A controversy over a Chinese cutback in the export of "rare earth" minerals has some analysts wondering whether China is now using trade as a weapon against its rivals.
The dispute was triggered last month, when China blocked shipments to Japan in the days following Japan's detention of a Chinese captain whose boat had ventured into Japanese waters. This week, The New York Times cited some industry officials as saying that China has also cut back on rare earth exports to the United States. That report followed China's vigorous objection to news that the U.S. Trade Representative is investigating complaints that China is unfairly favoring its own green industry sector.
State Department spokesman P.J. Crowley told reporters Wednesday that the United States is looking into the report of a cutback in China's rare earth shipments to the United States, but Crowley said he had seen "nothing that substantiates that story at this point."
Linking Trade, Foreign Policy
The report of a rare earths export cutback nevertheless prompted new concerns over the extent to which China may link its trade and foreign policies.
"One of the big questions out there now, with China's greater importance globally, is what rules it is going to play by," says Kenneth Lieberthal, a senior fellow at the Brookings Institution. "The Chinese do have a tendency to use economic and trade policy to achieve not only economic goals but occasionally political goals."
If so, the trade in rare earth metals would be a likely example. Though not truly rare [they are actually found all over the world and in relative abundance], these minerals are mined almost exclusively in China. Their extraction is difficult and dangerous, and other countries have generally left the business to China, which currently provides more than 95 percent of the world's supply.
China Dominates Trade
China's domination of the rare earth market has become more important as demand for the metals has soared. They are used in the manufacture of such products as iPods, wind turbines, batteries, magnets and high-definition television equipment. There may be no better example of a commodity that China has and other countries need.
"It's going to be a tightening market in coming years," says Yukon Huang, formerly the lead economist for Asia at the World Bank. "Production cannot ratchet up very quickly. So China is in a position of saying, 'Well, given the limited amount that I'm going to export, who should I sell it to?' "
The concern is that China will make such a call on the basis of political considerations, as some other countries do with oil exports.
Economic Nationalism?
Chinese officials acknowledge they are cutting back on rare earth exports. They say it's a general policy, in order to preserve those minerals for their own industrial production. But Lieberthal, who served on the National Security Council under President Clinton, says even that explanation suggests that China is engaging in a kind of economic nationalism, because it means it does not trust the global market to provide for its future needs.
"China is effectively saying, 'We're not going to get into that game,' " Lieberthal says. " 'We're going to be self sufficient.' In the past, they said, 'We are a reliable long-term supplier of these rare earth metals,' so there's been a shift in the Chinese perspective here."
To the extent that China cuts back increasingly on its rare earth exports, it will be in a position to pick and choose its trading partners.
A Reliable Trading Partner?
"One could imagine that you're a Ministry of Commerce official supervising the export of limited supplies," says Huang, now at the Carnegie Endowment for International Peace. "You have a choice between serving buyers where you feel the country's diplomatic relationships are strong -- you might be more willing to be flexible in those cases -- and where you have political tensions or problems, you might very well say, 'Well, why should we do anything for you?' "
Such differentiation based on political preferences, however, could taint China's reputation as a reliable trading partner.
"Since the 1970s, we've had a Chinese leadership whose [international] legitimacy has been predicated on continued growth and continued openness and reliable participation in the international market," says Kevin Nealer, a China analyst at the Scowcroft Group. "If those factors are brought into serious question and it looks like politics and economic nativism trump the bet on internationalism, that changes the game."
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