Rare Earth Trade Wars - Finally the Media Catches On

China has halted some shipments to the United States of rare minerals vital to industry due to anger over a US probe, seizing on a tactic first used against Japan, The New York Times said. The newspaper, quoting industry officials, said that China quietly stopped shipments of so-called rare earths earlier this week in response to the US investigation into alleged Chinese subsidies into its green technology sector.
"The embargo is expanding" beyond Japan, the newspaper quoted an anonymous industry official as saying.
Major Japanese and US companies all make use of rare earths, a group of 17 elements in high-tech products from iPods to hybrid cars. China controls more than 95 percent of the global market.
Japanese industry said that Beijing took similar action last month after Tokyo seized the captain of a Chinese fishing boat in waters disputed between the two countries.
Japan eventually released the captain, triggering criticism by some conservative lawmakers who accused Prime Minister Naoto Kan's left-leaning government of emboldening China.
The row over rare earths has led to calls in major economies to diversity away from China, fearing that Beijing will increasingly wield its economic clout for political reasons.
The United States announced Friday that it would investigate charges that China has handed out hundreds of billions of dollars in illegal subsidies in a bid to dominate the fast-growing green-energy sector.
The probe comes after the United Steelworkers union petitioned trade officials to investigate practices it claims contravene World Trade Organization rules and cost American jobs.
China denied the charges and hit back that the United States was also subsidizing green firms. China has also denied any official campaign to restrict exports of rare earths, suggesting that companies acted on their own.

Trade War: China Halts Rare Earth Exports to U.S.

from Zero Hedge:

The latest escalation in the binary version of modern warfare (i.e., that fought with a Bloomberg instead a stealth fighter), comes from China, which the NYT reports has just halted shipment of rare minerals to the US: "China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday." As we disclosed a few weeks ago, prepare for an explosion in various rare metal prices...
More from the NYT:

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle.

“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 denounceUnited 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.

Dudley Kingsnorth, a rare earth market analyst at the Industrial Minerals  Company of Australia in Perth, said that if China adopted a further reduction in export quotas of 30 percent for next year, manufacturers elsewhere could face difficulties.

“That will create some problems,” he said. “It’ll force some people to look very carefully at the use of rare earths, and we might be reverting to some older technologies until alternative sources of rare earths are developed.”

Actually, no. All it means is that a little of all the record liquidity sloshing around is about to make its way to the latest bubble. And for those wondering just what the rare mineral bubble will look like, here is a reminder:

And the narrative we presented in early October:

Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium? With price surges between 250% and 600% in one quarter, you may wish you have. The recent pissing contest between Japan and China, which culminated with a temporary export ban in rare earth metals such as those named above, translated in ridiculous price jumps in some compounds most have never even heard of, let alone traded, yet which would have made not only the year, but the decade for hedge funds invested in them. And with China producing more than 90% of the world's supply of rare earth minerals, coupled with increasing probability of escalating global (and regional) trade wars, it is distinctly possible that the gains recorded recently in gold will be dwarfed by the imminent Samarium Oxide bubble, which 3 months ago was trading at $4/kg and is now over $30.

Again, we were correct. The next move will be higher. Much higher.

Geithner Heats Up Election-Year Trade War Rhetoric

Is there a worse currency manipulator on the planet than the Fed? Just look at the USD! It's devaluation is a direct consequence of Fed policy, both in its artificial suppression of market interest rates and its quantitative easing!

WSJ:

WASHINGTON—China's undervalued currency is triggering an international currency war that risks undermining the global economic recovery, U.S. Treasury Secretary Timothy Geithner said Wednesday.
"When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same, and this sets off a dangerous dynamic," Mr. Geithner said.
He addressed two issues—exchange rates and fiscal strategies—expected to take center stage in ministerial meetings around the International Monetary Fund's annual gathering this week and ahead of the Group of 20 summits in coming weeks.
Mr. Geithner said more countries face stronger pressure over time to resist market forces pushing up the value of their currencies. The collective impact, the treasury secretary said, causes inflation and asset bubbles in emerging economies or else depressed consumption growth.
The U.S. House of Representatives has passed legislation that would slap tariffs on Chinese imports, while the head of the European Central Bank warned that the strong euro was threatening already anemic growth there.

Trade Wars: China Vs. Japan

HONG KONG — Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.
Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loaded aboard ships this week at Chinese ports, three industry officials said Thursday.
On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese Coast Guard ships about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.
A spokesman for the Chinese commerce ministry declined Thursday morning to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the government’s position. News agencies later reported that Chen Rongkai, another ministry spokesman, had denied that any embargo had been imposed.

Obama Picks Trade War With China

This is amazing! Trade wars and retaliations were one of the factors that worsened the Great Depression. Now, Obama is making the same mistake again!

from Bloomberg:

The Obama administration plans to step up enforcement of trade laws against nations, such as China and Vietnam, that help subsidize companies exporting cheap goods to the U.S.
The U.S. Commerce Department developed 14 proposals to crack down on illegal import practices and require parties to pay the full amount of any duties, according to a statement today. The process to adopt the plan, which the department said is especially aimed at countries where the government has control over markets, will begin later this year.
"Generally, this is targeted at China, and China will see it as such," said David Spooner, a former Bush administration official now a trade lawyer with Squire Sanders in Washington who represented Chinese companies in a tariffs disputes. "The aim is to raise the price of goods from China."
The plan is part of the administration's effort to double exports in the next five years to spur job growth, a goal President Barack Obama set in his State of the Union speech in January. Doubling exports would help support 2 million new jobs, the administration said.
"This is a very important move on the part of the administration," said Dan DiMicco, chief executive officer of Nucor Corp., the largest U.S. steelmaker. He said the U.S. also needs to resolve issues tied to the yuan because China's currency is undervalued by as much as 60 percent.
"Before American manufacturers get out of bed in the morning, they're already at a 40 to 60 percent disadvantage," DiMicco said in a telephone interview. "As long as we continue to let them get away with it, they'll keep doing it."
China Meets Obligations
DiMicco, a member of an administration advisory panel on manufacturing issues, said the today's proposals are consistent with recommendations from the group.
"China is now a market economy country and the Chinese enterprises conduct business with foreign enterprises in accordance with its obligation upon joining" the World Trade Organization, said Wang Baodong, a spokesman for the Chinese Embassy in Washington. "Foreign countries should not in any way set up obstacles to normal economic cooperation and trade between China and foreign enterprises."
The proposals would end the practice of letting individual foreign companies seek an exemption from extra duties if they show they weren't dumping or receiving subsidies during a certain period. Under the plan, companies would have to wait for the normal country-wide expiration of the duties.
Cash Vs. Bond
Also, importers would have pay a cash deposit to continue bringing products into the U.S. during an investigation, instead of being able to post a bond for the estimated duties owed. The department said that, in the past, that estimate was too low.
The measures will give U.S. companies "a more certain sense that the injury they believe they've had because of unfair trade practices can be addressed," said Ronald Lorentzen, deputy assistant secretary for import administration, which enforces laws tied to unfair trade acts.
Some changes will align the U.S. with practices followed by other countries and deal with issues the department has seen in past cases, he said. Comment from the public will be sought before the changes take effect.
Another proposal would alter how the department determines a country's wage rate, which is used to calculate whether products are being sold in the U.S. at artificially low prices.
ITA Effectiveness
The proposals are designed to improve the effectiveness of the International Trade Administration, which investigates whether foreign companies exporting products to the U.S. are receiving unfair subsidies from their home countries or flooding U.S. markets to undercut American businesses.
The Commerce Department estimated that American exports accounted for 7 percent of employment and one in three manufacturing jobs in 2008. Exports increased 17 percent in the first four months of 2010 from the same year-ago period, the department said.
Last year, the ITA's Import Administration began 34 anti- dumping and countervailing duty investigations, compared with 19 in 2008, the department said.
Senator Charles Schumer, a New York Democrat, and 14 colleagues in February said Chinese exporters should face stiffer U.S. tariffs to compensate for the advantage they get from the undervalued yuan, an issue that's part of a dispute over glossy paper imports from China. Spooner said that the department probably will avoid the currency issue.
Currency Dispute
"Commerce will almost surely refuse to investigate Chinese currency as a subsidy and this announcement today is meant to take the political sting out of that," Spooner said.
DiMicco said the administration has gone further than its two predecessors in addressing some of the issues with China and needs to go further.
"They recognize there's a massive manipulation going on, but they're doing the same things the Bush and Clinton administrations did -- try to negotiate," DiMicco said. "Billions and trillions of dollars worth of damage has been done. They need to enforce the rules and make sure people play by the rules or we will not be able to turn this around."

U.S. Risks Trade War With Brazil Over Cotton

Brazil moved on Monday to raise tariffs on a wide range of American goods, potentially igniting a trade war with the US over cotton subsidies after eight years of litigation at the World Trade Organisation.
The decision takes effect next month, starting a 30-day period during which US and Brazilian officials will attempt to negotiate a solution to the dispute..
Under the Brazilian plan, duties would rise most steeply on cotton products. Many that are currently taxed at between 6 per cent and 35 per cent would be taxed at 100 per cent. The tariffs on beauty products would double, from 18 per cent to 36 per cent. Duties on household goods such as cookers, refrigerators, TVs and video cameras would also double, from 20 per cent to 40 per cent. Duties on cars would rise from 35 per cent to 50 per cent.
Brazil is allowed to impose the tariff increases – worth $560m – after winning a case at the WTO last year. Brazil challenged the legality of direct subsidies to US cotton farmers to protect them against fluctuations in global prices and a loan guarantee programme for international buyers of US cotton.
Brazil could also impose further penalties – known as “cross-retaliation” – on US intellectual property rights, potentially breaking patents in the pharmaceuticals, technology and media industries.

Trade Wars Are In the Air

from WSJ:

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• REVIEW & OUTLOOK
• SEPTEMBER 15, 2009, 5:53 A.M. ET

A Protectionist President

Like Hoover, Obama is abdicating U.S. trade leadership.

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President Obama traveled to Wall Street yesterday to press his case for more financial regulation, but the bigger economic issue of the day concerned other White House policies. To wit, what does it mean for the world economy if America now has its first protectionist President since Herbert Hoover?
The smell of trade war is suddenly in the air. Mr. Obama slapped a 35% tariff on Chinese tires Friday night, and China responded on the weekend by threatening to retaliate against U.S. chickens and auto parts. That followed French President Nicolas Sarkozy's demand on Thursday that Europe impose a carbon tariff on imports from countries that don't follow its cap-and-trade diktats. "We need to impose a carbon tax at [Europe's] border. I will lead that battle," he said.

Mr. Sarkozy was following U.S. Energy Secretary Steven Chu, who has endorsed a carbon tax on imports, and the U.S. House of Representatives, which passed a carbon tariff as part of its cap-and-tax bill. This in turn followed the "Buy American" provisions of the stimulus, which has incensed much of Canada; Congress's bill to ban Mexican trucks from U.S. roads in direct violation of Nafta, prompting Mexico to retaliate against U.S. farm and kitchen goods; and the must-make-cars-in-America provisions of the auto bailouts. Meanwhile, U.S. trade pacts with Colombia, Panama and South Korea languish in Congress.

Trade Wars Heating Up Between U.S. and China, Mexico

Mexico has now put tariffs of as much as 45% on dozens of products from the United States because of trade violations made by the United States in its NAFTA treaty. This could cost millions of American jobs. But at least the Teamsters are happy! We have started a trade war over 100 Mexican trucks? Have we all gone insane?

Trade Wars! Mexico First, but Then Who?

Many people are aware that trade wars were one of the exacerbating elements that deepened and worsened the great depression. However, few people know that tucked into the recent "stimulus" package was the first salvo in creating a similar modern-day trade war. New restrictions were placed on trucks coming into the United States from Mexico. Mexico is now in the retaliating by placing new restrictions on 90 products from the United States. How many American jobs will be lost because of these new restrictions as a direct consequence of the "stimulus" bill that was supposed to create or save American jobs? Doesn't this sound like the 1930's all over again? Should we expect different consequences this time just because the calendar reads 2009?

In trade wars, there are no winners and losers. Everyone loses!

Is Protectionism Coming?

Twice during the Geithner confirmation hearings, Mr. Geithner replied exactly the same way with regards to questions from Senators regarding China and its currency. This was his written, prepared answer:

"President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices."

This was his written, prepared answer. He was clearly answering on behalf of President Obama.

China's Commerce Ministry issued the following statement in response:

"/China/ has never used so-called currency manipulation to gain benefits in its international trade. Directing unsubstantiated criticism at China on the exchange-rate issue will only help US protectionism and will not help towards a real solution to the issue."

Why is this significant?

• China owns more U.S. treasuries than any other country in the world. If China should begin to dump them suddenly, in a spirit of retaliation, it would almost certainly force interest rates in the United States to rise significantly and rapidly. It may also cause the Dollar to plunge, sending prices of nearly everything sky-high, as commodities respond to a Dollar collapse. As the world's largest debtor nation, the United States can not afford to see a sell-off of its debt.
• If the United States declares China as a currency manipulator, and retaliates with sanctions of any kind, China would almost certainly respond in kind by limiting or restricting U.S. goods and services. This would make the United States economy worse. Quite frankly, the United States has more to lose.
• One of the lessons that nearly all economists and students of economic history agree is that one of the factors that powerfully amplified the gravity of the Great Depression were policies that ignited a trade war. If a trade war begins between the world's two largest economic powers, the consequences could be catastrophic.

This will be something that we will want to monitor very carefully! While most economic advisers see a trade war as extremely harmful to U.S. interests, as political instability mounts, Congress may respond to such instability with retaliation regardless of the harmful long-term consequences!