IMAGE: Peggy Greb, US Department of Agriculture (Public Domain)

Trade wars and rare earths

Enrique Dans
May 24, 2019 · 3 min read

The worst aspect of the US-China trade war, apart from the fact that there are never any winners in trade wars, is that nothing about it makes any sense.

The conflict has been triggered by one of the most irresponsible politicians in history, which mounting instability: today I block you, tomorrow I postpone the measures for three months, the next day I say that Huawei is threat to national security and two days later I suggest it could be included in some kind of trade agreement.

In all seriousness: if a company is a threat to national security, it cannot possibly be included in any trade agreement, and conversely, if a company can be included in a trade agreement, it’s not a threat to national security. But as said, nothing about this makes sense.

Block Huawei? The Chinese giant has imported enough components from the United States to continue manufacturing at its normal pace for the rest of this year, and more than enough time to develop the vast majority of these components in China if necessary. If it were necessary, which I doubt, that would be bad for US industry, because China would have been obliged to develop alternative components that would be its worst nightmare in the international markets. If the restrictions are maintained over time, the biggest problem for Trump would not come from China or Huawei, which is under no pressure from investors as it’s an unlisted company; but instead from US industry. Apple’s potential losses are enough to strike fear into investors, but many more companies face serious problems if the trade war heats up.

Look no further than Google: forced by the pathetic Donald Trump and his clumsy and ill-calculated efforts to restrict its dealings with Huawei, the company has now been forced to show that its Android operating system is anything but open, that it rules it with an iron hand, and that as well as prompting many misgivings among the public, has potentially been exposed to further regulation.

Might China retaliate by restricting rare earth element exports used in the manufacture of electronic components. In the same way US threats are largely empty, are China’s. Rare earth elements, in fact, are not so rare, nor is China blessed with a particular abundance of them. The only reason China is the main supplier of rare earths for industry is its lax environmental laws and comparatively cheap labor, but rare earths can be found in many places, including California, and once extracted, where they are usually found with other elements, the rest of the process is reasonably straightforward. Again: faced with a hypothetical restriction on exports of rare earths from China, all that would happen is that other countries such as Australia, Brazil, Canada, India and the United States would take up the slack, with China the biggest loser.

Artificial constraints are always bad for everyone, and trade wars are, to a large extent, that: clumsy attempts to generate artificial constraints. Donald Trump believes that geopolitics can be managed by bullying, making this trade war a grotesque, absurd and pointless episode, which of course is of no concern to smartphone owners (and much less appeal to the authorities to intervene). These are meaningless, short-term actions and not lasting restrictions that will force changes in the industry that nobody cares about.

None of this makes sense. In practice, the best thing that can be done about the erratic decisions and tantrums of Donald Trump is to ignore them, do nothing and wait for them to pass.

(En español, aquí)

Enrique Dans

On the effects of technology innovation on people…

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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