Print 61 comment(s) - last by anandtech02148.. on Mar 20 at 7:16 PM

Is China playing a clever capitalist or malicious miscreant?

To the victor go the spoils, they say.  But the U.S. isn't happy with China's control of over 95 percent of rare earth metal production.  It's lodged a formal complaint with the World Trade Organization, with President Barack Obama accusing the Asian economic giant of playing dirty.

I. Once the U.S. Was a Rare Earth Leader

The earliest mining of rare earth elements came from placer sands in India and Brazil.  Then in the 1950s, South Africa took the lead with its rare earth containing monazite deposits.  Between the 1960s and 1980s, Mountain Pass mine in California was a leading producer.

Then came the red giant.  China, which owns an estimated third of the world's rare earth deposits, pumped up production in Inner Mongolia in the 1990s, putting price pressure on American and other producers.  It worked.  The Mountain Pass mine was shuttered in 2002, and with it the majority of American rare earth mineral mining.

Neodymium wide
Slowly China came to dominate rare earth metal production, a realm once dominated by the U.S. (neodymium magnets pictured) [Image Source: Doug Kanter/Bloomberg]

But in their quest for ever more-efficient power electronics, electric vehicle makers, flat-panel television makers, wind turbine makers, and solar panel makers all turned to this category of scarce resources.  In short, rare earth minerals suddenly became a prized commodity, just as the U.S. exited the market and China cornered it.

China responded by imposing a 2010 cap on exports, which continued into 2011.  The artificial ceiling limited exports and sent prices soaring, adversely affecting the electronics, alternative energy, and automotive industries.

That pain finally boiled over in the form of the trade complaint filed by the EU, U.S. and Japan last week.

II. Tough Talk

"We met at least a half a dozen times with the other countries that joined us. And I'm not talking about 'howdy dowdy' kind of meetings. These were three and four day-long sessions of going through legal issues," a U.S. official is quoted by Reuters as saying.  "Literally thousands of pages of Chinese language documents needed to be found, translated and analyzed."

Rare Earth miner
Fertile sands: a laborer moves earth at a Chinese company's Inner Mongolia rare earth metal mining facility [Image Source: Stringer Shanghai/Reuters]

U.S. Trade Representative Ron Kirk views this as a case of a fresh player not wanting to play by the rules.  He states:

In fact China adds a small fraction of value to such a product - as reflected in the final price - usually at the assembly stage. China's share is well below 10 percent.  Our businesses, as a general rule, really do believe, and maybe it's that American spirit, let me go compete in the global market and I'll accept that if (my friend) has got a better idea she wins and sometimes I'll win. But you've got to promise me that the deck's not going to be stacked.

I'm not saying you can't have state-owned enterprises. But how do we determine to give my businesses and competitors the sense that they truly are operating as independent market-driven entities?

Ironically the U.S. effort received a boost from a WTO loss to the EU in a complaint about subsidies the U.S. government paid to The Boeing Comp. (BA), a Seattle, Wash. based firm and top aircraft contractor.  The U.S. has an almost identical counter-complaint about EU subsidies to Airbus, a subsidiary of the European Aeronautic Defence and Space Company N.V. (ETR:EAD).

In the WTO complaint, judges set in place new guidelines.  Under these rules, if a nation refuses to reveal information on subsidies (as the U.S. did with Boeing) it will "draw negative inferences" -- assume the worse.  This could be a fatal policy for China who reportedly hasn't published information on any of its subsidy efforts in five years.

III. Is the U.S. Being Unfair?

But some say the U.S. and Europe are being unfair to China.  While China doesn't necessarily have the best environmental track record, expanding rare earth production could damage the Mongolian wilds, as well as put miners' lives at risk.  Also, there is some irony that the U.S. and European authorities are irate at China for playing skillful entrepeneur at driving a hard bargain when it comes to rare earth resources.

Jonathan Fenby, head of China research at Trusted Sources, says that China is a convenient whipping boy for American politicians, stating, "I think that in this electoral season (in France and the United States), China-bashing is on the rise. Hence the action.  China is an obvious easy candidate and it is interesting that in the U.S. the Republicans, normally free traders, have gone for China."

But he warns that the WTO complaints and tough rhetoric may backfire, commenting, "If China hits back, how important is the Chinese market to Western firms, and what is the impact on foreign companies that rely on China for assembly such as Apple?"

iPhone 4S
Pushing China too hard could backfire, particularly for U.S. companies like Apple who rely on the nation to produce their products. [Image Source: PocketLint] 

China isn't above such petty retaliation.  It recently sunk a $12B USD Airbus deal after the EU moved to enforce carbon taxes on it.  With the manufacturing futures of virtually every American devicemaker -- including Apple, Inc. (AAPL) -- on the line, Mr. Fenby argues that America may have more to lose than the Chinese.

Source: Reuters

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: Unfair?
By StevoLincolnite on 3/19/2012 4:45:27 PM , Rating: 3
I think China has the right to do whatever it wants with whatever resources it finds/controls on it's land.
They own it... Not us and you can only dig it up once.

I find it silly how other countries are calling it unfair. Let capitalism take it's course and open up new mines.

RE: Unfair?
By Motoman on 3/19/2012 4:46:48 PM , Rating: 1
I think the idea is that it's being perceived as an anti-"fair trade" kind of concept. China is doing it with the explicit goal of causing harm to other countries' other words, it's actually a malicious act.

Anyway as noted, the market can respond by investing in said resources will take a lot of time and investment, during which time you'll have to play China's game...but a few years (and a few billion dollars) from now you won't have to anymore.

RE: Unfair?
By dsx724 on 3/19/2012 9:02:57 PM , Rating: 2

China warned that the REM's were going to be cutoff because of their vital strategic importance back in 2005. It's silly to accuse China of explicitly causing harm to other countries when the market didn't have the foresight to plan accordingly. I would call it market failure because no one knows what they're doing rather than China's game.

RE: Unfair?
By lightfoot on 3/19/2012 6:21:34 PM , Rating: 2
I think China has the right to do whatever it wants with whatever resources it finds/controls on it's land.

I agree, to an extent. They have the right to not mine the materials if they choose not to (for environmental reasons or any other reason.) However they ARE continuing to mine it and choosing only to sell it to domestic companies.

It would be like if we started building cars and decided to only sell them to English speaking white people. Would that be fair? No. If we chose to simply not make cars that would be one thing, but discriminating against who can BUY them would make it unfair.

That is what China is doing, they are saying who can and who can not buy the product that they are already producing.

OPEC can get away with limiting production of oil. That's fine, they can choose not to extract their natural resources. What they CAN'T do is say that specific people aren't allowed to buy that oil, or that a particular group must pay a higher price. That's why we have the WTO, to prevent embargos from occuring and causing trade (and actual) wars.

RE: Unfair?
By StevoLincolnite on 3/19/2012 6:29:32 PM , Rating: 2
It would be like if we started building cars and decided to only sell them to English speaking white people. Would that be fair? No.

That's bringing race into it which completely changes it.

It would be more attuned to the USA designing and building a car and only selling it in the United States. Which... Funnily enough does happen. :P

RE: Unfair?
By Reclaimer77 on 3/19/2012 9:57:18 PM , Rating: 1
However they ARE continuing to mine it and choosing only to sell it to domestic companies.


RE: Unfair?
By carniver on 3/20/2012 5:11:30 PM , Rating: 2
Gas sold in Venezula is ultra cheap. How is it fair that they don't sell US the same cheap gasoline according to your logic?

RE: Unfair?
By lightfoot on 3/20/2012 5:42:29 PM , Rating: 2
Counter example - we export food to China. Would it be fair if we didn't let them buy OUR food? Or if we charged them MORE for consuming our food than our domestic ethanol producers?

Just because others engage in unfair practices does not make unfair practices fair.

The WTO prohibits such activities, if you don't want to follow the rules, don't join.

If they want to place embargos on us, we should be able to do the same to them.

RE: Unfair?
By Solandri on 3/19/2012 6:52:00 PM , Rating: 4
I think China has the right to do whatever it wants with whatever resources it finds/controls on it's land.
They own it... Not us and you can only dig it up once.

China gave up that right when they signed and joined the WTO.

If every country did whatever it wants, then you'd see high tariffs on all international trade as each country tried to favor its domestic economy. That causes a tragedy of the commons situation, with the worst possible outcome for everyone overall. The WTO was created to combat this, with member countries mutually agreeing to various free trade provisions to avoid the tragedy of the commons.

China is trying to have it both ways. They signed onto the WTO so other countries would trade with it without favoring their own domestic suppliers and producers. Now that they've benefited from other countries letting down their tariffs, they're trying to prevent other countries from getting the same benefit with China.

RE: Unfair?
By torpor on 3/20/2012 12:06:25 AM , Rating: 3
I might add that China strongly pursued WTO membership after bowing out during the Revolution.

They knew well that WTO membership means getting rid of most protective tariffs and behaviors. But China valued clearing such obstacles to modern economies like the US and Europe, and figured they could obfuscate and dodge requirements on them by some of the means cited in the article.

In fact, people sort of expected China to act this way; look here for a prescient run-down of the potential snares.

In fact, it could be argued that the reason Clinton got Chinese campaign money was to decouple human rights improvements from economic relation improvement.

Well, China, low trade barriers are a two-way street. That's why the WTO exists. Welcome to it.

RE: Unfair?
By Strunf on 3/20/12, Rating: 0
RE: Unfair?
By BZDTemp on 3/20/2012 4:07:45 AM , Rating: 2
You do realize that with China it's not capitalism but more a sort of dictatorship calling the shots. Is there capitalism in China - yes, but only as long as it fits with what the rulers want.

For instance China is not beyond to block or hinder business for countries that support a free Tibet, not that it's any different then how other big nations will do their best to use business to influence politics where ever they can.

"Mac OS X is like living in a farmhouse in the country with no locks, and Windows is living in a house with bars on the windows in the bad part of town." -- Charlie Miller

Most Popular Articles5 Cases for iPhone 7 and 7 iPhone Plus
September 18, 2016, 10:08 AM
No More Turtlenecks - Try Snakables
September 19, 2016, 7:44 AM
ADHD Diagnosis and Treatment in Children: Problem or Paranoia?
September 19, 2016, 5:30 AM
Walmart may get "Robot Shopping Carts?"
September 17, 2016, 6:01 AM
Automaker Porsche may expand range of Panamera Coupe design.
September 18, 2016, 11:00 AM

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki