Angry China bears its teeth

And they are not nice. Recall the evolving Communist Party of China (CPC) propaganda push outlined by Simon Rabinovitch last week:

Add this from the foghorn:

China does not want a trade war, but it is not afraid of one and will fight one if necessary. The Chinese government has always adhered to this principle faced with the US initiated trade frictions against China. As Washington announced rounds of additional tariffs on Chinese goods, China was forced to take countermeasures.

It is obvious to all that Washington has adopted increasingly attacking tactics against China by not only raising tariffs on Chinese products, but also sabotaging the global supply chain and blocking the supply chain of technologies and products which threatens the survival of Chinese enterprises. Such hegemonic behavior has astonished the world.

Some decision-makers in the US are selfish and arrogant. They made attempts to control the global supply chain for their own interests, imagining that they, who are “great and superior”, can control everything.

However, anyone who has learnt Newton’s law of motion knows that for every action, there is an equal and opposite reaction.

As some American politicians continue threatening to exert extreme pressure against China, people are increasingly concerned about what trump cards China holds against such suppression.

Many foreign media outlets have turned their eyes to rare earths. Some analysts believe that China’s dominant position in the rare earth market has given Beijing a way to strike back.

China is the world’s largest producer of rare earths and the largest supplier of rare-earth materials which are in huge demand by many developed countries.

Strengthening the exploitation and utilization of rare-earth resources is of positive significance to the economic development of China and the world. China has always adhered to the principle of openness, synergy and sharing to promote the development of the rare earth industry.

The country sticks to the principle that rare-earth resources should serve domestic needs first. On the other hand, the country is also willing to meet the legitimate needs of countries around the world for rare-earth resources. China is pleased to see that its rare-earth resources and products can be widely used in manufacturing various advanced products to better meet the needs of people around the world for a better life.

Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery.. In today’s world where different industrial labors are divided globally, no development and progress can be achieved without cooperation.

Known as the “vitamin” of the modern industry, rare-earth elements are widely used in modern industries such as metallurgy, petrochemicals, opticals, laser, hydrogen storage, display panels, and magnetic materials.

With the continuous progress the world’s scientific and technological revolution and industrial transformation, the strategic value and significance of rare-earth elements will be more prominent.

In the global market, the consumption of new rare-earth materials is growing rapidly. The growth of many industries, such as military and civilian industries, is inseparable from rare-earth resources. The demand for rare-earth oxides by US companies is particularly strong.

At present, some people in the US are indeed fantasizing about “resource self-reliance”, but the strong dependence of the US on the global supply chain is an indisputable reality.

The American business community from the rare earth industry expressed the concern that they are far behind, and haven’t made any progress. According to data from international market research institutions, the United States is a main buyer of rare earths in China. In fact, consumer electronics, military equipment and many other products produced in the US are highly dependent on China’s rare-earth resources.

Undoubtedly, the U.S. side wants to use the products made by China’s exported rare earths to counter and suppress China’s development. The Chinese people will never accept this!

Washington has completely overestimated its ability to manipulate the global supply chain and lacks self-knowledge. The US is doomed to be met with a slap in the face after it wakes up and stops dreaming.

Relevant Chinese departments have issued solemn statements that the industrial chains between China and the United States are highly integrated and highly complementary.

Cooperation leads to win-win results while confrontation leads to lose-lose situations. There is no winner in the trade war. We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!

The virtuous are free from anxieties, the wise are free from doubts and the bold are free from fear. Only by working together to expand the common interests of all countries can we embrace lasting prosperity and a win-win future.

Rare earths are a complete bluff. So is selling Treasuries. And raising tariffs. The only real weapon China has is to block access to its own markets, which is what this entire fight is really about anyway, given it already does it. And so, that’s where it is going:

China said it will establish a list of so-called “unreliable” entities it says damage the interests of domestic companies, a sweeping order that could potentially affect thousands of foreign firms as tensions escalate after the U.S. blacklisted Huawei Technologies Co.

China will set up a mechanism listing foreign enterprises, organizations and individuals that don’t obey market rules, violate contracts and block, cut off supply for non-commercial reasons or severely damage the legitimate interests of Chinese companies, Ministry of Commerce spokesman Gao Feng said Friday. “Necessary measures will be taken” against those on the list, he said, adding that specifics would be released soon.

The Commerce Ministry is going through relevant procedures, and will release the first batch of blacklisted entities soon, according to state-media China Central Television.

Yet even this is stupid. If the US responds in kind then the Chinese economy will collapse while the US will simply restructure.

The fact is China is all bluff. It has tried to cheat its way to the top of the super power ladder and has been caught doing so. It should have taken its medicine quickly, done a deal, and gone back to cheating a little more carefully, tip-towing around the US hegemon. Now it is cornered and getting more so with every passing trade war escalation.

The end game of this will not be trade war, which China can only lose. It will be real war, as the Communist Party of China weaponises nationalism to distract from it blunders. To wit today from Straits Times:

Chinese Defence Minister Wei Fenghe’s tough words on Taiwan and its military activities in the South China Sea were directed primarily towards the audience back home, a top United States official attending the Shangri-La Dialogue said on Sunday (June 2).

Providing the first official US response to General Wei’s speech at the Dialogue, Ms Andrea Thompson, the Under Secretary of State for Arms Control and International Security, said: “As I took it, it seemed very tailored towards his leadership.”

In his speech, Gen Wei warned Washington not to interfere in security disputes over Taiwan and the South China Sea.

 “If anyone dares to split Taiwan from China, the Chinese military has no choice but to fight at all costs for national unity,” he said in his speech.

Beijing has been particularly critical of the Trump administration’s move to increase diplomatic and military support for Taiwan, including the sailing of US naval ships through the Taiwan Strait that separates the self-ruled island from mainland China.

China considers Taiwan a province that must reunified, and US moves are seen as a challenge to its sovereignty.

“Any underestimation of the PLA’s (People’s Liberation Army) resolve and will is extremely dangerous,” Gen Wei said.

“We will strive for the prospects of peaceful reunification with utmost sincerity and greatest efforts, but we make no promise to renounce the use of force.”

Amid a spike in tensions with the US over trade, technology and security issues, there has been a hardening of public mood in China, with nationalistic media and opinion-makers calling for China to stay firm in its disputes with the US.

In his speech, Gen Wei also described China’s construction activity on South China Sea islands and reefs as legitimate and defensive in nature. He also blamed the US, although not by name, for “trying to rake in profits by stirring up troubles in the region”.

It may not take the form of a great power conflict. It could be proxy wars or insurgencies or careful destabilisations, such as China’s island fortresses. But the CPC will now advance real war options in North Asia, so long as the trade war goes badly.

In a structural sense it is fantastic that Australia can no longer just drift into becoming a CPC puppet. But the risk of catastrophic outcomes is also rising.

Perhaps that is the price we had to pay for freedom.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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