China's New Economic Threat

With this week topic on the threat the Chinese economy poses to the U.S economy, I would like to bring up what is consider one of the biggest economic threat China poses to the U.S. This would be China’s vast control over critical rare earth resources in the world. China has quietly over the years accumulated control over the world’s rare earth metal supplies and is still making an even bigger push to consolidate even more of Earth supply. These rare metals include scandium, lanthanum, cerium, europium, etc. These elements are used in many high tech components and products. This is especially true of electronic products where they are essential in producing televisions, smart phones, satellites, and ballistic missiles. While they only have 30% of the world supply of rare earth minerals, they have wheel and deal their way to control 97% of the world’s rare earth mineral supply. This is mainly due to China development practices and investment in Africa that has it enabled it to control a monopoly over these resources. China has become Africa’s largest trading partner and bilateral trade rose to $115 billion in 2010. This is due to China’s no strings attached policy when it comes to development aid and massive amounts of aid that has been invested into Africa to develop stronger ties with many African countries. For example China has agreed to build 1,800 miles of railways, 2,000 miles of roads, two new universities, etc. This is in exchange for 11 million tons of copper and 620,000 tons of cobalt over the next 25 years. In the past couple of years China has further tighten the supply of rare earth minerals by implementing rare earth export quotas and by raising export taxes for rare earth exports by 1000%. This has artificially inflated the prices of these goods and with growing demand for electronics could cause the price of electronics goods to rapidly rise.

If the U.S does not take measures to counteract these aggressive business moves by China, the U.S economy in the future will be at the mercy of China. If China continues to tighten its exports it will cause severe shortages for the U.S high-tech economy, which the U.S economy is built around. China has already demonstrated that it is willing to cut its export quota in order to raise prices or to put pressure on other countries. China’s export quota for 2010 was 32,000 tons of minerals and with demand rising to 55,000 it has cut that quota to 25,000. In 2010, China and Japan had a dispute involving a Chinese fishing boat and Japanese Coast Guard vessels over disputed territory. It quickly escalated into a full blown diplomatic fight between the two countries and greatly strained the relationship between the two countries. China in response to this dispute temporarily suspended rare earth mineral exports to Japan to show that they were not to be messed with. This incident clearly shows how China can manipulate the fact that they control the majority of these vital strategic resources, and are not afraid to do so. An incident like this could occur in the future to the U.S if China still controls the majority of these crucial resources that could cripple the U.S. The U.S- China relationship is already severely strain over topics such as independence for Tibet and Taiwan, human rights and environmental standards. The U.S dependence on these resources makes it more complicated and difficult for the U.S to stand up to China in responses to these topics.

The U.S needs to start the process boosting its domestic production of these resources; so that the U.S will have a steady supply for the future. The U.S has a sizeable supply of these resources but the only problem is that it would be expensive and potentially environmentally harmful. While there are potentially consequences for the increase in domestic production, the consequences for not doing so are much greater. In a recent congressional report the DOD was asked if a shortage of these resources is a threat to national security. The DOD respond that yes it would be a national security threat as many of their high tech weapon systems (such as ballistic missiles and drones) depend on these resources in order to function and there are very few alternatives to replace them with. The U.S in the next couple of years must begin to plan to expand mining operations of rare earth elements in the U.S. While they do not necessarily starting mining in the next couple of years, planning and studies of the effects of such mining operations must begin. This way in the future if a crisis occurs or prices for these resources begins to skyrocket, there are shovel ready projects to begin the process of mining.

Molycorps (a company that is one of the largest suppliers of rare earth elements in the U.S) states that one of the reasons why China dominates the industry is because they have more than 6,000 rare-earth technologists compared with only a handful in the U.S. This highlights that the U.S has begun to lose some of its technological prowess in the world because it is falling behind in producing scientists, engineers, and other jobs in the STEM field. For this reason the U.S must put more emphasis in schools and colleges in the fields of science and math, in order to produce more scientific specialists to help the U.S keep its edge. Specifically more funding should be spent on scholarship and training for rare-earth technologists, so that the U.S can continue to compete with China in this section. This way there are more experts available to help plan and organize the mining of rare earth resources in the U.S. They could also be tasked to develop less environmental damaging ways to mine these resources in the U.S.

I would also advise the creation of a U.S rare earth strategic reserve. This reserve would be used in times of emergency in case normal supplies were severely disrupted or even cut off entirely. These supplies would be used to maintain critical advance weapons systems in the U.S that depend on these rare earth elements to function. This would also make it more difficult for China to twist the U.S arm and threaten to cut the U.S off, like they did to Japan. As the U.S would be more prepared to deal with the consequences of this and would be able to effectively deal with the shortage for a certain period of time. This reserve would be similar to the strategic reserve for oil, as it would be the U.S the able to deal with a shortage/emergency for a small period of time. In the same way that U.S reliance on foreign oil is a threat to U.S national security so is the U.S dependence on these foreign elements.

This topic relates to this week simulation of an economic trade negotiation between China and the U.S. While the U.S and China are extremely economically dependent on each other, there are multiple economic issues that threaten the U.S- China relationship. This is one of the economic issues that in the coming years will be a major point of discussion between the two countries. It also relates to the idea of realism because the U.S fears that if China dominates the rare earth element market that it will affect there national security. As they cannot fully trust that China will always trade with them, but must account for the fact that China may cut off their supply. China by having this economic superiority translates to them to having a growing sense of world power. The U.S is wary of China growing global power, and many U.S officials that the next cold war will be between the U.S and China.

The next step in researching the topic of China’s dominance of rare earth elements is to see possible response that the U.S could pose in retaliation. Or would the U.S be able to retaliate at all, due to their economic dependence on China? Also another quandary to ponder is could international organization such as the WTO (World trade organization) get involve to prevent such a trade war from occurring?

Works Citied

Barrett, Raymond. "U.S Rare Earths Miners Would Benefit from Proposed Stockpile." Financial Times. The Financial Times LTD, 4 Nov. 2011. Web. 6 Dec. 2011. .

Powe, Alicia. "U.S. at China's Mercy for Rare Earth Minerals - HUMAN EVENTS." Human Events. Eage Publishing, INC, 13 Nov. 2011. Web. 07 Dec. 2011. .

White, Garry. "Commodites: Chinese Exports of Rare Earth Minerals Fall - Telegraph." The Telegraph. Telegraph Media Group, 04 Dec. 2011. Web. 07 Dec. 2011. .