An Urban's Rural View

American soybean farmers aren't alone in their dangerous overdependence on China. In a different way, so are many American manufacturers.

The Chinese typically buy around half of U.S. soybean exports, giving them the power to inflict pain by withholding purchases -- a power they exercised for much of this year.

For U.S. manufacturers, the problem is that China is the only or main source for too many of the ingredients and components they need to make products.

The example in the news most recently was rare-earth minerals. China accounts for 97% of the world's production of these metallic elements, which are needed to produce such high-tech products as cellphones, computer hard drives, lasers and radar and sonar systems. Read about that here: https://profession.americangeosciences.org/….

Rare-earth minerals were in the news because China was restricting exports in retaliation against high U.S. tariffs. The restrictions were suspended for a year as part of the deal President Donald Trump and Chinese President Xi Jinping recently reached. Read more about that here: https://www.dtnpf.com/….

Rare earths, however, are far from the only thing American manufacturers depend on China for. Consider this barely-scratch-the-surface list of materials whose production China dominates: graphite; gallium; germanium; magnesium; tungsten; permanent magnets; polysilicon.

The importance of these materials can't be overstated. Without graphite, lithium-ion batteries can't be made. Without gallium and germanium, there's no manufacturing semiconductors, fiber optics and infrared systems. Without tungsten, you can't make drill bits or industrial cutting tools.

And then there's pharmaceuticals. A large percentage of the active pharmaceutical ingredients in many of the medicines Americans take come from China -- ibuprofen, acetaminophen, some antibiotics and some blood pressure drugs -- to name just a few.

U.S. companies also import active ingredients for other drugs from India, but India depends on China for the chemicals to make many of these ingredients.

When Americans shop in stores, they often comment that everything on the shelves seems to be marked "Made in China." But materials and minerals aside, there are plenty of things that aren't labeled that are also made in China. Many of the less advanced semiconductors used in autos and consumer products come from China, for example.

America's -- and indeed the world's -- overdependence on China didn't just happen. Supply-chain dominance has long been one of China's industrial-policy goals. China has worked hard to lessen its dependence on other countries and increase those countries' dependence on China.

By giving companies in targeted industries tax breaks, low-interest loans, subsidies and protection from foreign competition, China has encouraged companies to develop massive economies of scale. The resulting lowered costs allow them to flood overseas markets and put foreign competitors out of business.

The result is an economy that by some measures accounts for 35% of global manufacturing. And China hasn't restricted its focus to final assembly. It has worked, often successfully as in the case of rare earths, to dominate the upstream materials and components as well.

Its tactics have at times bordered on predatory. According to a Wall Street Journal article on China's rare-earths dominance, "When the U.S. tried to engineer a revival of its domestic industry a few years ago, China flooded the market with supply, throwing Western producers into a tailspin.

"As Western rare-earth companies' valuations collapsed from the low prices caused by soaring Chinese production, they were forced to slow their expansions, and in some cases, sell their mines to Chinese buyers." Read about that here: https://www.wsj.com/….

Washington is more than vaguely aware of the dangers of all this overdependence. Administrations of both parties have turned to industrial policy in response. President Joe Biden's administration set out to subsidize American manufacturing through legislation like the Chips Act. President Donald Trump uses high tariffs in an effort to achieve the same ends.

American companies that have the ability to diversify are moving to do so. Some of those that manufacture in China are bringing production back to the U.S. or moving it to other countries.

The big problem these efforts face is China's scale advantage. Because of it, Princeton's Aaron Friedberg maintains, "No country alone can contain the second China shock," and China's increasing dominance of the most advanced technologies. Read more here: https://www.dtnpf.com/….

The answer, Friedberg and other experts argue, is for like-minded countries to band together and coordinate their tariffs and other industrial policies. Alas, under Trump, the U.S. is moving in the opposite direction, imposing high U.S. tariffs on allies as if they and not China were the threat to America's economic well-being.

All this should be of some consolation to soybean farmers. In comparison to manufacturers, the solution to their problem is straightforward. They just need to find new markets. Would that it were that simple for American manufacturers.

Urban Lehner can be reached at urbanize@gmail.com

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