A mixture of political and economic motives has moved the Obama administration to haul China before the World Trade Organization over its control of global stocks of rare earth metals. Consumer electronics companies rely on the heavy elements, including neodymium, europium, yttrium and molybdenum, for the manufacture of iPads, smartphones, and LCD televisions.
Experts told The Daily Caller that despite the name, these “rare” elements aren’t globally scarce. And while China controls as much as 90 percent of some of them right now, that won’t always be the case.
But in an election year, the Obama administration is taking heat from Republicans for its failure to clamp down on China’s unfair trade practices. A WTO case could be what the White House needs to put a positive spin on its trade record as November approaches.
“The rhetoric over rare earths is overheated. There is no need for provoking a trade war over China’s stance on rare earths because simple economics and market forces will solve this problem,” Vijay Vaitheeswaran, The Economist’s China business editor, told TheDC. “Although the country produces over 90 percent of rare earth minerals today, it controls less than half of the global resource base.”
Analysts told TheDC that the U.S. has its own rare earth deposits — significant ones — in Alaska’s Bokan Mountain and in Mountain Pass, Calif.
But as with the energy development conundrum posed by President Obama’s reluctance to green-light the Keystone XL pipeline, the U.S. apparently lacks the political will to fully tap its own natural resources.
Other countries, however, are already moving to remedy their own competitive deficits with China by increasing their supplies of rare earth metals.
“Restricted supply and higher prices have already spurred the development of big mines in Australia,” said Vaitheeswaran, whose new book explores what he calls “the new rules of innovation.”
There are likely other factors motivating the Obama administration in taking the case to the WTO’s trade disputes panel. Responding to election-year GOP rivals is among them.
Republicans running for president have bashed the Chinese in recent weeks, alleging unfair trade practices in an array of industries. Former Massachusetts Gov. Mitt Romney said that if elected president, he will order the Treasury Department to designate China as a “currency manipulator.”
Over the weekend, Obama’s re-election crew accused Romney of “utter hypocrisy” on China, noting that Bain Capital, the firm he founded in 1984, has recently made an investment in a major Chinese company.
In 2010 China reduced its exports of 17 scarce elements by 40 percent, a move that increased prices for technology manufacturers in the U.S., Europe, Japan and South Korea.
In a delayed retaliation last week, the Obama administration filed its WTO complaint in cooperation with Japan and the European Union, accusing the Chinese of hoarding the minerals. White House aides advertised the fact that Obama himself supervised the writing of the WTO briefs his administration filed against China.
“American manufacturers need to have access to rare earth materials which China supplies,” Obama told reporters at the White House last week. “Now, if China would simply let the market work on its own, we’d have no objections.”
EU Trade Commissioner Karel De Gucht also slammed China’s trade practices. “China’s restrictions on rare earths and other products violate international trade rules and must be removed,” De Gucht said. “These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications.”
Some congressional Democrats are trying to be even tougher than Obama on anti-China trade talk. For instance, New York Democratic Sen. Chuck Schumer has called on the World Bank to defund Chinese mining projects.
The WTO’s rules give China 60 days to settle the multi-national complaint before it goes before an international arbitration panel. But in reality, such cases can take years to resolve — just like conventional litigation.
The global trade body recently ruled that China had acted improperly in fixing supplies of nine other raw materials, including zinc, magnesium and silicon carbide. China has been increasing its supplies since the February ruling.
The Chinese ridiculed the latest move by the U.S. and its other trade rivals. Chinese Minister of Industry Miao Wei told reporters that he “pitied” the U.S.
“We would feel sorry for their decision to complain to the WTO,” he said.
Some observers are surprised by the high priority the U.S. is placing on this peculiar trade issue. David Wilkins, vice president of research at Taleo, a recruiting agency, told TheDC that a recent report from Intuit showed that U.S. job growth slowed in February, and the U.S. needs to be far more aggressive to “bolster a stronger workforce.”
Regardless of how the WTO complaint is resolved — and however long it takes — it may ultimately be easier and faster for the U.S. to resolve the trade imbalance by allowing new mining of rare earths materials to proceed domestically, creating new jobs in the process.
Illinois Republican Rep. Don Manzullo, who chairs the House Foreign Affairs subcommittee on Asia and the Pacific, held a hearing recently to decry the “skyrocketing costs” of Chinese minerals and describe how this is impacting American manufacturers.
Manzullo called for increasing the development of U.S. domestic resources. “We must end our reliance on China for the building blocks of advanced U.S. manufacturing. American jobs and our national security depend on it,” he said.
“In time,” he told TheDC, “this fresh supply will take market power away from China. For the Chinese, rare earths are simply not rare enough.”