China Strikes Back

From Bloomberg:

Pentagon Loses Control of Bombs to China Metal Monopoly

A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security.

China in July reduced rare-earth export quotas for the rest of the year by 72 percent, sending prices up more than sixfold for some elements.

“The Pentagon has been incredibly negligent,” said Peter Leitner, who was a senior strategic trade adviser at the Defense Department from 1986 to 2007. “There are plenty of early warning signs that China will use its leverage over these materials as a weapon.”

China may already be flexing its muscles amid a diplomatic spat with its East Asian neighbor Japan. China last week imposed a “de facto” ban on exports to Japan of the metals used in liquid crystal displays and laptop computers, Japanese Economy Minister Banri Kaieda said Sept. 28. That followed Japan’s detention of a Chinese fishing boat captain whose ship collided with two Japanese Coast Guard vessels. Japan later released the man.

While two rare-earth projects are scheduled to ramp up production by the end of 2012 -- one owned by Molycorp Inc. in California and another by Lynas Corp. in Australia -- the GAO says it may take 15 years to rebuild a U.S. manufacturing supply chain. China makes virtually all the metals refined from rare earths, the agency says. The elements are also needed for hybrid-electric cars and wind turbines, one reason supply may fall short of demand in 2014 even with the new mines, according to Kingsnorth of Imcoa.

Also from Bloomberg:

China Says U.S. Yuan Legislation Will Hurt World Economy

China said a measure passed by the U.S. House of Representatives yesterday aimed at pushing up the value of the yuan will hurt the global economy if it becomes law.

The House of Representatives voted yesterday for a measure that would let domestic companies petition for duties on imports from China to compensate for the effect of a weak yuan. China said the legislation would do nothing to cut the U.S. trade deficit and only risk harming growth. The Senate won’t take up its version until after the November election, said Senator Charles Schumer, a New York Democrat.

Comments:

Very serious problems for the US have developed with the latest move in China. Rare earth mineral prices are increasing by leaps and bounds. Supplies are restricted as China controls over 95% of all presently mined neodymium and other rare earth elements.


The major creditor of the United States is using rare earths as a hammer to strike back after being accused of being a currency manipulator.
All China needs to do to further punish us is to also stop refinancing US short term debts in the bond market.  Then we would learn the meaning of this ancient proverb:

The rich rules over the poor, and the borrower is the slave of the lender.   Proverbs 22:7