Case Study:the Rare Earth Dispute Between China And The US

As an important member of the WTO, China’s global trade has developed dramatically. With the increasingly growth of its trade volume, trade disputes with Chinese trade partners have also multiplied. Among those trade disputes, some are in conflict with WTO regulations, while others are not consistent with domestic laws. This thesis intends study the Sino-US trade dispute on rare earth elements, which emerged from China’s restrictions on rare earth exports.As strategic sources, the rare earth elements are not only vital to the advancement of economy and society, but also of great importance in the national defense security. Moreover, the development of the rare earth elements industry is especially crucial to a country’s competitiveness in high-tech field. Therefore, thoroughly understanding the development of domestic rare earth industry and effectively regulating China’s rare earth trade pose serious challenges for our government. Pragmatically, in order to make better use of the lessons we learned from this dispute, it is of high necessary to figure out the interests of the stakeholders involved in the Sino-US rare earth dispute and to make known the regulations, procedures and policy implications in negotiating bilateral disputes. This is also the starting point of the essay.The main content of this thesis is divided into six parts. Part I is introduction, which outlines the framework of this research. Part II is literature review, which conducts literature reviews from both domestic and foreign research. With China’s accession to WTO and expansion of bilateral trade afterwards, US trade policy toward China gradually becomes one of the most attractive topics in academic circle. After reviewing the relevant theories of public choices, this part also points out some deficiencies of current research methods and presents the emphases of this thesis. Part III is the background analysis of the rare earth industrial development in China and the US. The thesis first explains the supply and demand pattern of the rare earth elements based on the global market, and points out that with the largest reserve of the rare earth elements in the world, China’s production of the rare earth elements do not match the reserves. What’s more, the thesis analyzes the advantages and disadvantages of every link of rare earth industry chain in both the United States and China. China has a clear advantage in terms of mining, smelting and low-end productions, while in the US, rare earth is more mature in using for high-end applications and research. Since China’s export restriction threatened the sufficient supply of the rare earth elements in the United States, the US, Japan and EU brought trade complaints to the WTO against China. Part IV is background of the case study, which systematically reviews the development of Sino-US rare earth disputes. Part V is stakeholder-based political economy analysis. It first analyzes various stakeholders hidden behind the dispute. In the United States, different government sectors, including the White House and the Congress, federal government and local governments, do not share the same interest. Meanwhile, those American companies in this industry support the US government to take measures against the Chinese trade restriction in order to reduce cost, ensure the raw materials supply, and prevent technological spillovers. What’s more, labor organizations, trade associations, environmental organizations and others that have always been playing an important role in the history of US, also fight against Chinese trade restriction for the purpose of economic development and job security. In China, rare earth policies are introduced by central government and local government for a variety of economic and political purposes. Various types of enterprises also play different roles in the process of policy implementation due to the differences in production scale, production technology, production phase and other aspects. Coupled with the lack of strong support from industry associations, it is impossible for enterprises to form an effective organization to express their own needs. Then, this part provides political and economic analysis. There are so many political and economic interests behind the dispute, the effect of China’s rare earth policy is affected by the relevant stakeholders. China and the United States have a strong interdependence in the development of rare earth industry, they have economic benefits with each other in short-term as well as long-term. Part VI is the conclusion, which not only summarizes the whole thesis, but also gives suggestions to China in terms of how to ease friction and promote global imbalances with the US and other trade partners.Combining normative analysis with case analysis, this paper explores the stakeholders involved in the trade dispute based on the review of global market and development defects of rare earth industry in two countries. Furthermore, it explains the political and economic background of the dispute, and provides choice for China in dealing with trade dispute.