Don't start a war you can't win: rare earths

[VitaMan]

Much more difficult to do than just put crude oil in the ground to use as needed.

[Tiny]

Originally Posted by Texas Contrarian

Shouldn't we have begun building rare earth reserve capacity a generation ago?

No kidding. Certainly after 2010 when China temporarily cut off rare earth exports to Japan. The U.S. politicians and military had plenty of warning.

China's year on year change in exports was 8.3%, 4.3%, and 7.1% in September, August and July respectively. This would indicate the USA isn't going to attain "escalation dominance" with tariffs. I bet if the USA cuts off more high tech exports to the Chinese and they continue to cut off rare earth products to the USA, the United States will come out on the short end of the stick.

You don't play chicken if you've got a Corvette and the other guy has a Mack Truck.

[Texas Contrarian]

Originally Posted by Tiny

China's year on year change in exports was 8.3%, 4.3%, and 7.1% in September, August and July respectively. This would indicate the USA isn't going to attain "escalation dominance" with tariffs. I bet if the USA cuts off more high tech exports to the Chinese and they continue to cut off rare earth products to the USA, the United States will come out on the short end of the stick.

Late last week, I was reading some notes posted by a private-sector macroeconomist who's a trade specialist and whose opinions I've long respected. His estimates are in line with those numbers and he spoke of China's efforts over recent months to aggressively pursue exports to a number of other nations, even at some margin-compression cost. He notes that's something China can live with, especially as through AI and advanced robotics they've been achieving even more manufacturing efficiencies, including for cheap, low-value-added goods -- the sort of crap people buy in huge quantities online and in giant box-stores.

I think the following two items can be viewed as solid "tells" that a Chinese cutoff of rare earth exports to the US was unlikely:

First, Trump said in interviews last week that he was seeking a deal that would be good for the "people of China"(!) as well as for the US. That signaled that he wanted to give Xi a "face-saving" result that could be claimed by the latter as good for his side, including the opportunity to craft a defensible narrative allowing accommodation to US needs to keep trade flows sustained, especially for critical minerals, and to Trumps need to avoid anything that could be spun by the media as an abject failure. And now Trump is sweetening the deal further for Xi by floating further tariff reductions if China will do more to rein in its exports of [redacted.]

Second, the markets seemed not only quite sanguine about a possible rare earth standoff, but positively giddy as the US equity indices have spent the last five or six trading days bulling their way to new all-time highs. Obviously, that wouldn't be happening if the markets feared economy-impeding rare earth shortages.

Originally Posted by Tiny

You don't play chicken if you've got a Corvette and the other guy has a Mack Truck.

Though my views in forum discussions have usually been aligned with yours, I must disagree here.

I submit that the Corvette is a perfect car to drive if you're hell-bent on playing a game of chicken, for its great maneuverability allows you to pull off a deftly-executed swerve at the very last second!

Don't try that in a heavy truck! You'll have to start your swerve much earlier in order to avert a "lose-lose" catastrophe, thus conceding a bit earlier that you "chickened out!"

[Tiny]

Originally Posted by Texas Contrarian

Late last week, I was reading some notes posted by a private-sector macroeconomist who's a trade specialist and whose opinions I've long respected. His estimates are in line with those numbers and he spoke of China's efforts over recent months to aggressively pursue exports to a number of other nations, even at some margin-compression cost. He notes that's something China can live with, especially as through AI and advanced robotics they've been achieving even more manufacturing efficiencies, including for cheap, low-value-added goods -- the sort of crap people buy in huge quantities online and in giant box-stores.

I think the following two items can be viewed as solid "tells" that a Chinese cutoff of rare earth exports to the US was unlikely:

First, Trump said in interviews last week that he was seeking a deal that would be good for the "people of China"(!) as well as for the US. That signaled that he wanted to give Xi a "face-saving" result that could be claimed by the latter as good for his side, including the opportunity to craft a defensible narrative allowing accommodation to US needs to keep trade flows sustained, especially for critical minerals, and to Trumps need to avoid anything that could be spun by the media as an abject failure. And now Trump is sweetening the deal further for Xi by floating further tariff reductions if China will do more to rein in its exports of [redacted.]

Second, the markets seemed not only quite sanguine about a possible rare earth standoff, but positively giddy as the US equity indices have spent the last five or six trading days bulling their way to new all-time highs. Obviously, that wouldn't be happening if the markets feared economy-impeding rare earth shortages.



Though my views in forum discussions have usually been aligned with yours, I must disagree here.

I submit that the Corvette is a perfect car to drive if you're hell-bent on playing a game of chicken, for its great maneuverability allows you to pull off a deftly-executed swerve at the very last second!

Don't try that in a heavy truck! You'll have to start your swerve much earlier in order to avert a "lose-lose" catastrophe, thus conceding a bit earlier that you "chickened out!"

As usual you were two or three steps ahead of the rest of us TC. As you predicted, Trump deftly swerved the Corvette and avoided the worst effects of a potential stoppage of Chinese rare earths.

You have to give Trump some credit, as politicians often adopt a position and stick with it, come hell or high water. They won't swerve.

Please note however that China already took a sledge hammer to Trump's Corvette, back in April. It slowed down exports of seven rare earth elements, which resulted in shortages. And that remains in effect.

The best strategy of course is just not to play chicken. If I'd been playing, I'd make a quick U-turn in the Corvette and drive fast in the other direction away from the truck.

[Texas Contrarian]

Originally Posted by Tiny

Please note however that China already took a sledge hammer to Trump's Corvette, back in April. It slowed down exports of seven rare earth elements, which resulted in shortages. And that remains in effect.

Given his penchant for dodging or reassigning blame at every turn I imagine that Trump has an answer for that, too. He might say, "I don't even have a Corvette. They smashed Biden's Corvette!"

Meanwhile, Bessent came out with what I thought was a rather challenging statement late last week when, as reported in the FT, he charged that China "made a real mistake" by "firing shots" in the game of brinkmanship over rare earths. Presumably, he meant that this serves as a loud wake-up call to the US and its allies, who will now put on a full-court press in an all-out effort to arrange sourcing from a number of other countries. I'm afraid this will take some time, though. In the meantime, I doubt that we will be able to adjust tariff policy vis-a-vis China to anything that's a significant improvement over the pre-Trump status quo ante without arousing China's ire and inviting another round of brinkmanship. (When was the last time the CCP lived up to vague promises, let alone any real agreement?)

Here's a key excerpt:

Beijing “made a real mistake” by threatening to shut off exports of its rare earths, US Treasury secretary Scott Bessent has said, insisting the US would secure alternative supplies within two years.

Speaking after Donald Trump and Xi Jinping met in South Korea, Bessent told the Financial Times that the US and Chinese leaders had reached an “equilibrium” but warned that China would not be able to keep using its critical minerals as a coercive tool.

“I don’t think they’re able to do it now because we have offsetting measures,” he said, adding that Chinese leverage over the US in rare earths would last no more than 12 to 24 months.

“China has alerted everyone to the danger. They’ve made a real mistake,” Bessent said. “It’s one thing to put the gun on the table. It’s another thing to fire shots in the air.”

See the full piece at:

https://www.ft.com/content/399ad440-...d-a0d8e0a8a22c