Can the US derail 2025?

[siegecrossbow]

yes, there are examples of state own enterprises which does well. I think the biggest factors that keep a company great are competition, accountability and proper incentivization. These seems to exist in the Chinese state enterprises. Indeed, one issue with private ownership in the U.S. is that CEOs are incentivized to boost their stock in the short term. In the case of GE, this led to the company becoming a shadow of its former self.

Straying off topic for a bit:

Here is a pretty good assessment about what happened to GE.

Going back to topic now.

 

[Just4Fun]

As expected, NDRC held meetings last few days to draw up plans to have rare earths mining and productions centralized. Xi Jinping didn't show up there without having a plan in mind. Once all aspects of mining and processing centralized and controlled, rare earths export flows can be turned on and off effectively at will, no more smugglers. SecCom Ross is voicing concerns about managing rare earths supplies once that happens. So let's see.

Will China's Rare Earth Card Work in the Trade War?

Yes. Definitely. Why? Because in today's rare earth supply chain, it's my way, or highway.

Today is 2019, not 2010. There are tectonic changes in world economy, politics and military in China's favor. And the US and China are being engaged in a trade war where the US has mobilized American national institutions to strike Chinese business interests for both political and economic gains. So the engagement rules about rare earth embargo used in 2010 are no longer applicable anymore.

If I were the person who plans to use rare earth as a retaliation means to hurt the US, and to hurt it so badly that the US would have no desire to continue the trade war, I would implement my striking plan as follows:

1) First, it of course starts with mending fence and patching holes in my own house. I would make rare earth mining, producing, marketing and exporting to make sure the whereabouts of every gram of rare earth shipped out of the country is trackable, and to hold the exporter is accountable for every gram of rare earth exported. This job is relatively easy as it is a Chinese internal affair. Recent NDRC meeting is a good beginning of this task.

2) Second, hold the importer accountable for every gram of rare earth imported from China. I would require the importer sign legal documents that satisfy my goals, otherwise, you would never get an import licence from me. You want rare earth? You have to satisfy my conditions. In these documents, the importer has to agree that no end product made from the rare earth imported from China can be sold to anyone without my permission, that the deals must be conducted through the banks that I've agreed with, and that the importer must report to me its use of my rare earth in the way I instruct, and that I can check the importer's final sell records. Besides, the importer must have certain qualifications in order to obtain an import licence. One of them is the importer must have enough collateral assets, or security, reachable by me in case a fine is imposed.

3) Third, the rare earth you buy would be delivered incrementally and only in small patches. New patch of export will not be granted until the final users of the end product of last patch imported rare earth have be verified by me.

4) Fourth, I would copy the US's playbook, establishing an Unreliable Entities List of end users of my rare earth products, and using long-arm jurisdiction to enforce my laws and regulations. No my rare earth should be re-sold, and no end products made from the rare earth imported from China should be sold to any of the unreliable entities. You can only conduct your rare earth business with the entities I permitted, and I'll check this at the time I choose. (Don't bother to go to the WTO to complain about your sad rare earth experience. I just copy something from the Pakistan-US F-16 sale agreement. )

5) Fifth, I would develop a set of very sophisticated, workable procedures to make sure every gram of rare earth you purchased from me is used up to my sanctification. If the importer Toshiba, for instance, used my rare earth to make the chips that end up in the radars installed in Taiwan's F-16s, you'd better believe that I can find it out even though I don't have any access to Taiwan's F-16s. How can I accomplish this job? I wont tell you here.

6) Finally, there is no sanctions, embargoes, or violations to WTO rules. I only use fines, cancellation of import licences, and seizure of collateral assets or deposited securities if you violate the terms of the legal documents you signed. This is common business practice every firm is using today.

My plan is not aimed at completely cutting off rare earth supplies to the US. Rather, my goal is only to use my current dominant market position to disrupt world rare earth product chain, just as the US has done to ZTE and to Huawei, making my rare earth hardly obtainable to the US, forcing unemployment as high as possible in the related industries in the US, causing as heavy political damage as possible to the arrogant and stupid Americans who started this trade war.

It's going to take about a decade for the US to re-establish a reliable rare earth supply chain. By the time the US has its own rare earth, I've already been in much favorable fighting position in science and technology. Game over for the US.

 

[Tam]

yes, there are examples of state own enterprises which does well. I think the biggest factors that keep a company great are competition, accountability and proper incentivization. These seems to exist in the Chinese state enterprises. Indeed, one issue with private ownership in the U.S. is that CEOs are incentivized to boost their stock in the short term. In the case of GE, this led to the company becoming a shadow of its former self.

There is one. The company that invented telecom technology in the first place, and other developments like the Unix operating system which led to Linux and the operating system in your iPhone. If you ask the question why the US is no longer making telecom equipment and quite some time now, there is one company and one answer.

 

[Tam]

Will China's Rare Earth Card Work in the Trade War?

There is a fundamental reason why I don't think it would work.

That is, much of the finished products the US uses --- electronics and electrical equipment --- that uses rare earths, are made in and come from China anyway. The few US companies that Chinese rare earths go to --- like Cree --- export their finished products back to China to be made into part of something else that is either used in China or exported again to the US or other parts of the world. You can choose to restrict or ban the use of Chinese rare earths to the US defense industry, but its not like the defense establishment is already trying to develop its own supply chain, which is apt to get very expensive. Even if it stops the production of the F-35, that is not going to hurt the American consumer anymore than Trump's own tariff on Chinese made electronics, which ironically will do more damage and self imposed hurt to the US economy than anything else that it makes other measures moot.

The supply chains are too complex to target precisely like an air strike, and are likely to boomerang.

The prices of Chinese rare earth elements are likely to rise anyway and affect globally because they will be consumed by the country's own initiatives for EVs and energy efficient lighting. The problem of developing a supply chain outside of China is how you can make a profit out of it, if you can't sell it to the Chinese who are also the main consumers of rare earth elements, resulting in a money losing operation.

 

[ZeEa5KPul]

I partially agree about the bit on "market entrenched advantages". While the West set up the system to benefit ourselves, it is up to the upstart country to break into the club. Nobody gives you anything for free. Different countries performed differently when faced with this condition. Just compare Japan to the Philippines.

The "markets entrench technological advantage" and the example that follows are meant as a critique of free-market "reformers" who advocate that China should pursue its comparative advantage in trade. I show that that's the most efficient way to be ensnared in the middle income trap. The real advice China should follow is subsidizing high-tech, protecting markets, stealing IP, coercing technology transfer; i.e., cheat 2 win!

If you're not cheating, you're not trying.

 

[Just4Fun]

That is, much of the finished products the US uses --- electronics and electrical equipment --- that uses rare earths, are made in and come from China anyway. The few US companies that Chinese rare earths go to --- like Cree --- export their finished products back to China to be made into part of something else that is either used in China or exported again to the US or other parts of the world.

So, you don't think your rent lease workable? And the Pakistan-US F-16 Sale Agreement workable?

I don't care how many finished goods you have, or what kind your finished goods are, ...etc., I only care how you follow the sale agreement that you and I signed. And I'll only hold you accountable for everything violating the terms and conditions in the sale agreement.

This is very much like an apartment rent deal where you, the renter, want to rent a unit from me, the landlord. You of course can rent it as long as you respect the rent lease. All I need do is to hold you accountable for everything that I have listed, and you have agreed, in the lease. If you violate the lease terms, I'll kick you out and take your security money. This is a common business practice in renting business and you don't get any chance to complain. If you don't like the lease, or don't like me, the landlord, try to find another nice place to live. Good luck. (My way or highway, it's landlord's market.)

Don't underestimate people's ability to find out where the finished goods made with their rare earth have gone, just as don't understand your landlord's ability to find out if you have violated the lease terms and conditions. If you've done something violating the lease, he can always catch you. Already forget how the US checked out every item coming with the F-16s sold to Pakistan after the middle air fight between the PAF and IAF in February? If you do, then you need have some rudimentary business training.

 

[gelgoog]

yes, there are examples of state own enterprises which does well. I think the biggest factors that keep a company great are competition, accountability and proper incentivization. These seems to exist in the Chinese state enterprises. Indeed, one issue with private ownership in the U.S. is that CEOs are incentivized to boost their stock in the short term. In the case of GE, this led to the company becoming a shadow of its former self.

Yeah, in the US they don't even see cases of success in their own state sector when they are there.
One example is the USPS. It provides nationwide access to postal services at a low flat price. It is even a service which has a mandate enshrined in the US Constitution. There are lots of private US postal service competitors like UPS or FedEx but they typically only serve people in the main cities, those easiest to cover, which provide the most profit.

There is an obsession with so called "free market" or what I would rather call corporate obsessed people in the US. This is manifested in things like the Ayn Rand cult there.

If you talk with any socialist in Europe, they will typically agree that in cases where there is a natural monopoly you would be better served by a state owned enterprise. In the US people are so brainwashed they would rather surrender such services to companies like Comcast and then moan about lack of service and horribly high prices. In the UK there has been a popular backlash against the privatization of the rail and postal services for example.

The Chinese government takes things several steps above even most European governments in terms of state control of the economy, let alone the US, but from the results that has provided thus far I think there is plenty of evidence this has its own advantages. In a way, that is what the corporate overlords in places like the US dislike, a competitive system to theirs.

With regards to funding your own industry, and the fallacy of free trade, you only have to read Alexander Hamilton or Friedrich List to find a counter argument to that.
Even those in control of the US government seem not to believe it anymore, now that it no longer suits them, that's why you see them enacting tariffs.
This is clear evidence the US economy is losing out.

 

[FriedRiceNSpice]

And the US oil oligarchs are effectively government owned... Or perhaps more accurately, the US government is owned by big oil!

 

[Tam]

So, you don't think your rent lease workable? And the Pakistan-US F-16 Sale Agreement workable?

I don't care how many finished goods you have, or what kind your finished goods are, ...etc., I only care how you follow the sale agreement that you and I signed. And I'll only hold you accountable for everything violating the terms and conditions in the sale agreement.

This is very much like an apartment rent deal where you, the renter, want to rent a unit from me, the landlord. You of course can rent it as long as you respect the rent lease. All I need do is to hold you accountable for everything that I have listed, and you have agreed, in the lease. If you violate the lease terms, I'll kick you out and take your security money. This is a common business practice in renting business and you don't get any chance to complain. If you don't like the lease, or don't like me, the landlord, try to find another nice place to live. Good luck. (My way or highway, it's landlord's market.)

Don't underestimate people's ability to find out where the finished goods made with their rare earth have gone, just as don't understand your landlord's ability to find out if you have violated the lease terms and conditions. If you've done something violating the lease, he can always catch you. Already forget how the US checked out every item coming with the F-16s sold to Pakistan after the middle air fight between the PAF and IAF in February? If you do, then you need have some rudimentary business training.

I kind of doubt it in the same way China can simply stock up large quantities of US chips somewhere.

 

[localizer]

I kind of doubt it in the same way China can simply stock up large quantities of US chips somewhere.

I previously suggested the 2nd hand market for chips. There’s enough to survive on.