An immediate response of China to the US announcement that it would launch a 301 inquiry aimed at the Chinese "green" technology sector is a rare earth counter-attack. In this reported highly protectionist move, China has temporarily halted exports to the US of rare earth materials. Used in making advanced technology products, rare earth materials are a variety of scarce minerals. China currently produces 95% of the world's trade in these important items, according to a New York Times article of October 19, 2010 - K Bradsher, "China is said to halt exports to US of some key minerals." The report indicates that this is being done without any official announcement of such an embargo aimed at any particular country.

 

This reported action, following a similar move against Japan, shows how China will not hesitate to use its sovereign clout to conduct trade warfare. No one wants a trade war, but then no one really wanted World War I. On a deeper level, this action indicates the importance of commodities in ongoing global business competition. China acquires its needed commodities, as do all countries, from a combination of domestic and foreign sources. The global supply chain requires the roundsourcing of materials. No one country has everything, at least not in a ready to use state. For rare earth materials, the US and other countries have many of these materials within their borders, but it could take several years to generate the private sector commitment to locate, mine and process them for industrial use.

 

China acts centrally to acquire key commodity inputs for Chinese business, rather than leaving this to its private sector. China's use of its hard currency reserves to acquire control of substantial natural resource assets in Africa, Latin America and elsewhere is well known. There is a major difference in commodity production and acquisition between the western private sector approach and the Chinese government-planned-and-assisted approach. How this plays out in the long term is probably more important than currency valuation, which has occupied recent headlines and US congressional debate.