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Thursday, October 21, 2010

Red earth strategy

NY Times reporting some worrying trade intelligence:

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities. They said Chinese customs officials imposed the broader shipment restrictions Monday morning, hours after a top Chinese official had summoned international news media Sunday night to denounce United States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of diverse products including large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies do.

China’s commerce ministry has repeatedly denied that it has imposed an embargo on shipments to Japan, even though Japanese ministers and industry executives say the shipments to their country have been systematically blocked by Chinese customs officials since Sept. 21.

This could develop into the type of trade barrier that went up in the 1930s. The last round of US emargoes on Japan - for example - plunged Asia into WWII.

Currently the supply lines of oil and gas and food and raw materials like wood and iron are fairly secure and open with multilateral agreements and the WTO framework to assist resolution on the political side - all things that did not exist in the 30s and 40s. Embargoes of these basic products unilaterally introduced by one country but not supported by neighbours will have little effect in this day and age. The only areas where these trade weapons can register an effect is in rare commodities such as those Inner Mongolian mines inside the People's Republic of China.The Chinese government was retaliating against Japanese territorial marine skirmishes and now is retaliating against the Americans proposing to punish them for currency manipulation. It is as if they are trying to find reasons to do this. They are flexing their muscles and seeing what the reaction will be: market price movements, hoarding activity, new prospecting etc. they are not risking much in running an unofficial type of embargo and it forces the other countries to show their hand.

Officials at the media relations office of China’s commerce ministry did not respond all day Tuesday to e-mail or to telephone calls, seeking confirmation of the expanded embargo.

A few rare earth shipments to the West had been delayed by customs officials in recent weeks, industry officials said, but the new, broader restrictions on exports appear to have been imposed Monday morning. They said there had been no signal from Beijing of how long rare earth shipments intended for the West would be held at the docks by Chinese customs officials. Nor is it clear if occasional shipments are still being allowed out of the country, or if all shipments have now been suspended.

Word of the blocked shipments emerged from industry executives on Tuesday after, earlier in the day, an official China newspaper reported that Beijing planned further reductions next year to its annual export quota for rare earths.

American trade officials announced last Friday that they would investigate whether China was violating international trade rules by subsidizing its clean energy industries.

The problem with this sort of jostling is it promotes tit-for-tat ad hoc responses that escalate and the result is overall less world trade and in the short term distorted prices and a general insecurity of supply from which NZ will not be likely to be able to benefit and will probably be adversely affected despite our FTA with China.


At 21/10/10 12:13 pm, Anonymous Anonymous said...

"The last round of US emargoes on Japan - for example - plunged Asia into WWII."

Righto, some evidence for this pretty sweeping statement please - when...where...timeline?

Bomber blames the US for the Soviet invasion of Afghanistan...but long lasting Japanese aggression and imperialism being blamed on US Sanctions...evidence please!

At 21/10/10 1:12 pm, Anonymous Anonymous said...

@Anon 12:13

The US put an embargo on gasoline and a bunch of other metals being sent to Japan, to hinder the Japanese war with China.
The Japanese then had to search further afield to find the fuel and metals they needed, namely with Germany and Italy, and by occupying Northern Indochina.
When the British and Dutch joined the oil embargo, Japan was cut off from Southeast Asian sources of raw materials as well.
With only a two year supply of petrol left, Japan either had to give up it's war with China or secure its own resources. When negotiations with the Us failed, Japan declared war on the USA.

Since the US were trying to halt the Japanese from an aggressive war with China I don't think they were specifically in the wrong for denying raw products to Japan. But war was definately the final result.

At 21/10/10 6:49 pm, Anonymous Anonymous said...

Tim, I think you have the wrong idea about these 'rare' metals since they are not rare at all but take a high degree of capital investment to extract and the extraction process is dirty which is why mines have closed in developed countries but opened up in developing countries - like Vietnam.

While retaliation for the maritime dispute may ostensibly seem the reason for China's embargo this again is untrue. What China really wants is to have the higher value processing relocated to China to create jobs.


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