This is part two of a two part series. You can read part one here.
In trying to understand China’s actions regarding its rare earth export policies, we would argue it’s easy to vilify China when we, as the negotiator on the other side of the table, fail to try and understand where China is coming from. In July we wrote a piece outlining China’s point of view on the rare earth export ban noting points made in this article from People’s Daily Online. Those points appear as follows:
First, China has a different view of comparative advantage than we do, developing nations like China will provide the developed countries with labor-intensive products in return for their hi-tech products and sophisticated technology with the aim to realize mutual benefit and conclude a basically fair deal. Yet we in the US and Europe as well, place export restrictions on hi-tech products.
Second, the US and the EU raise barriers on trade of primary products or lower value products such as steel or tires (watch this space on a major WTO tire case that President Obama will act on shortly) in which China truly does have a comparative advantage by filing anti-dumping cases.
As for the specific argument against the rare earth metal export bans put in place by China in which the US has recently filed a WTO case, China makes the argument that every government sets export curbs for non-renewable natural resources. By putting limits on the exports of rare earth metals (which the Chinese claim have been previously exploited), this strategy makes sense in terms of easing environmental concerns and moving China along its industrialization path.
If we can approach the issue of rare earth metals with greater understanding, perhaps we can find more effective ways to work with China, which reminds me of a BATNA (also in that book Getting to Yes) which stands for Best Alternative to a Negotiated Agreement. And rather than fear-mongering and deploying Chinese scare tactics, perhaps we can get some stimulus dollars or tax breaks put in place to help finance the mines located in North America. We could also look at re-defining the American stockpile to include rare earths. If we stopped to think about it, we can probably identify a number of different solutions.
If your firm purchases rare earth metals and you are concerned about this issue, join us at the Managing Supply Chain Risks for Critical & Strategic Metals Summit from Oct 20-22 in Washington DC. MetalMiner readers can attend the event for a 10% discount by clicking here.