The U.S. has formally requested the WTO establish a dispute resolution panel concerning China’s recent decisions to restrict exports of certain key raw materials. This follows on the initial request for review made by the U.S. in June of this year.
These US government actions highlight the importance of China in the trade of certain key materials. The materials referenced in the complaint are: bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus, and zinc, all of which are key inputs for numerous downstream products in the steel, aluminum, and chemical sectors across the globe.
It seems certain this complaint will fail.
Every country has the sovereign right to determine how to deal with its own natural resources. Entry into the WTO does not require a country to export any of its natural resources. All the WTO requires is that all purchasers who belong to the WTO be treated equally. If China refuses or limits access to all countries of the world on an equal basis, the WTO should have nothing to say. In the same way, the U.S. can decide that our own coal and oil and natural gas are too important for our own industries and people and therefore cannot be exported.
This complaint highlights a major issue for world trade down the road. Modern industry relies on certain metals that are actually quite rare. If export of those metals is disrupted, it will cause severe dislocations in many high tech and other businesses. For China, the big issue is actually not the metals listed above. The big issue is rare earths. China is currently overwhelmingly the largest supplier of rare earths in the world, with well over 90% market share. Rare earths are essential to produce the magnets required for motors for electric cars and for certain components used in wind power turbine manufacture. China recently imposed restrictions on the export of rare earths. It is clearly China policy to gradually force all manufacturing using China rare earths to occur in China. Without the location of an alternative supply, China is in a position to dominate electric car production market for many years. This no doubt helps explain why Warren Buffet’s Berkshire Hathaway chose to buy into BYD Company, a China based battery and electric car company. [Full Disclosure: Dan has been an investor in Berkshire Hathaway almost ever since Buffet-directed investments made his alma mater, Grinnell College, the “wealthiest liberal arts college” in the United States]
As part of a similar strategy, China is seeking to control the market for other key minerals by strategic purchases outside of China. Some of the target minerals are platinum, chromium and silica sand. Like it or not, China’s approach seems much more likely to succeed than the filing of disputes with the WTO.