China prepared to use rare earth monopoly to extort

Last week, we reported on the world’s scramble for strategic resources, particularly the vital group of 17 minerals known as rare earths. There is a growing shortage of these minerals—of critical importance to modern technology, everything from car batteries to military equipment—and that is largely because the nation that produces 97 percent of those metals is now selling less. China is tightening its grip on its output, concerning global buyers.

For China, its near-monopoly on the strategic minerals is a boon—as it has shown in recent weeks.

Japanese traders reported their rare earth shipments were halted during a diplomatic dispute between their country and China. Japanese manufacturing companies rely on rare earth minerals to make their high-tech products, including computers and cell phones, as well as energy-efficient items like hybrid cars. According to the Japanese government, China, decided to block shipments to Japan to gain leverage in a diplomatic dispute, as the Los Angeles Times reported on Wednesday:

A few weeks earlier a Chinese fishing boat in Japanese waters crashed into a couple of Japanese coast guard ships. Japan seized the boat and arrested the captain. In response, China promptly detained four Japanese employees of Fujita Corp. on suspicion of filming a restricted military area in northern China.So Japan proposed an exchange: the fishing boat captain in return for the four arrested Japanese citizens. But Japanese government officials say China balked and then, in an awesome display of economic power, simply cut off its rare earth shipments to Japan. The Chinese government denied the accusations, but true or not, Japan suddenly found itself in an unwanted trade war with its biggest trading partner. Through the first half of this year alone, China had bought $20 billion of Japanese government bonds and Chinese companies had invested roughly $120 million in Japanese businesses. This provided a needed boost to Japan’s sagging economy.Sensing the coming heat, the Japanese government acquiesced and freed the fishing boat captain on September 24 with no strings attached. Only then did Beijing’s rare earth minerals showdown ease. And last week, China released three of the Fujita employees it was holding. However, one Japanese citizen still remains in a Chinese prison cell, a bargaining chip for a later negotiation.

Through this incident, Beijing has signaled that it has no qualms about using its rare earth monopoly to extort other countries. TheTrumpet.com warned of this a year ago, after China produced a white paper proposing an export ban on rare earth metals. “China is aggressively cornering the market on rare-earths,” we wrote.

We also warned, “America may be about to pay the price for letting itself become so dependent upon China for such strategic minerals.”

There is a reason China has the confidence even now to use its position as the world’s predominant supplier of rare earths to gets its own way. “Why would China so brazenly challenge the world’s economic powers like this?” asks the L.A. Times. “Because the country’s leaders know what our leaders are only beginning to understand—that China would probably win a global trade war.”

The world has reason to be alarmed.