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The Monitor's View

Perils of clashes with China over currency and rare-earth exports

Using trade as a tool for market advantage or as a substitute for war has its limits. China went too far in cutting exports of rare-earth minerals to Japan. Will the US go too far in punishing China on currency manipulation?

By the Monitor's Editorial Board / September 29, 2010



Is the world heading into a dangerous storm of trade reprisals and economic sanctions?

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Individually, such actions often seem worthy. The US House, for instance, passed a bill today that would make it easier for the Commerce Department to penalize China for manipulating its currency rate – an unfair way to favor Chinese exporters.

But Beijing appeared to anticipate that move this week by slapping high tariffs on imports of American poultry.

Two weeks ago, Japan helped its ailing exporters by intervening in currency markets – for the first time in six years – to devalue the yen. Many Latin American and Asian nations have also artificially altered their currency rates to create export-related jobs.

But taken together, such actions amount to a global “currency war,” warns Brazilian Finance Minister Guido Mantega. Too many nations are competing with devaluations to create a trade advantage but causing damage to the market-based system of world trade.

The United States, meanwhile, has led many nations to tighten sanctions on Iran and North Korea for their nuclear programs. But then, in a similar political move that sent shivers around Asia and into the Pentagon, China last week halted exports of “rare earth” minerals to Japanese high-tech industries in a dispute with Japan over a set of small islands. One Japanese official called China’s action a “surprise attack,” a phrase often used by the US for the 1941 Japanese bombing of Pearl Harbor.

What made China’s retaliation so troubling is that it controls 97 percent of the world’s production of these 17 exotic metallic elements, such as dysprosium. They contain unusual properties that are critical for making computers, TVs, smart bombs, fighter jets, battery-driven cars, wind turbines, and many other advanced products.

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