Wednesday, October 6, 2010

Trade Dispute Avoided, Innovation Accelerated

(Resource Investing – Michael Montgomery)

Tensions over rare earth policy came to a head last week in the showdown over a fishing boat captain detained by Japanese authorities. The Chinese fisherman had collided with two Japanese coast guard boats in “disputed” waters between the two nations. The Japanese arrested the boat captain and he had been awaiting trial until Chinese port authorities halted shipments of rare earth elements to Japan. Chinese officials have disputed the non-official trade restriction as simply an administrative matter carried out by customs officials. Beijing had requested the release of the boat captain, and many suspect the halting of rare earth shipments is a direct response to the diplomatic situation. Japan released the boat captain without trial, and shipments of rare earths began almost immediately thereafter.

The situation illustrates the immense power that these elements have over the world economy. While the market is small in relation to other minerals, such as iron and copper, the monopolistic power of China over this market leaves little option for countries and companies alike to give in to the whims of China. Read more here.