Thursday, February 22, 2024
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Rare earths: an ace in China’s hole in its game with the West

Before declaring war, it is essential to make an accurate analysis of the forces. Ask Vladimir Putin, who was going to take kyiv in a week and has already been stuck in Ukraine for 630 days. Something similar happens to the West with China. In the 1980s, a process of deindustrialization began, attracted first by cheap labor in Asia, and later by the incentives of globalized trade. The objective has always been to maximize business profits, without thinking about the dependency relationships that were being forged in the political sphere with countries with antagonistic ideologies that had more than enough potential to become what we now call ‘systemic rivals’.

Perhaps it was thought that the traditional powers could modify the rules so that they always benefited them, as they have done until now. But what has happened is that the emerging powers, led by China, are beating us at our game. And, as always happens, the declining empire pulls out its claws and ends up doing what it said it would never do. Thus, the United States and Europe, no longer able to manufacture something as simple as a surgical mask, end up adopting protectionist measures and subsidizing their industries while opening a trade war with the Asian giant, accusing it of doing the same thing.

They may have miscalculated their forces, like Putin. And the latest example of this is the introduction in China of restrictions on the export of rare earths, key elements for technological development. Therefore, today we focus on analyzing its relevance.

These are the three topics we will address today:

  • China targets Western technology.

  • Joe Biden and Xi Jinping try to smooth things over.

  • A congressman with horns.

  1. Trade war

    China targets Western technology

The news has gone unnoticed, but it is much more relevant than it seems: China will begin to require permits for the export of some materials derived from graphite that are key to the energy transition and the digital revolution. These are restrictions that are added to others that have been approved throughout the year and that are creating barriers to the sale abroad of the most relevant minerals of the 21st century: rare earths.

From the mine to the laboratory

Reuters/AFP

Secondary image 1 - From the mine to the laboratory

Secondary image 2 - From the mine to the laboratory

The president of the European Commission, Ursula Von der Leyen, assured that these 17 little-known elements of the periodic table “will soon be more important than oil and gas.” The problem is that, as is also the case with these hydrocarbons, we hardly produce them. 98% of those used in Europe are processed in China – which has the largest reserves on the planet – and 60% of lithium – the main material in batteries – worldwide also comes from the Asian giant.

Even if the West steps up to increase its production – something the EU did not intend to do until last April – it will take years and many billions of euros to achieve some self-sufficiency. Meanwhile, if China decided to turn off the tap, our high-tech companies would have to do something else. At least for a time. It is not that we were going to return to the Middle Ages, but our digitalization and the necessary ecological transition are, to a large extent, in the hands of the Communist Party.

Despite this, Europe is joining the United States’ tariff war and is now threatening to investigate Chinese electric vehicle brands because it suspects that they receive subsidies from the Chinese state. Apparently, he does not consider the large outlay of Next Generation funds to be equivalent. And the same can be said of the subsidies with which EU countries constantly irrigate sectors such as agri-food. Not to mention the laziness and lack of foresight of European car manufacturers, who now see the wolf’s ears. When it cannot compete, the West changes the rules of the game.

Some of the 17 existing rare earth elements.

Some of the 17 existing rare earth elements.

Reuters


And China criticizes it, rightly so. Because the country, which calls itself socialist and waves the communist banner, is going ahead: a third of its economy is state-owned and operates with much longer-term plans than the quarterly ones that drive companies. Beijing claims that different political and economic systems can coexist in the world. And his pulse does not tremble when it comes to threatening: if it is not the good way, it will be the bad way. If it is necessary to use manufacturing and consumer power as a weapon, it will do so.

The effects of this climate of geopolitical tension are evident in the latest survey carried out by the European Central Bank: more than 40% of European multinationals are considering moving all or part of their operations in China – whether manufacturing or service – to ‘friendly’ countries. That does not mean that their countries of origin will recover them, as those who are excessively optimistic would have us believe, but that they will take them to India, Vietnam, Indonesia or Mexico. The West is increasingly less competitive. It is perfectly defined on the iPhone label: ‘Designed in California; made in China’. It remains to be seen how long we will maintain the advantage in design.

  1. Meeting at the highest level

    Joe Biden and Xi Jinping try to smooth things over

The two men who can right this situation meet today in San Francisco. The president of the United States, Joe Biden, and his Chinese counterpart, Xi Jinping, star in one of those meetings in which the world can be fixed. At least part. But they will shake hands at a difficult time: 58% of Americans believe that the rise of China is a threat to their country and that their government is paying enough attention to it.

According to a survey published yesterday by Kafura, this percentage is the highest since 1990, reflecting growing mistrust. Curiously, what is most worrying is not the increase in the Chinese Defense budget but its economic power and the fact that the political system that guides it is authoritarian. 32% of those surveyed in the United States already consider China as a power superior to their own – it is if the GDP measured at purchasing power parity is taken into account – while another 33% equal the strengths of both. Without a doubt, it is a giant leap for a country that half a century ago barely had anything to eat.

The two most powerful men in the world will shake hands again today.

The two most powerful men in the world will shake hands again today.

Reuters


It is expected that Biden and Xi will also talk about the two major war conflicts currently open, and in which they maintain very different positions: while the United States unconditionally supports Ukraine and Israel, China offers more veiled support to Russia and Palestine. However, analysts closest to the White House advance that the issues on the meeting table are more economic. After all, they are united by a commercial relationship of no less than 700,000 million dollars.

Biden and Xi are never going to get along. But that they manage to maintain a peaceful and cordial relationship is of vital importance for the world. Because, now that many see the specter of a Third World War closer, even more believe that, if it occurs, this contest will pit the two superpowers against each other. For this reason, one of today’s objectives, as Biden himself recognized yesterday, is to reopen the military communication channels that were closed after Nancy Pelosi’s visit to Taiwan, an island that could be the initiating spark of that hypothetical war.

  1. The ridicule of politics

    A congressman with horns

Meanwhile, the political absurdity that has been established in the United States since Donald Trump became president continues its climb on the thermometer of ridiculousness: Jacob Chansley, that guy who participated in the assault on the Capitol without a shirt and with horns and a skin with a fox on his head, has decided to run as a candidate to fill the seat that a Republican is going to leave vacant in Congress. He will try with the Libertarian Party in Arizona and, taking into account the circus that the American superpower has become, it would not be ruled out that he succeeds.

Jacob Chansley in search of glory.

Jacob Chansley in search of glory.

Reuters


It will be necessary to see if his candidacy is accepted, because Chansley pleaded guilty to a crime of obstruction of justice in relation to the January 2021 attack. And it would be more than ironic that someone who attacked one of the main symbols of American democracy can present himself as a candidate to be part of its team. It is not surprising that, with these types of stories, the United States is becoming the laughing stock of much of the world. The worrying thing is that it serves as a guide for populist movements on the other side.

Is all for today. I hope I have explained well some of what is happening out there. If you are signed up, you will receive this newsletter every Wednesday in your email. And, if you like it, it will be very helpful if you share it and recommend it to your friends.

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