Recently, a Chinese scholar who also is a government advisor, proposed that China has three trump cards to win the U.S.-China trade war.
Jin Canrong, a professor and associate dean at the school of international relations at the Renmin University in Beijing, explained his theory in a written article for Guancha, a Chinese state-run media.
First published in July 2018, Jin re-posted this article recently in reaction to the trade talks ending Washington without a reached agreement.
Because this article began circulating widely among Chinese state media, it is likely to be an opinion supported by the Chinese regime.
The first is to ban the export of rare earths to the United States, as rare earth minerals are essential components in the manufacturing of many high-tech products such as electric vehicles, wind turbines, and smartphones.
The second is for China to sell off its $1.1 trillion holdings of U.S. treasuries.
The third, which Jin said he considers to be the most powerful card, is to shut off the Chinese market to American companies. Many U.S. companies that rely more on the China market than their domestic markets would immediately suffer losses, he predicted.
However, Frank Tian Xie, business professor at University of South Carolina–Aiken, said none of these three “trump cards” would serve any use for China to gain an upper hand in the trade negotiations.
Xie wrote a commentary for Epoch Weekly on May 21, to discuss why he believed these trump cards are not successful.
First, there are alternative suppliers of rare-earth elements that the United States could turn to.
“Brazil, Russia, the United States, and Japan all have rare earth reserves. In Japan, rare earth ores are found at the ocean bottom surrounding Minami-Tori-shima island,” Xie explained.
Last April, Japan discovered 16 million tons worth of rare earth deposits off the island, which scientists said would provide hundreds of years’ worth of rare earth minerals.
China dominates the world’s production of rare earths with a near-monopoly.
It has mainly achieved this by Chinese companies intentionally lowering prices of rare-earth metals, force their competitors into bankruptcy—and then purchasing mines from the failed competitors.
Xie explained in his commentary that China cannot afford to play the “rare earth trump card” for its own interests.
“If China cuts off its rare earth supply to the United States, prices for rare earth elements will go up. In turn, United States, Brazil, and India will resume the rare earth mining industry. When they reach a reasonable production capacity, China will lose this market, and very likely lose it for good,” he wrote.
Moreover, so far China’s domestic high-tech manufacturing industry does not have enough capacity to make use of the rare earth minerals, and hence relies on exporting them to other countries in order to sustain its rare earth mining industry. As a result, this “trump card” will come back to haunt China, Xie concluded.
With regard to the second “trump card”—selling off U.S. treasuries—China’s $1.1 trillion holdings of U.S. treasury securities only accounts for 5 percent of the total U.S. treasuries. As the safest government debt with high liquidity, it is highly sought-after by investors all over the world. Others would easily buy up the U.S. debt.
Selling off the treasuries would also hurt the Chinese regime’s own interests, as the value of the U.S. treasuries will drop if China sells all its holdings within a short time frame, Xie said.
The IMF (International Monetary Fund) would then step in. “This is because the purpose for the establishment of IMF is to promote international financial stability and monetary cooperation. Beijing’s proposal of a hostile sell-off would constitute a severe violation,” Xie explained.
As for the third trump card, shutting off the Chinese market to U.S. enterprises, Xie said he completely agreed with the viewpoint of Jiang Yongchang, professor at Shanghai’s Fudan University, who pointed out in a Voice of America interview that this would only bring the opposite of China’s intended effect: it would actually help U.S. President Donald Trump achieve his goals. The Trump administration made it clear that they hope U.S. firms will move manufacturing back home. Some foreign companies have already begun to move manufacturing out of China and back to their home countries in order to avoid U.S. tariffs.
Chinese Regime Anxiety
On May 16, Qiushi, the Communist Party’s main political theory journal run by the Central Party School, published an article written by Chinese leader Xi Jinping, in which he summarized an “important speech” he delivered to provincial level officials back in 2016.
He said that China lacked the innovation needed for further economic development. The decision to publish the article amid rising trade tensions with the United States also hints at the regime’s anxieties about the current state of the economy.
“Although China’s has become the world’s second largest economy, our economy is large but not strong, which can be likened to a person who is heavyset but not healthy,” Xi wrote in his article. “It is mainly reflected in the lack of innovation. This is the ‘Achilles’ heel’ for China’s economic development.”