own without the US) who might be sympathetic, such as Japan and even South Korea, although he did cut a minor deal with the latter at the time he was still threatening fire and brimstone on North Korea, realizing it might not be wisw to be having a trade war with a likely ally in a possible shooting war that would devastate that ally.

Anonymous said...

A fine and necessary response, for which I am grateful. I will save this post and your responses.

Anonymous said...

Well, BR:

May 30, 2019

Trump Threatens Mexico With Tariffs to Stop Flow of Migrants

The president said he would use tariffs to punish the country over undocumented immigrants crossing into the United States.

The 5 percent tariff on all imported goods from Mexico would begin June 10 and gradually increase.

Anonymous said...

BR is right; such is "policy"

May 30, 2019

U.S. threatens sanctions against European allies for trade with Iran: report said...

I may post on this Mexican business, but this is really seriously nuts. Trump is demanding that Mexico stop all the illegal migration going across the US border. This is impossible. This tariff of Trump's is to rise by another 5 percent each month the Mexicans do not do it. This is going to trash all kinds of supply chains and will hurt lots of US economic interests.

Anonymous said...

Paul Krugman @paulkrugman

So I wake up in my undisclosed location to see fresh policy madness. I think this needs some unpacking to appreciate just how wild it is. 1/

Trump Says U.S. Will Hit Mexico With Tariffs to Stop Flow of Migrants

President Trump said he would use tariffs to punish the country over undocumented immigrants crossing into the United States.

The 5 percent tariff on all imported goods from Mexico would begin June 10 and gradually increase.

12:08 AM - 31 May 2019

Leave the economics on one side, and consider the supposed legal justification. U.S. trade law gives the president huge discretion to impose tariffs, as long as he is willing to make bizarre claims – i.e., Canadian steel threatens national security 2/

But imposing tariffs without Congressional approval to serve goals that have nothing to do with trade policy – in this case, an immigration crisis that exists only in his mind – goes well beyond even the brazenness of his previous actions 3/

So he's claiming justification under the International Economic Emergency Powers Act, which he claims basically lets him do anything he wants in response to anything he declares to be an emergency. I don't see any limits under this interpretation 4/

Could he, for example, impose punitive tariffs on Swiss watches because Swiss newspapers run cartoons that make fun of him? Why not? 5/

OK, the economics: What we import from Mexico are a lot of consumer items, especially food items, plus Mexico is a key part of the supply chain in various manufactures, especially autos. So this would hurt U.S. consumers and also hurt competitiveness of U.S. companies 6/

So this would be stagflationary: higher inflation plus lost jobs. Industry would howl. Also very nasty for U.S. farmers if Mexico retaliates. Plus we are, of course, throwing away any remaining credibility as a negotiating partner. 7/

Do I disapprove of Trump's methods? I don't see any method here. This is policy by tantrum, autocratic and irrational at the same time. I don't know whether it's about Mueller, or the likely release of some tax information, or whatever. I do know that the GOP will do nothing 8/

Anonymous said...

Barkley Rosser was of course right in analysis of this chaos of trade policy from the beginning. I did not understand the lack of coherence, the chaos that characterized it. Even as mere threats, there will be lasting domestic economic damage done I fear.

Again, thank you Mr. Rosser.

Anonymous said...

The absence of coherence to the trade policy of this administration makes me even more afraid of this unprincipled administration. Not just the president, but the administration that reflects the purposes of the president is simply scary in ruthlessness. (So much for trying academic analysis, I realize.)

Anonymous said...

May 30, 2019

Trump’s Metals Tariffs Did Not Revive American Manufacturing

There are few signs of the industrial renaissance the president promised from taxes on steel and aluminum imports.

Anonymous said...

The US has even attacked Rwanda, yes, on trade in used clothing:

May 31, 2019

Trump’s Trade War and Its Many Fronts

Mexico, China, Europe, Canada: The White House’s various conflicts add up to a broad assault on a postwar effort to build economic ties around the world.

Anonymous said...

Yes, used clothing and Rwanda and this ever-threatening administration:

October 12, 2017

For Dignity and Development, East Africa Curbs Used Clothes Imports
By Kimiko de Freytas-Tamura