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Let’s Talk about China’s Three Trump Cards and Its Ultimate Secret Weapon during the Sino-U.S. Trade War

{Editor’s Note: President Trump is using the threat of tariffs to demand that China fulfill its overdue WTO promises and stop violations that involve the theft of intellectual property from U.S. companies. China, in retaliation, threatened to have a trade war with the U.S.

Government controlled Chinese media have published many articles criticizing the U.S. while warning that China will stay firm and will not back down. Many Chinese, whom the government has hired directly to monitor and influence the Internet, have posted opinions to support the government’s stance. Also many netizens, out of their patriotic view, have joined in to praise China and discuss how to beat the U.S. in a trade war.

Occasionally some rare voices have cautioned Chinese about a trade war and asked them to maintain a clear head. However, it is likely that the authorities took those articles down shortly after they were posted.

One author, who said that the authorities permanently closed his two Internet accounts, published an article to refute the “China will win” statement that many overly-confident patriots had made. The translation of an excerpt from his article follows.} {1}

Over the past two years, I have written over 100 articles on Sino-U.S. relations. Millions of readers have viewed my accurate step-by-step analyses of Sino-U.S. relations. I have repeatedly emphasized that China needs to take precautions in the best interest of the country. After the increasingly intense trade frictions between China and the United States, I have realistically analyzed the possible impact on China and the United States of China’s sale of U.S. Treasury bonds and of stopping the importation of U.S. soybeans, aircraft, automobiles, tobacco, chemical products, and other items. In particular I analyzed China’s “deadly weapons” or what most Chinese compatriots consider to be trump cards – the sale of U.S. Treasury bonds and the suspension of the importation of U.S. soybeans and of aircraft.

(The authorities) have shut down my two Internet accounts permanently. (Here) I would like to review briefly my views on China’s top three major trump cards:

One, selling off U.S. Treasury bonds. The U.S. Treasury bonds that China holds account for approximately seven percent of the total outstanding U.S. Treasury bonds issued. Whether it is a gradual sell-off or a quick sell-off, it will have little impact on the future issuance of U.S. Treasury bonds. The quick sale of U.S. Treasury bonds may cause irrational declines in the price of Treasury bonds. The only loser would be the Chinese government (who sells the bonds). The beneficiaries will be those who buy low in the secondary market. Such a sale will not cause any harm to the U.S. government or to the American people. This is just like investors selling stock in the secondary market. That would not cause any harm to listed companies and their shareholders. Some people think that, if China stops buying U.S. Treasury bonds, it will increase the difficulty for the U.S. to issue Treasury bonds in the future or increase the cost of issuing them. This has no theoretical basis and also lacks support from actual data.

Two, suspending or limiting our importation of soybeans from the United States. There will be a short-term impact on U.S. soybean producers, but given China’s huge import volume, unless the Chinese tighten their belts and reduce their consumption of soy products and meat products by more than two-thirds, no country in the world can provide a quality and affordable alternative to the United States imports. China’s high priced imports from other countries will inevitably drive up the price of international soybeans, causing other importing countries to switch to U.S. products and quickly offset the negative impact of China’s bans or restrictions on U.S. soybean producers. One can easily see this point from the speech of the chief representative of the American Soybean Exporters Association. Whoever has a little bit of international trade knowledge can understand my analysis.

Three, suspending or limiting our importation of U.S. aircraft. This is exactly the same as the case of soybeans. The negative impact on the United States is even lower, while the negative impact on China is greater. This is because the world’s largest commercial aircraft producers are Boeing and Airbus. Their order backlog is 10 years. If China switches to paying higher prices to Airbus, other international customers will not tolerate the long wait time and the more expensive prices from Airbus. Instead, they will go to Boeing which offers more reasonable prices and delivery dates so as to better meet customers’ requirements.

The latest statistics corroborate my analysis. At the recent Chinese Ching Ming Festival (April 4-6, 2018), Germany, the Netherlands, Mexico, and other countries signed over 2 million tons of soybean spot trading contracts with U.S. soybean suppliers. The reason is that in the past six months, due to the limited growth in the global soybean supply and strong demand, soybean prices have risen considerably. Many factors, such as Sino-U.S. trade frictions, have affected the price of U.S. soybeans. They have been significantly lower than the other two major soybean exporters, Brazil and Argentina. This has led international buyers to turn to the United States. This is something the Chinese compatriots, who only know how to slog the patriotic slogans but do not know anything about international trade, never thought of.

It can be said that the so-called three trump cards that counter the U.S. sanctions are actually killing one hundred enemies at the cost of losing the lives of ten thousand of our own soldiers. Selling off U.S. Treasury bonds and the like is simply a traitorous and destructive practice that will harm no one but ourselves. Therefore, at the press conference for the closing of the National People’s Congress and the National People’s Political Consultative Conference this year, the highest official of the State Council (Premier Li Keqiang) categorically denied this action. Some media like to hype this type of topic. I have made it clear in my writings and the country has already made the correct decisions. Thus I don’t want to say anything more. If I say too much, my social media account will be shut down.

Over the past two days, a large number of media have also ridiculed Trump, saying China has scared the pants off of Trump. The reason was that Trump tweeted deep appreciation for his deep friendship with the Chinese leaders and his belief that China and the United States can finally reach a win-win solution for trade disputes. The tweets and even countless We Media people have hinted that China and the United States have already reached a compromise on reducing the surplus of $100 billion and expanding the opening of markets. I pointed out sharply yesterday that this is one of Trump’s routine smoke bombs. Do not blindly underestimate the enemy and do not be overly confident. Now I’ll share with everyone this tweet that Trump just sent out:

“When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade.? No, it sounds like STUPID TRADE and it’s been going on for years.” {2}

Yesterday (April 9th), major portals in China posted an article that Outlook, a think tank, published, titled “China’s real ‘killer’ secret weapon that the United States fears is coming!” In fact, similar articles have already spread all over the media. Because they, the non-professional and non-authoritarian “patriots,” were bragging, I have ignored them all along, but the Outlook think tank and the Outlook Weekly magazine are too famous, like thunder reverberating, in China. This article is now the headline on many major Internet portals. What’s more, a few years ago, the Outlook Weekly magazine, singled me out as a bad Internet writer who helped promote a hot social event. So for either public or personal reasons, I cannot but come forward and write the truth.

According to the Chinese patriots, for more than a decade, “The United States has been importing 100 percent of its rare earth metal needs and China is the most important source country. If China were to cut off its rare earth exports, the United States would not be able to manufacture most of its advanced weapons systems.” “In addition, rare earth metals have also been used to make automobiles, computers, commercial aircraft, and smart phones. If China stopped exporting rare earths, the United States would be forced to shut down all or most of its technology manufacturing assembly lines.”

Although the Outlook says the above remarks were quoted from American media, I can be 100 percent sure that, if they were from such an American media, that media must have copied the remarks from the articles of Chinese patriots. If you do not believe me, we can Baidu it [do a search online], and you will see that, for more than a decade, countless Chinese patriots have been repeating this view, almost verbatim!

Let’s get down to business. First, is it true that, if China does not export rare earths to the outside world, the United States’ sophisticated weapons and high-tech products would be done and finished? Second, how much rare earth does China export?

Let me clarify the first question. Rare earth is a general term for dozens of rare metal elements which are essential components for manufacturing alloys and special materials. Chinese patriots believe that Chinese rare earths account for 90 percent of the world’s reserves, and that if China does not export rare earths, the whole world is finished. What is the real situation?

About 40 years ago, China discovered reserves of tens of millions of tons of rare earths in Baiyun-Obo, Baotou. At that time, other countries found they had very few reserves, which meant that China’s rare earth reserves accounted for 90 percent of the world’s reserves. However, over the past few decades, given the importance of rare earths, other countries have stepped up resource exploration and discovered more and more rare earth resources. The white paper “China’s rare earth conditions and policies” that the State Council Information Office issued in 2012 showed that China’s rare earth reserves accounted for about 23 percent of the world’s total reserves. According to the U.S. Geological Survey (USGS) data, as of 2016, the world’s rare earth ore reserves were about 120 million tons, mainly distributed in China, Brazil, Russia, India, and Australia. China had 44 million tons, or 36.67 percent of the world’s reserves, ranking No. 1.

It should be said that the China State Council Information Office and the United States Geological Survey are both authoritative organizations. The above data should be credible. In the past several decades, China has explored a large amount of rare earth resources. At the same time, other countries have also discovered a large number of rare earth resources. China no longer has 90 percent of rare earth reserves. It has only about 25 to 35 percent of proven reserves. In other words, whoever says China wants to monopolize the world’s rare earth resources is uttering nonsense out of sheer ignorance.

Besides, even if China has unique natural resources that are not available elsewhere in the world, can it limit or stop exporting them? As long as it has joined the WTO, the answer is absolutely not. If China does that, then other countries have the right to stop exporting chips to China, stop exporting oil and iron ore, stop authorizing Chinese users to use WINDOWS systems in computers and stop using Android and Apple systems in cell phones. Won’t China’s high-speed trains be stranded immediately, aircraft be grounded, banking systems collapse, cell phones become scrap metal, most cars be without gas, and most steel mills shut down?

Therefore, if one uses his brain a little, he can easily see through those remarks which will bring disaster to our country and harm to our people.

Let me talk about the second question. How much rare earth does China export every year? According to statistics from China’s Customs Service, in 2017 China exported 51,189 tons of rare earth resources, an increase of 9.7 percent year-on-year; the value was $416 million, an increase of 22.3 percent year-on-year. As you can see, the volume and value have increased simultaneously, and the increase in value is much greater than the increase in volume, indicating that in the past year, the price of rare earth resources has risen the same way as oil, coal, and iron ore resources. However, the export volume has not jumped as the “Patriots” have said. There has been no sell off at below cost as the “Patriots” have said. The trade volume of more than $400 million is insignificant in the trade volume of more than $600 billion between China and the United States.

Now, can the rare earth secret weapon, which the Chinese mainstream media and the authoritative Outlook view as some sort of secret “killer” weapon, knock the U.S. down once and for all in the Sino-U.S. trade war? After reading my detailed explanation above, I believe you all are clear about it.

As for how to fight the Sino-U.S. trade war, I believe that there are good policies at the top level. I dare not and will not talk about it, but as a scholar who deeply loves and lives on this land, I must expose all lies so as to prevent more Chinese patriots from straying into the side ways and fighting blindly against foreign countries.

April 12, 2018, Supplement:

According to domestic and foreign media reports, on April 12, a research team composed of lecturers such as Professor Yutaro Takaya of Japan’s Waseda University and Professor Yasuhiro Kato of the University of Tokyo announced that the amount of rare earth resources on the seabed around the southernmost island of Japan (the Tokyo Metropolitan Area) exceeds 16 million tons and is available to the entire world to use for several hundreds of years. {3}

{1} Sina, “Let’s Talk about China’s Three Trump Cards and the Ultimate Secret Weapon during the Sino-U.S. Trade War,” April 11, 2018.
{2} Politifact, “Is Donald Trump right that China slaps a 25 percent tariff on American cars?” April 9, 2018.
{3} CNBC, “A massive, ‘semi-infinite’ trove of rare-earth metals has been found in Japan,” April 12, 2018.