Last month a Chinese trawler operating in Japanese-controlled waters collided with two vessels of Japan’s Coast Guard. Japan detained the trawler’s captain; China responded by cutting off Japan’s access to crucial raw materials.
And there was nowhere else to turn: China accounts for 97 percent of the world’s supply of rare earths, minerals that play an essential role in many high-technology products, including military equipment. Sure enough, Japan soon let the captain go.
I don’t know about you, but I find this story deeply disturbing, both for what it says about China and what it says about us. On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.
Okay - a Chinese trawler collides with Japanese Coast Guard vessels in Japanese waters. Japan detains the trawler's captain (but, did NOT detain the trawler? We don't know, Kruggers doesn't say, and we are left to speculate; some disambiguation might be in order), for how long we don't know, because it isn't said. There are some facts missing in this presentation. In situations involving motor vehicles, if an automobile collides with a police squad car, we most assuredly expect the driver of the colliding auto to be detained but other passengers in the car, we would expect them to not be detained, and, if the car was in good enough shape to be driven away, perhaps they would be allowed to do so.
For just HOW LONG did the Japanese detain the trawler's captain? We don't know.
In response, to the captain's detention (of indeterminate length), China cuts off Japan's access to crucial raw materials. This makes it sound as if the captain was detained for a while, at least for long enough to make being cut off from said "crucial raw materials" painful. But still, we don't know about how long. And to me, this is a relevant factual point that out to be part of Krugman's story.
The statement "And there was nowhere else to turn" is incomplete. There was nowhere else for JAPAN to turn. Since China was attempting to influence Japan's decision about releasing a Chinese trawler captain, it seems logical that China would use Chinese leverage over Japan to influence the outcome they hoped to achieve. Note that China did not cut off "the world's" supply of rare earths, in an attempt to get "the world" to apply pressure to get Japan to accommodate China, and China didn't go to get a United Nations resolution condemning Japan, it seems as if China is using its diplomacy with Japan to accomplish its end. It seems as if China is behaving rationally trying to obtain the release of a Chinese citizen from the custody of a foreign power.
I conclude that China is looking out for one of its citizens. Certainly something the United States never did with Israel as regards Israel's unprovoked attack on the U.S.S. Liberty in which 34 crew members were murdered and 170 were injured. Something the U.S. never did in retaliation for Israel's murder of the U.S. citizen and Palestinian advocate Rachel Corrie. In contrast to how the U.S. reacts in defense of its citizens, I demand to know why we can't be more like China.
And in fact, yes I DO find this disturbing: that China acts to protect its citizens and the U.S. sits idly by and pays tribute to Israel, which has wantonly killed U.S. citizens, U.S. sailors.
In fact, I agree with Krugman's criticism of "feckless U.S. policy makers," - ineffective, irresponsible, weak and worthless - Democrats and Republicans alike.
Krugman calls the Chinese regime "unreliable" which I assume means, that they cannot be relied upon to do the bidding of the "feckless U.S. policy makers," which, from my way of looking at things, is not necessarily a bad thing.
Finally, here, Kruggers goes off the wall, demonstrating that for certain hot button issues, everybody can go a little bonkers: "the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation."
Trigger happy? Economic warfare? Slightest provocation?
Good heavens Paul. You have fallen into the warmongering patterns of speech - the militarization of modern American discourse which pervades our television screen, movie theaters, print and radio media - that make it SO damn easy to sell the waging of wars on Iraq, Afghanistan and Pakistan, (South Yemen, Somalia, Columbia, et al) and so damn easy to justify them after they've been waged, Panama, Grenada, Guatemala, etc, etc, etc; the litany is long.
Ask yourself this: WWAD - What would America do, and then consider this episode in American history:
The Mayaguez incident involving the Khmer Rouge government in Cambodia on May 12–15, 1975, marked the last official battle of the United States (U.S.) involvement in the Vietnam War. The names of the Americans killed are the last names on the Vietnam Veterans Memorial, as well as those of three Marines who were left behind on the island of Koh Tang after the battle and who were subsequently executed by the Khmer Rouge while in captivity. The merchant ship's crew, whose seizure at sea had prompted the U.S. attack, had been released in good health, unknown to the U.S. Marines or the U.S. command of the operation, before the Marines attacked.
I think China is to be commended for using its economic power to achieve a political ends. Clearly, the U.S. approach, shoot first and ask questions later, was a far more expensive way of getting the crew returned.
From this episode, we learn that China knows how to translate its economic power into political power, firing no guns, launching no bombs, keeping the military in line.
Back the great one's off-the-mark analysis:
Some background: The rare earths are elements whose unique properties play a crucial role in applications ranging from hybrid motors to fiber optics. Until the mid-1980s the United States dominated production, but then China moved in.
“There is oil in the Middle East; there is rare earth in China,” declared Deng Xiaoping, the architect of China’s economic transformation, in 1992. Indeed, China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry.
Okay, so the U.S. "dominated production, but then China moved in." Just exactly to where did China move in? "China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry." So, China moved in ... to China. Utilizing China's economic advantages to her advantage.
Please note, that with ONE THIRD of the world's rare earth deposits, China accounts for 97% of the world's supply of rare earth minerals. The reason for this imbalance (33% of the deposits, but 97% of the production) is that that the world has outsourced production of its resources TO China, in order to obtain the economic advantage. Capitalism at its finest. Find the cheapest labor costs, the cheapest environmental costs, and go there to produce. This is a model of how the world will be, given the neo-liberal economic vision of the Washington Consensus. There are consequences to putting all the eggs in one basket. Fancy that.
More alarm from Krugman:
You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds.
Well, not really. Our so-called national security state of mind has been focused on oil only since the Arab oil embargo of 1973. Out-side the box thinkers tend to rise only so far in both the military (colonel is as high as they are ever allowed to fly) and politically, no higher than chairman of the commodities futures trading committee.
But policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.
Kudos to the Chinese for picking up unwanted U.S. scrap iron. Most enterprising and industrious. Very environmentally helpful. I wish U.S. corporations would clean up after themselves as well.
The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.
But did it exceed the monopoly positioning dreams of Bill Gates? Or of Jay Gould? Of John D. Rockefeller?
And even before the trawler incident, China showed itself willing to exploit that monopoly to the fullest.
What's the use of being a monopolist if you are NOT willing to exploit that monopoly to the fullest?
The United Steelworkers recently filed a complaint against Chinese trade practices, stepping in where U.S. businesses fear to tread because they fear Chinese retaliation.
U.S. businesses fear Chinese retaliation? What retaliation exactly is that? And why do they fear it? Is it because they have no leverage over the Chinese? That the U.S. government has no leverage over the Chinese? Who's fault is it that the Chinese seem to be in the stronger economic and political position here? That's a damn good question to ask. I would like some answers, and I would like those answers to become part of the national discourse.
The union put China’s imposition of export restrictions and taxes on rare earths — restrictions that give Chinese production in a number of industries an important competitive advantage — at the top of the list.
But in the U.S., government keeps doing ever more to weaken unions. It's probably accurate to say, that if a union wants it, the Republicans automatically won't, and the Democrats will make meak smiles of agreement to the unions, but will vote with the Republicans against the unions. That's just the way of the world, in which the U.S. has a one-and-a-half party political system: Republicans and Republicrats; where the Republicrats present a more kind and gentle face on some social issues.
Then came the trawler event. Chinese restrictions on rare earth exports were already in violation of agreements China made before joining the World Trade Organization. But the embargo on rare earth exports to Japan was an even more blatant violation of international trade law.
How dare them Chinese Commies blatantly violate international TRADE law. Hell, they should be satisfied enough with violating international arms and military conventions, like the U.S. does, all the time. Damn Commies!
It's okay, however, if the U.S. puts trade embargoes on Iraq which were responsible for the deaths of 500,000 Iraqi children under the age of 5; it's okay if Israel puts humanitarian aid embargoes on Gaza. But how dare the Chinese blatantly violate international TRADE law. If we can't have international norms for TRADE, whom can we trust?
Oh, and Chinese officials have not improved matters by insulting our intelligence, claiming that there was no official embargo. All of China’s rare earth exporters, they say — some of them foreign-owned — simultaneously decided to halt shipments because of their personal feelings toward Japan. Right.
While certainly the Cheney administration improved matters by waging and winning a propaganda war on the American people, claiming Saddam Hussein and Iraq had "weapons of mass destruction." It can't be called insulting our intelligence if they managed to get the New York Times in-bedded reporter to print it, the Sunday talk shows to telegraph it, and the American people to believe it. That's just good PR. That' just "creating our own reality."
So what are the lessons of the rare earth fracas?
First, and most obviously, the world needs to develop non-Chinese sources of these materials. There are extensive rare earth deposits in the United States and elsewhere. However, developing these deposits and the facilities to process the raw materials will take both time and financial support. So will a prominent alternative: “urban mining,” a k a recycling of rare earths and other materials from used electronic devices.
Perhaps the Obama administration could see fit to find funding to develop just such an industry right here in the good ole US of A? Well, probably not, it costs money. It would create jobs for U.S. citizens. And those are the kinds of policies that Republicans will not allow the Obama (mis)administration to get passed into law.
Second, China’s response to the trawler incident is, I’m sorry to say, further evidence that the world’s newest economic superpower isn’t prepared to assume the responsibilities that go with that status.
I call bullsh*t. I'd say the world's newest economic superpower is fully prepared to assume the responsibilities that go with that status. Using their combined economic and political power to seek political solutions to problems rather than military solutions.
I'd call this a model that is worthy of emulation. Maybe a third way, a new alternative. If the U.S. could change it's power politics from a virtual 100% reliance on military "solutions" which invariably give rise to more disasters, both economic and political, we might be able to regain the world's respect. We might become an example.
Major economic powers, realizing that they have an important stake in the international system, are normally very hesitant about resorting to economic warfare, even in the face of severe provocation — witness the way U.S. policy makers have agonized and temporized over what to do about China’s grossly protectionist exchange-rate policy. China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear — if denied — violation of international trade law.
The so-called "international system" to which Dr. Krugman refers, is in actuality the American System, of, What We Say Goes. And this is a system which is assuredly (perhaps even thankfully) running out of steam. This system was put in place by U.S. policy makers at the end of World War II, when the U.S. economy had all the advantages in the world, having been spared the devastation of war on our own soil, when the U.S. political, business and economic leaders looked to remake the world in an image pleasing to them, with Germany and Japan as manufacturing centers, Western Europe and America as financial centers, and the rest of the world as resource centers. That system was never fair, was never just, and the consequences of it are coming home to roost.
China's so-called "protectionist exchange policy" has a flip side - the over-valuation of American currency because the U.S. government can print as much money as it wants (quantitative easing) while the dollar remains the reserve currency for oil.
By his use of language, of superlatives, Krugman demonstrates what laws he holds dearest: "China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear — if denied — violation of international trade law."
LET ME REPEAT!
China is to be lauded for using its "trade muscle" to get its way in a political dispute, compared with how the U.S. uses its "military muscle" to NOT get its way in political disputes.
Kruggers may not like it, but it works, and none of the children got killed.
Couple the rare earth story with China’s behavior on other fronts — the state subsidies that help firms gain key contracts,
In the U.S. they are called tax loopholes that help monstrously large companies, oil and gas in particular, banks too, and these increase the fortunes of the fortunate few favored at the top of these corporations.
the pressure on foreign companies to move production to China
In the U.S., this would be called "job creation," something we don't do any more, except for barmaids, waitresses, health workers.
and, above all, that exchange-rate policy — and what you have is a portrait of a rogue economic superpower, unwilling to play by the rules. And the question is what the rest of us are going to do about it.
Well, Paul, I suspect your column here will be held up by neo-conservatives as a reason why we need to be prepared to fight a war with China. Tis indeed a horrible thing when our favorite "liberal" columnist goes all chauvanistic on us.
And just why is it again that a New York Times headline reads U.S. Alarmed by Harsh Tone of China’s Military?
