Will Chinese Actions Trigger A Trade War?

From Bloomberg:

China Reduces Rare Earth Export Quota by 72%, May Cause U.S. Trade Dispute

China, the world’s largest rare- earths producer, cut export quotas for the minerals needed to make hybrid cars and televisions by 72 percent for the second half, raising the possibility of a trade dispute with the U.S.
Shipments will be capped at 7,976 metric tons, down from 28,417 tons for the same period a year ago, according to data from the Ministry of Commerce yesterday.
Rising production of hybrid cars and music players such as Toyota Motor Corp.’s Prius and Apple Inc.’s iPod have driven up demand for rare earths even as China cut the quotas to shore up prices and ensure domestic supplies. The U.S. is looking at building a trade case on the restrictions, industry representatives said last month.
“The rare earths industry officials have realized that, after many years of continued growth in exports, the industry didn’t receive due profit returns,” Liu Aisheng, director of the Chinese Society of Rare Earth, said in an interview by phone from Beijing. “They adjusted the policy to ensure that the resources are optimally utilized.”

The total Chinese export quota for 2010 is 30,259 tons, 40 percent less than the 50,145 tons for 2009, Lynas said in the statement.

Rare earths are a group of chemically similar metallic elements, including lanthanum, cerium, neodymium and europium. They are used in radar, high-powered magnets, mini hard-drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines. China, which accounts for more than 90 percent of the global production, started cutting output and exports in 2006 as prices fell.


The Chinese are is a very strong position compared to the Americans when it comes to control of strategic minerals like rare earths.  With concerns about the safety and longevity of off shore deep drilling, and other unconventional oil sources, wind and solar systems are the most obvious alternatives.

The great Achilles heel the US has in this area is a lack of domestic supply of neodymium for use in electromagnets.  But then, suddenly, an announcement comes out of Afghanistan that they have large undeveloped rare earth deposits.  Odd coincidence that China is squeezing the rest of the world on rare earths while the US "finds" deposits in a country it occupies.  The US - Chinese rivalry for strategic resources appears to be growing.

Although a trade dispute/war idea has been discussed in the media periodically, lately the voices of protest seem to be fading.  An announcement this morning in Bloomberg stated that the US did not think China was a currency manipulator, just that the Yuan was "undervalued".  Is this cooling of rhetoric a signal that the US is more concerned about continuing to finance it's budget deficits than to irritate its largest creditor?