‘China: The Bubble that Never Pops,’ author discusses China’s economy

The speculation over the impact that coronavirus has had on the Chinese government and its reputation continues to grow. Tom Orlik, Chief Economist at Bloomberg and author of newly published ‘China: The Bubble that Never Pops’, joins The Final Round to discuss his findings and what can be expected from the Chinese economy in the next decade. S

Joseph Stiglitz: the Right’s China Policy was Designed to Raise Profits by Weakening Wages (Labor)

Joseph Eugene Stiglitz (/ˈstɪɡlɪts/; born February 9, 1943) is an American economist, public policy analyst, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979).[2][3] He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the (US president’s) Council of Economic Advisers.[4][5]
some ways I one has to recognize that
42:32
China may have been lucky they began the
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development strategy just at the moment
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when the West was very open to importing
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manufacturing goods it was a moment
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where because there were a large profit
42:54
opportunities in the West that sustained
42:58
the opening with wrong without regard to
43:01
the effects and workers over the over
43:04
the effects and the overall economy so
43:09
in a way China’s success is testimony to
43:13
the failures of democratic politics in
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the United States in Western Europe
43:19
because the rules the game were designed
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worked to advantage American
43:29
corporations Western European
43:31
corporations with no attention paid to
43:37
the consequences to the workers as the
43:41
United States d industrialized now some
43:43
countries in Europe did pay attention
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and they did have active labor market
43:49
policies that shifted workers from the
43:53
old sectors that were dying into the new
43:55
sectors and Scandinavia has been very
43:58
good in these active labor market
44:00
policies which I think are really
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important in the United States we didn’t
44:06
do that even though economic theory said
44:11
opening up of trade between an
44:14
banks country like the United States and
44:16
China West events would result in lower
44:21
real incomes for unskilled workers
44:24
there’s a missing Stover theorem and it
44:28
was unambiguously clear even though we
44:31
were getting cheaper goods real incomes
44:34
of unskilled workers would go down and
44:36
it’s only if you had a mystical belief
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in trickle-down economics would you
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think otherwise but our politicians did
44:44
have a mystical belief in trickle-down
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economics and they asserted this over
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and over again and so even when you know
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in the Democratic Party we tried to get
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Trade Adjustment Assistance we try to
44:59
have some active labor market policies
45:01
when we couldn’t because of concerns
45:04
about austerity and not enough budget
45:07
concerns they wouldn’t work we went
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ahead anyway there is a growing sense
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the United States though that actually
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the agenda on the right was to increase
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unemployment and suffering you say why
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would they anybody you know why do
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people want suffering well it was part
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of a concerted agenda if you look at to
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weaken the bargaining power of workers
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and drive down the wages which increases
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profits so if you look at this from a
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conservative point of view the reforms
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and our labor laws and reforms in the
45:51
way antitrust policy was enforced that
45:55
reform is a not the right word but
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changes in those laws changes in
46:02
corporate governance and implicit
46:04
understandings the legal frameworks and
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in the investment agreements in the
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trade agreements the investment
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agreements they gave more secure
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property rights if American firms
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invested abroad than if they vested at
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home which meant that they were
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encouraged to invest abroad which also
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meant that if the firm if workers came
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to affirming
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we want higher wages and the firms know
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if you we give you if you continue to
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demand higher wages we’re going to leave
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that was more credible so I think it was
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a deliberate strategy to drive down the
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wages of workers and it worked in terms
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of the economics that I described before
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it did drive down the wages but it has
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now led to these this political backlash
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with which we are dealing so there is a
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relationship between China’s success and
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some of the problems that we’re facing
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it wasn’t inevitable we could have
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managed it better we should have managed
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it better but we didn’t but just as a
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footnote the point I’m making is that
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that was a particularly
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Africa won’t be able to follow the
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manufacturing export-led growth model
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that led to the success of East Asian
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countries including China in fact now
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globally manufacturing employment is in
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decline in any country that believes
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that manufacturing should be at the
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center of their economic policy is
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misguided it can be part of it it can’t
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be at the center well let me just
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conclude by SEP some let me just
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conclude by a set of remarks about that
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in a way that pertain to all countries
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but we’re we’re china realized this in a
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way more forcefully than many others
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have and that is that reform is a
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never-ending process that societies are
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always changing technology’s changing
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and therefore the policies that are
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going to make a society successful have
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to change in a corresponding way
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for China China’s entering a new stage
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of development it’s facing critical
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problems of inequality health
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environment livable cities markets won’t
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solve those problems in fact many of
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those problems have been created by the
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fact that they had markets that were too
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unfettered to under-regulated
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they’re going to have to regulate them
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better there are further questions posed
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by changing globalization the
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recognition of the risks of excessive
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financialization the West
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I believe hasn’t succeeded in adequately
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taming financial markets as you know
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this is this week is the 10th
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anniversary Lehman Brothers and and a
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lot of people are talking about have we
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done enough I think it’s absolutely
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clear no and what’s particularly
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disturbing is the Trump administration
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is trying to undo the inadequate things
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that we’ve already done again I was at a
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dinner right before the inauguration of
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Trump where one of his chief economic
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advisors was there
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I don’t normally associate with his
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people might make it clearer but it was
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an embassy dinner so I and I didn’t know
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he was going to be there anyway
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and he was talking about how he was
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going to deregulate the financial sector
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within weeks after taking office and the
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first thing that struck me is he clearly
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had no idea of our democratic processes
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yeah he really thought you know Trump is
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the dictator he gets to write rewrite
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all the rules no no none of these
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processes that we put in place as
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democratic checks against authoritarian
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leaders no knowledge of that was just so
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clear but the second point I was going
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to ask what somebody who asked it before
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I did quizzically
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didn’t we have a crisis in 2008 and the
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implicit answer was that was ancient
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history and we have to move on but it’s
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not ancient history and I think the
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risks are very much with us one of the
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concerns that I increasingly seeing in
51:20
China is that as China grows the
51:26
influence of vested interest will grow
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and you can feel it already
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another just a little anecdote every
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year when I go to China I often talked
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to the finance minister and I’ve been
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pushing them to move away from their
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debt finance growth model to more tax
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financed in particular I’m telling them
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they need a carbon tax and it would
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raise a lot of revenue it would help
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clean up their air pollution exceed me
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an obvious idea and the finance minister
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every year says great idea and he says
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we have some political problems which he
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means the auto industry the coal
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industry this you know steel industry
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and so forth we’re gonna work on it next
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year we go through the same conversation
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as China has grown and it has taken on
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many of the features of a modern vested
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interest economy we’re getting change is
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becoming more difficult and that of
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course is is very worrisome but the
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principles that guided China in the
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first 40 years are likely to continue to
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be relevant and that by that I mean the
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pragmatism crossing the river by feeling
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this still stone they’re going to be new
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problems not fully foreseen would that
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appear it will have to address these
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problems
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using insights from theory and past
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experience and the second critical point
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is openness there is much to be learned
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from experiences of others and from the
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ink sykes of non-ideological economic
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analysis and again we’re in a particular
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moment where I hate to keep coming back
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to the United States but we’re a little
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bit obsessed with with our problems one
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can’t help but reflect on the closed
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mindedness of our current administration
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of not looking around you know if you
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think you’re number one and you think
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that you’re the there’s nothing to learn
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from anybody else that is part of the
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beginning of the end so we hope that
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this is just a temporary interlude but
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as we reflect on what makes I know
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successful in the ways it is I think
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there are a lot of lessons for all of us
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to think about how we can make our own
54:21
economy successful for all of us thank
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you
54:30

End Game for The US Dollar — The Central Banks Losing Confidence in The Dollar .

Non-nativeenglish announement of Russian/Chinese alternative to US Dollar

 

China is largest oil importer

Attempt to price Oil in alternate currency

Displace: Brent-oil futures & North Sea

Qianhai, ICBC bank Qianhai Storage Center

 

Rare earth elements aren’t the secret weapon China thinks they are

Despite the name, rare earths just aren’t that rare

 

America’s trade war with China has been quietly escalating for years, but this week it took a turn for the disastrous. Huawei, once the rising star of China’s tech industry, has been cut off from US suppliers, leaving the company effectively stunted. China is likely to respond somehow, but with a multitude of options on the table, many in the tech industry are now considering nightmare scenarios.

One particularly chaotic option would be a ban on the export of rare earths — raw materials that are crucial for electronics. These elements are produced mostly in China, and used in the US for everything from electric cars to wind turbines, smartphones to missiles.

Chinese state media have backed the idea, calling America’s dependence on Chinese rare earths “an ace in Beijing’s hand.” President Xi Jinping hinted at that possibility when he visited a rare earth facility at the beginning of this week. (As a ministry spokesperson commented with what seemed like a nod and a wink: “It is normal that the top leader investigates relevant industrial policies. I hope everyone can interpret it correctly.”)

Rare earth elements are sometimes described as the “vitamins of chemistry,” as small doses produce powerful salutary effects. A sprinkle of cerium here and a pinch of neodymium there makes TV screens brighter, batteries last longer, and magnets stronger. If China suddenly shut off access to these materials, it would be like rewinding the tech industry back a few decades. And no one wants to ditch their iPhone and go back to a BlackBerry.

Experts in the field, though, are much less concerned about such a chilling scenario. They say that while a restriction on rare earth exports would have some immediate adverse effects, the US and the rest of the world would adapt in the long run. “If China really cuts off supply entirely then there are short term problems,” Tim Worstall, a former rare earth trader and commodities blogger tells The Verge. “But they’re solvable.”

Far from being an ace in the hole, it turns out rare earths are more of a busted flush.

China currently dominates the world’s supply of rare earth elements. Credit: USGS
The reasons for this are numerous, and span geography, chemistry, and history. But the most important factor is also the simplest to explain: rare earths just aren’t that rare.

A group of 17 elements, rare earths are what the USGS (United States Geological Survey) describe as “moderately abundant.” That means they’re not as common as oxygen, silicon, and iron, which make up the vast majority of the Earth’s crust, but some are on a par with elements like copper and lead, which we don’t consider exotic or scarce. Significant deposits exist in China, but also Brazil, Canada, Australia, India, and the United States.

The challenge with producing rare earths (and the reason they were given their name) is that they’re rarely found in concentrated lumps. These are chemically sociable elements, happy to bond with other compounds and minerals and tumble about in the dirt. This makes extracting rare earths from common earth like convincing a drunk friend to leave a raucous party: a lengthy and harrowing procedure.As Eugene Gholz, a rare earth expert and associate professor of political science at the University of Notre Dame puts it: “Once you take it out of the ground, the big challenge is chemistry not mining; converting the rare earths from rock to separated elements.”

Unlike convincing that drunk friend, though, this process involves a series of acid baths and unhealthy doses of radiation. This is one of the reasons that countries like the US have been more or less happy to cede production of rare earths to China. It’s a messy, dangerous business, so why not let someone else do it? Other factors also helped, including lower labor costs and the existence of Chinese mines that produce rare earths as a byproduct.

China’s sway in the rare earths market is a fairly recent state of affairs. Between the 1960s and the 1980s, the majority of the world’s supply was actually produced in America, from the Mountain Pass mine in California. The mine’s processing plant was shut down in 1998 after problems disposing of toxic waste water, and the whole site was mothballed in 2002.

It’s only from the 1990s onward that China has shouldered the bulk of production, along with the associated environmental costs. (In 2010, the Chinese government estimated that the industry was producing 22.05 million tons of toxic waste each year.) An oft-referenced figure is that China now produces some 95 percent of the world’s rare earths, but Gholz says this statistic is “wildly out of date.” The USGS pegs China’s part as closer to 80 percent.

China’s Consumption Of Coal Steadily On The Rise
Low labor costs and lax environmental regulations precipitated China’s rise in rare earth mining. Photo by China Photos/Getty Images
That’s still a substantial chunk of the world’s supply, though, and with no doubt that these are important commodities, the question is: what happens if China does cut off the US?

Luckily, we have a very good idea of what would happen next because it’s already happened before. Back in 2010, China stopped exports of rare earths to Japan following a diplomatic incident involving a fishing trawler and the disputed Senkaku Islands. Gholz wrote a report of the fallout from this incident in 2014, and found that despite China’s intentions, its ban actually had little effect.

Chinese smugglers continued to export rare earths off the books; manufacturers in Japan found ways to use less of the materials; and production in other parts of the world ramped up to compensate. “The world is flexible,” says Gholz. “When you try to restrict supplies to politically influence another country, people don’t give up, they adapt.”

He says that although his report examined the rare earth industry as it was in 2010, the “conclusions are pretty much the same” in 2019.

If China did turn off the rare earth tap, there would be enough private and public stockpiles to supply essential sectors like the military in the short term. And while an embargo could lead to price rises for high-tech goods and dependent materials like oil (rare earths are essential in many refining processes), Gholz says it’s highly unlikely that you would be unable to buy your next smartphone because of a few missing micrograms of yttrium. “I don’t think that’s ever going to happen. It just doesn’t seem plausible,” he says.

Even though a ban on rare earth exports is just speculation at this point, companies have begun to preempt any new Chinese restrictions. American chemical firm Blue Line Corp and Australian rare earth miner Lynas have already proposed new production facilities in the US, and rare earth stocks around the world have surged in response to the threat.

“IT’S NOT LIKE STARTING FROM SCRATCH.”
In the event of a ban, one of the most important backstops would be America’s Mountain Pass mine. Although the mine was closed after Chinese rare earths drove down prices, the facility is intact and resumed production last January. Recent estimates suggest it’s already supplying one-tenth of the world’s rare earth ores (though not their processing), and in the event of an embargo, it would be possible to bring Mountain Pass back up to speed.

“By far the cheapest and fastest way to bring more material into the market — if there was a disruption — is just sitting there in California,” says Gholz. “It’s not like starting from scratch.”

Worstall agrees: “Producing rare earth concentrate is near trivially simple,” he says. “I, or any other competent person, could produce that from a standing start within six months in any volume required.”

The kicker, both say, is how much that process might cost. Especially as any refining and separation plants built in the US would have to meet far higher environmental standards.

As we’re seeing with Huawei and other casualties of Trump’s trade war, the real question isn’t whether adaptation is possible in the future, it’s how much pain you can stomach in the present.

Trump’s Trade Secret: Exploiting China’s Relative Weakness

Rising debt levels and an unsustainable economic model leave Beijing at Washington’s mercy.

The Chinese Communist Party has always relied on deception to wrong-foot rivals and attain the advantage in negotiations. Deng Xiaoping famously counseled, “Hide your strength, bide your time.” But Xi Jinping prefers to exaggerate China’s economic strengths and conceal its vulnerabilities.

Mr. Xi’s brazen approach conditions other countries to believe that Beijing enjoys a superior hand, that China’s rise and dominance are inevitable. These erroneous beliefs weaken the will of injured parties, including Western nations, to resist predatory Chinese behavior.

President Trump and Mr. Xi confirmed a “phase 1” trade agreement Friday. Both need the deal for domestic political and economic reasons. But in every negotiation, pressure is relative, and the U.S. has more political and economic leverage than China. This insight will help the U.S. during the more difficult second phase of negotiations.

Consider why China engages in predatory, illegal economic behavior. It needs to grow rapidly to maintain fiscal stability, manage its debt and advance its strategic and military ambitions. China can’t become the dominant power in the Indo-Pacific without sustained growth. The only reliable way Beijing has of maintaining adequate growth is to support its companies with cheap credit. The rise in Chinese corporate debt since the 2008-09 financial crisis has been one of the largest and most rapid—in relative and absolute terms—for any 10-year period in peacetime economic history.

China cannot significantly deleverage without drastic changes to its political economy. The model involves offering state-owned enterprises and national champions such as Huawei cheap finance and privileged domestic-market access at the expense of an independent private sector. China showers state businesses with subsidies and stolen intellectual property, and shields them from foreign competition.

The Chinese domestic economy is slowing because of chronic overinvestment. This provides the economic rationale behind plans such as the Belt and Road Initiative and Made in China 2025. The former is a scheme to export excess capacity and lock in new regional markets for Chinese firms, especially in infrastructure. The latter is a new export-oriented approach based on dominating increasingly important advanced and high-technology sectors in global markets. Both attempt to create external commercial opportunities for protected, unreformed Chinese firms without the need to reform the country’s main economic and political institutions.

Mr. Xi believes doubling down on this approach offers the party the best prospect to retain its hold on power and opportunity. As with virtually all major economic developments in China, the party soaks up praise when things go well and wears blame when they don’t. As Chairman of Everything, Mr. Xi faces acute pressure. His success depends on preventing the emergence of a genuinely independent middle class, which is what led to democratic transitions in Japan, South Korea and Taiwan.

That brings us to the question of negotiating leverage.

The current Chinese model is self-defeating. Less-deserving companies continue to receive the bulk of finance and opportunity. The staggering misallocation of capital is worsening, which makes the mushrooming debt even harder to manage. And allocation of opportunity is political. This means that the private sector, and therefore household income, will continue to remain artificially suppressed—putting even more pressure on Beijing to stimulate growth through further credit expansion.

The U.S. has a far more adaptive and diverse economy than China. China’s economy is inefficient, bloated, dysfunctional—plagued by institutions and policies that are not fit for their purposes. If the tariff war resumes, it will continue to prove much more disruptive to China than to the U.S.

Moreover, by calling attention to the seriousness of Chinese trade violations, Mr. Trump is properly recasting China as the main threat to a fair and sustainable global economic system. Multinational companies are gradually assessing the commercial risk that sovereign risk poses to them—the possibility that China will arbitrarily alter laws or regulations or fail to honor government bonds when they mature.

In recent years, Mr. Xi has been openly accused by former senior officials and influential journalists and academics of mismanaging the relationship with America, decisively abandoning any market-based reforms that would make the Chinese economy more resilient and agile, and overreaching with his aggressive promotion of Belt and Road and Made in China 2025. Leaks about the abhorrent treatment of Uighurs in Xinjiang seem designed to undermine him, while continued protests in Hong Kong are a stark rejection of his authoritarianism.

Mr. Xi’s purging of more than 1.5 million officials, including top generals and party members, will come back to bite him. In addition to holding a weaker economic hand, Mr. Xi is far more vulnerable to internal rebellion, and therefore more desperate for economic pain relief, than the American president.

Mr. Trump has threatened to walk away if any agreement—including the final details of the phase 1 deal—is not to his liking. He indicated in “The Art of the Deal” that his style is to aim high and keep pushing and pushing until he gets what he wants. Let’s hope he follows through. The national interest depends on it.