American manufacturers are fighting to compete in a global environment that grows more competitive by the day. They can succeed, but only if the game is not rigged against them. China is playing hardball by first monopolizing, then price-gouging on resources manufacturers need to make many tech products.
Over the past 30 years, the United States and the rest of the world have become dependent on imports, many from China, for 19 key minerals. These so-called “rare earth” minerals are used in the integrated circuits found in most computers and smartphones, as well as stereo equipment, radar technologies and missile guidance systems.
In 2010, prices soared as China imposed severe export quotas on these minerals, essentially removing them from the global marketplace. China claims that it imposed these limits for environmental reasons; however, it never applied equal restrictions on domestic producers. The artificial export restraint resulted in triple-digit increases in worldwide prices of these minerals, according to one of the top companies dealing in rare earths. The arguably intended result: manufacturers have incentive to base production in China.
Technology-intensive companies now face a decision – move their factories to China where these minerals are relatively cheap and accessible, or continue struggling with costs and supply.
Case in point: as a result of Chinese rare earth export restrictions, U.S.-owned and operated MiTek Corporation, parent company of 13 specialized audio companies with sales in more than 80 countries worldwide, experienced a 294 percent price increase for the rare earth magnets vital to its business. In a recent PricewaterhouseCoopers study, 78 percent of CEO respondents in the high-tech industry said that they perceive minerals and metals scarcity as a pressing issue for their company.
However, China should take the initiative and remove its export restrictions as a sign it is ready to be a respectable player in the world economy. No one denies that China is a growing global force. The Chinese government seeks the respect and status they believe is their due, and want be treated as an equal to the United States, Japan and the established European powers.
China must understand that “world power” status is not simply a measure of economic and military might. The established world powers have something in common – they work in concert to foster a vibrant world economic system. By contrast, abusing a market advantage with arbitrary export restrictions shows that China is not yet ready to take on the role of a responsible global power.
China must realize that, regardless of trade barriers, the market will eventually drive itself towards solutions. Nations that make their resources accessible, have smart governing policies, and constructively participate in the global system will be the ultimate winners in the global economy.