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Xi Jinping’s Rare Earth Visit Highlights Weak Spot in U.S. Trade Strategy


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2019 May 22, 2:17pm   457 views  2 comments

by WillPowers   ➕follow (3)   💰tip   ignore  

When Chinese President Xi Jinping unexpectedly toured a rare earth mining facility following the announcement of U.S. sanctions on Huawei, the message was unmistakable: China is prepared to use its domination of raw materials used in virtually all high-tech manufacturing to gain leverage in the trade dispute.

China is the largest supplier of rare earth materials that are used in everything from mobile phones to nuclear power to guided missiles. Xi’s visit highlighted the fact that just as Chinese companies such as Huawei and ZTE require U.S. technology for their products, U.S. technology and national security manufacturers rely on Chinese rare earths.

“Rare-earth metals are essential for producing most technological equipment. It is impossible to build a car without cerium, a smartphone without europium, a guided missile without neodymium,” Silver wrote in a recent Wall Street Journal op-ed.

China has used its near-monopoly power over rare earths in international disputes before. In 2010, amid a dispute over contested islands in the East China Sea, China cut off rare exports to Japan. Japan quickly released a Chinese ship captain it had detained, a move described by the New York Times as “a humiliating retreat in a Pacific test of wills.”

SEE: https://www.breitbart.com/economy/2019/05/21/xi-jinpings-rare-earth-visit-highlights-weak-spot-in-u-s-trade-strategy/

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1   WillPowers   2019 May 22, 2:21pm  

Comment on Brietbart: Incurablewound RockyvsIgnorance:

Rare earths aren’t actually rare.

Lots of countries, including the US, Japan, Brazil, India, and South Africa, have them in abundance. China only controls 80% of global supply because it subsidised its state-owned firms until they achieved economy-of-scale dominance in the same way as it is seen trying to do in other industrial sectors, which has generated the current China backlash. In short, mercantilism–meets-Mr.Magoo-free-markets means Beijing got the whip hand over the industrial global supply chain for a vital input in order to save a few dollars. One sees why it’s time to say goodbye to macro 101.

Indeed, if there aren’t governments planning to massively boost rare earths output in Australia, California, India, Japan, Vietnam, and Brazil, etc., then I will eat my hat. China will soon find that its latest economic ‘super-weapon’ is another dud.
2   SunnyvaleCA   2019 May 22, 2:28pm  

One issue China faces is if they disrupt rare earth production, production will start in other countries. One production starts in other countries, China will never be able to dominate the market again. They'll win a short-term trade skirmish but lose the long-term trade war.

This goes double for manufacturing dominance. Companies are already moving production out of China to cheaper and friendlier countries.

So, I fully expect short-term pain. Hopefully there will be some long-term gain.

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