Rare Earth Elements in China

Abstract China has an important determinant been at the center of discussion concerning its influence in the global economy. This means that major global economies are up in arms to compete with it for world economic superpower which is currently occupied by the United States of America. It is a common knowledge that the size of the economy relies on the volume of exports and imports of and the corresponding nature of such commodities. Rare minerals are some of the crucial resources that influence the economic structures of different countries and China is not an exceptional.

The level of natural resource base is an important determinant of the ability of a given country to realize expansionary growth and infrastructural development. In the international platform, the quota system determines how much export or import a country is entitled to. The main issue in this paper is to find out the impact of the allocated export quota for China on rare Earth metals and the effect this has in the global economic direction (Kogel, 2006). Rare minerals are instrumental in giving a country a bargaining power in the international world market.

The current social, political and economic realignment taking place in the world is increasing spreading to the different countries in the world. With the campaign against mercantilism trade policy and the advent of free trade by Classical economists, a new world economic order has been on the making. This new concept is termed as globalization (Emsley, 2011). Conventionally, any business transaction is based on mutual gain by the parties concerned and there is always the risk of exploitation if there are no laws to regulate the mode of interaction. It is also an economic reality that each state must be comparatively advantaged in production of a given commodity hence the necessity of exchange.

It is through such concepts that the spirit of interdependency developed and this led to an integrated economic behavior of all the countries across the globe in one voice as if the world was one village and this constitutes globalization. The concept of globalization explains the emerging convergence in social, economic and political policies a few, economically the different states have been signing multilateral trade agreements with similar behavior across the world summing up to cultural globalization.

There is also the financial globalization especially in the stock market where trade in securities is done online across any convenient and profitable market. Technological globalization is also at play with the explosive information communication technology. It is very evident that even corporations especially the multinationals are currently operate in different geographical locations at different stages of production at desirable cost.

For instance, value creation activities can be based anywhere in the world where the input factor is cheap and distribution and central management and co-ordination of activities done completely somewhere else. Globalization has come in various aspects which include improved information communication technology, transport network and cultural convergence. In this era of computers and micro processors a lot of information can be generated and produced within a short time.

The introduction of jet planes has made it easier to move from one location to another within a short time. All such factors lead to what is currently referred to as globalization or transformation of the world into one small village. In a new twist of things, it has been realized that globalization is not to the advantage of everybody but it benefits the developed nations and continues to sink the less developed economies. It is in the light of such free international trade policies that China’s decision to cut on its rare mineral export quota is being discussed. Considering the use of such raw materials and their role in shaping the world economy, some economic behaviors like that of China raises concern (Navarro & Autry, 2011).

Most countries can manipulate the global market by mere regulation of exports and imports and this is what China is seen to play by cutting its export quota. It is imperative that the economic ripples expected of this economic policy are scrutinized. Rare earth minerals are elements with special use that are strategic to the security, economic strength and political power of country. Examples include deposits of thorium which is important in development of nuclear energy, other radioactive minerals and other elements targeted for electric cars manufactures among other special uses. The major producers of such rare Earth minerals include China and USA.

The greatest users include Russia, Iran, United States itself and China. The strategic importance of such minerals makes them competitive in terms of pricing. The military application in which they are used makes their prices to shake the entire global economy (Great Britain, 2011). The expenditure of most states in military is always fairly high and therefore makes the use of rare minerals influential in global economic structure and the corresponding position of the major global economic players in the power list.

America’s rare metals base is fast running out due to their involvement in many wars in the past that actually consumes such minerals. The Vietnam War, Gulf war and the Taliban dismantling besides terrorism issue has contributed to the gradual depletion of such resources in the United States. Rare Earth minerals have strategic use in production of clean energy and manufacturing of high technology gadgets for military purposes (Robertson, 1992).

Their supply in the world is a strategic tool for most of the countries and the exporting states therefore wields much economic power. It was found out from the international trade statistics that China contributes over 70% of the global rare minerals supply and this automatically puts it at the monopoly power. In other words, China can always give prices or use quota system to control supply and hence influence prices. It important to note that quota system stipulates the expected quantity of a commodity that need to be exported or imported by a given country.

This is always set under agreement by the top management of the international trade organization in line with consideration of various factors like the endowment size and the relative supply to other nations. It is however notable that the maximum allocated quota cannot be exceeded but below the maximum can be regulated by the producing nation. In the case of China, it has applied various methods to create trade barrier for these ores.

China implemented an environmental policy that discourages massive exportation of the minerals and this was reflected in increased export cost thereby discouraging exports to other nations. Price differentiation between locally used rare elements and exported ones also proves to be very important in discouraging exports to the world market and this was an indirect trade barrier placed by China.

The government of China has been arguing in favor of their export cut on the basis of environmental conservation and the health of the citizens, animals and plants. It can suspiciously be pointed out also that China use the cut for political manipulation and to punish the United States for their strained international trade  relationships.

There is a silent economic and political game at play since the reduction of supply to the international market is bound to affect the economy to their favor. The USA have put up measures to avoid supply shortages through opening some of its mines and this shows the intensity of the negative implication that China’s action will have on the world.

Since the quota cut by china, the prices of rare elements has been going up and this has a shocking effect in the global economy (Sinding-Larsen & Wellmer, 2010). The financial market disturbance this has caused cannot be assumed since it automatically lead to increased cost of energy is an important factor in production of goods and services. The cut on China rare element export has remarkable consequences in the Chinese economy.

The strained relationship between China and other states that are in high demand of this commodity is likely to affect its reputation in the international markets and hence suffer from lacking some imports. On the other hand, the local economy is boosted with increased production of energy and local adequate supply for production of other complete manufactured items for export. In the recent years China has increased its foreign direct investment in Africa and this is partially supported by it massive endowment of the rare minerals (D'Costa, 2012). Improved infrastructural development is also being experienced this country leading to an expansionary economic size.

The political state of China is partially being controlled by such economic policies and that depends on how it translates into the life of a common man. The USA happens to be among the top importers of rare elements for its increasing energy demands and the action of China is a great blow to its economy. One of the greatest challenges is that it will adversely affect the supply of this important raw material to the manufacturers with immediate effect of workers lay off and upsurge of unemployment level (Lefond, 1983).

The political power and economic policies of US will feel the tremor since it highly depend on its security machinery which is lead by a heavily funded and technologically demanding military. In the contrary, China is seen to be closing in the gap between it and the US and headache that keeps the US on its toe all the time. The entire world is in for financial shock and this is likely to trigger another global financial crunch.

The affected dependants like US and Japan need to go for a diplomatic agreement with China in resolving the this case since going through other global trade bodies will trigger more tension. It is in the interest of the whole world to ask for the intervention of world trade organization and GATT to review the legal loopholes that gives China such opportunities to manipulate the global economy.

Economic sanctions for strategic co-operative input factors are also important in the sense that it can threaten Chinese authorities to reverse their actions (Kogel, 2006). A lot of research needs to be done to find other alternative sources of energy and raw materials that are renewable unlike rare elements. This is one of the remedial measures that US is working on in partnerships with other partners like Japan besides resorting to their own mineral reserves.

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