Is the U.S. Being Unfair in China Rare Earth Complaint? Debate Rages
March 19, 2012 3:55 PM
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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
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.
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,
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
as saying. "Literally thousands of pages of Chinese language documents needed to be found, translated and analyzed."
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
to the EU in a complaint about subsidies the U.S. government paid to The Boeing Comp. (
), 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. (
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
, 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?"
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 --
, Inc. (
) -- on the line, Mr. Fenby argues that America may have more to lose than the Chinese.
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How Rare Earths Can Benefit America
3/19/2012 5:23:04 PM
The irony is that Beijing has literally been pleading with everyone that will listen, that THEY should start up new production and not just sponge off of China's limited resources.
This whole rare earth thing smirks of being 100% politics, and zero common sense.
If access to rare earths (not so rare) is truly the goal, it would be a wonderful opportunity for America to gain a leg up on the other industrial players (such as Germany, Japan, and S. Korea) that are true peer competitors with America. China is still so very much lower on that tech step ladder, its industries are more complementary (rather than competitive) with American manufacture.
WHY is this a good opportunity? China + America can easily control the pricing of Rare Earths. Do a cartel with China and stick it to the other industrial competitors. If processing the ores is too environmentally unfriendly, it can always be subcontracted out to China, with contracts to bring back the refined products (i.e., have the likes of Molycorp export the ores to be processed in China, with agreements to bring back the refined products). Japan and German and S. Korea do not have the ores, and would thus be disadvantaged.
Mining and exporting of the ores provide good jobs (see Australia). The refined rare earth materials (pure metals, instead of radioactive ores), imported at substantially lower prices (vis-a-vis the true peer industrial competitors) and to be processed further into high tech products by American companies in America - now that's a viable industrial policy that takes advantage of the high end expertise of America.
RE: How Rare Earths Can Benefit America
3/19/2012 5:35:33 PM
The most critical is that the cartel arrangement would be the ONLY viable short to intermediate term solution to bring rare earth products at preferential prices to American manufacturers. A WTO action can easily wind through the system and take 3-5 years to finally resolve. NONE of the new mines being reopened, would have real production for another 2 years - even assuming they pass environmental scrutiny.
In contrast, digging dirt and exporting (it is the processed tailings that are radioactive, with mostly thorium) can be done TODAY. The preferential agreement (basically a "lai liao jia gong" (bring materials to process) deal in China trade parlance) could make processed rare earth products IMMEDIATELY AVAILABLE - you ship 100 tons of ores, you get back the equivalent amt. (0.5 ton?) of the refined metals at preferential prices, and that can be done TODAY.
RE: How Rare Earths Can Benefit America
3/19/2012 6:23:36 PM
I don't see the problem with thorium - it can be used for different things and perhaps more uses will crop up.
This is like refusing to grow pumpkins for their seeds just because you're then left with a truckload of pumpkins that can feed the pigs ... Just make best use of everything you can and throw away only as little as you can.
"The whole principle [of censorship] is wrong. It's like demanding that grown men live on skim milk because the baby can't have steak." -- Robert Heinlein
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