Edward Conard

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AI Summary. Governments seeking supply-chain leverage face limited visibility into their own supply chains, and China's rare earth licensing requirements for multinationals may be partly intended to give Beijing that visibility and allow more precise targeting of future restrictions. Effective measures must impose asymmetric costs, and keeping foreign manufacturers dependent on drip-fed supply is central to Beijing's strategy.

Chris Miller Financial Times
Date Posted:

Chris Miller argues that “at the very least,” Beijing’s rare earth export controls will “drive up prices and make non-Chinese manufacturing less competitive” – a win for China, given its “sustained industrial overcapacity.”

How does supply-chain visibility give China leverage in trade disputes?

Core argument: China's rare earth licensing requirements, which oblige multinationals to apply for access, may be partly intended to give Beijing greater visibility into supply chains and thus more precise targeting of future restrictions.

Beijing, Brussels and Washington are all searching for the most efficient and asymmetric ways to gum up their adversaries’ supply chains. One challenge these governments face is knowledge. It’s no secret that manufacturers struggle to understand the depths of their own supply chains. There can be dozens of transactions between a raw material and a finished good. Governments have even less visibility. China’s rare earth measures — which require multinationals to apply for licences — may be partly intended to provide Beijing with more supply chain visibility. This implies more precise targeting of any future restrictions. A second challenge is finding measures with asymmetric costs. For the world’s three largest economies, the only measures that provide real leverage are those that induce far higher costs on their rival than themselves. The Covid-19 pandemic was supposed to have forced the world’s procurement managers to shift from a “just in time” model to a “just in case” one better prepared for disruption. But as China drip feeds rare earths to desperate manufacturers abroad, “just in time” is central to Beijing’s strategy to keep global multinationals hooked on its supply.

Takeaways by Macro Roundup® AI

  1. China's rare earth licensing requirements, which oblige multinationals to apply for access, may be partly intended to give Beijing greater visibility into supply chains and thus more precise targeting of future restrictions.
  2. Beijing, Brussels and Washington all seek asymmetric measures that impose far higher costs on rivals than on themselves, since only such measures give the world's three largest economies real leverage.
  3. Manufacturers struggle to understand the depths of their own supply chains, which can involve dozens of transactions between a raw material and a finished good, and governments have even less visibility.

Related Articles:

  • China Cracks Down On Foreign Companies Stockpiling Rare Earths — China is warning foreign buyers of rare earths and derived products such as magnets that building large inventories will bring supply restrictions, and is limiting approved export volumes to prevent stockpiling, according to people familiar with the matter.
  • Industrial Policy and Economic Security — Industrial policy justified on national security grounds requires weighing how much economic inefficiency is worth tolerating, since costs incurred today make a country poorer and therefore less able to project power later. The calculation is difficult because security gains are probabilistic and long-term economic costs are speculative.
  • Mad Libs: Just Fill In The Blanks — China expanded its rare earth export controls to require licenses for any product containing more than 0.1% by value of Chinese rare earths or made with equipment containing them, with a presumption of denial for military uses and scrutiny of advanced semiconductor uses. Aggressive enforcement would affect industries from chips and autos to aerospace, defense and medical equipment.
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