Thursday, October 21, 2010

China Flexes its Muscles: Wait Till 2020

Global buyers of rare earth metals complain that China is restricting its exports to Japan and other countries.  Rare earth metals are vital inputs in telecommunications equipment and other high-tech products.  China has suspended shipments to Japan during the past month over a dispute of offshore islands claimed by both countries.

Since 1990, China has supplanted the U.S. and increasingly dominated the production of rare earth metals, now producing 97% of global output.  It will take the U.S. three years to begin mining and processing large quantities of rare earth metals to reduce dependence on China.

If China is willing to punish Japan over several uninhabited offshore islands, image how it might react to the U.S. Treasury naming China a currency manipulator (not to mention China’s massive holdings of U.S. treasuries).

These measures pale against what will be China’s ability in 2020 and beyond to initiate or take retaliatory economic actions against countries that threaten China’s interests.

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