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  • China-Japan Tiff: A Trade Lesson for the U.S.

    China and Japan had a diplomatic disagreement this past week. Of the many facets to this dispute, at least one has implications for the U.S.: during the diplomatic standoff, Chinese shipments of rare earth minerals to Japan were interrupted. The U.S. is in a much stronger position than Japan but this incident is a pointed reminder to avoid trade dependence on strategic competitors in security-related products.

    The interruption by China was informal and intended from the start to be temporary. It caused no real economic harm to Japan and might never have, since Japanese firms could simply have bought rare earths from those companies still receiving Chinese deliveries. However, it was an effective message.

    Rare earths are not rare, with large deposits present in the U.S., Australia, and elsewhere. But a combination of events means China now dominates actual global production. And rare earths are important, as they are used in production of advanced weapons and environmental equipment. China reminded Japan that it was risking more than an exchange of nasty letters.

    Could the same thing happen to the U.S.? Could worse happen, given that U.S.-China confrontations could be for much higher stakes than a detained trawler captain? Probably not, but the situation is not entirely clear.

    First, the idea that China has leverage due to its holdings of American bonds is false. The PRC depends on our bond market far more than we depend on their bond purchases.

    In trade, an examination of available trade data shows no apparent vulnerability of the U.S. to the PRC. Imports from China seem to be concentrated in areas – textiles, toys, etc. – that have no strategic value.

    There is a big qualifier, though: American trade data aren’t good enough. Rare earths and other items of concern don’t show up clearly as areas of dependence because the data aren’t sufficiently detailed.

    The China-Japan dispute is a reminder than the U.S. government needs to pay attention to trade dependence. We need good information, and then we need to mitigate any dependence on unreliable partners for important goods and assets. For example, the Department of Defense is upgrading its stockpile of strategic minerals like rare earths, but the process began late because awareness of this issue was low.

    The U.S. is accustomed to having the economic and financial leverage in a crisis. China’s size as a trade partner and obvious willingness to exploit that size means we have to take more care not to leave ourselves vulnerable.

    Posted in International [slideshow_deploy]

    3 Responses to China-Japan Tiff: A Trade Lesson for the U.S.

    1. Pingback: Robot Makes Losses in Trade a Thing of the Past With Forex Megadroid | Steal Pips Review Blog

    2. RJ Brewer Dayton, Mo says:

      Free Trade and American Sovereignty and Security by RJ Brewer, Dayton, Montana 11-5-2010

      Free Traders have an almost religious attachment to their ideology that totally ignores the basic reality of the results of what is called 'Free Trade'. First Free Trade as it has manifested itself over the last 16 years is less about trade than it is about global trade management by NWO international organizations like WTO, GATT, etc. It totally ignores national security, sovereignty and the economic impact on the United States. No where has this hurt us more than with China.

      If we go back to the Trade Missions of Ron Brown in the Clinton Administration and examine the relative positions of Communist China and the United States and compare them to the situation that exists today we will find that we are in the process of flipping positions. All of the advantage has been in favor of China. It has been the greatest voluntary transfer of wealth and power ever witnessed in the modern world.

      China went from a nation of 3rd world status to the factory floor of the World. They have grown incredibly wealthy on a business model based on having an expendable labor force cheaper than slavery. Our corporations made Faustian deals with the Communists that made them partners with that Communist Government. Is that not the definition of Fascism? Financially they now own us and have the ability to crash our economy simply by refusing to buy any more US Government bonds. They make most our clothing, shoes and other apparel. Technology is all off shore…computers, cell phones, stereo components, TV's, etc.

      Since GW Bush was elected we have lost 42,000 factories and 8 Million jobs. Most jobs lost have never been recovered as they have been off shored. About the only thing left that we make here is housing and other construction. Here the American working man must compete with the cheap labor of 30 Million illegal aliens. Soon we will have off shored the entire forge and furnace of the Republic, then what?

      The Chinese have been engaged in a military buildup greater than Japan in 1930's. They went from a nation that could not launch a weather satellite to man space flight and a planned mission to the moon, all in 16 years!! Their Long March ICBM uses the same launch vehicle. Such is the transfer of knowledge and technology. They will soon have more submarines than the US. Their military strategy considers us their #1 enemy. General Chi Hoatan said that "War with the US is inevitable and that the PLA must control the intuitive!" They will invade Taiwan when they are strong enough to beat us in the South China Sea. Then it is they not us that have the latest techonolgy, which has always been our counter to their numerical superiority.

      Meanwhile we are wearing out the military that Reagan built in endless War and Nation building. Making enemies out of half the worlds population in the process. If America wakes up in time we may be able to retain our sovereignty.

      If we stay on the Free Trade trajectory we shall loose the land and Liberty for which our forefathers fought. Our present course leads to a comunistic New World Order. How can any American patriot not see the connection with 'Free Trade'? Lenin said that "the Capitalists will lend the money to the Communists which we will use to buy the rope to hang them". Little did he think that we would close our rope factories and ship them to Communist China! Or did he? Now they can make enough rope to hang us all! Apparently we will save them the trouble by hanging ourselves on the alter of 'Free Trade'.

    3. Montana Expat says:

      Is this the same R.J Brewer who led the Brigades to destroy the Reform Party of Montana in 2000-2002?

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