It’s not funny, but then again, it kind of is.
Like anything else that spirals out of control or is taken to its (il)logical extreme, Donald Trump’s trade war with the Chinese is starting to manifest itself in silly ways.
For instance, the USTR’s list of products that will be subject to tariffs if Trump decides to go “all-in” by taxing the entirety of Chinese imports includes “live foxes”, “human hair whether or not washed”, “fresh cut orchids”, “false beards” and “metal forks without their handles”.
Sure, you could parse the lists associated with the existing tariffs and find similarly amusing items, but the further down the protectionist rabbit hole we go, the more ridiculous things are bound to get. I hope you enjoyed it when “false beards” were cheap and when you could obtain a duty-free “live fox” down at the local Fox-N’-Beards.
Meanwhile, the sheer blatant absurdity inherent in the Trump administration’s farmer bailouts (plural) cannot be overstated. We can argue about the technicalities and what the proper way to describe the situation is until the cows come home, but at the end of the day, Trump has presided over an increase in the national debt and he is now handing out money to farmers in order to compensate them for losses incurred as part of a trade war he started with one of America’s largest creditors. You could scarcely conjure a more ridiculous scenario if you tried.
Things get even sillier when you look a little closer. I have no idea how this particular situation ultimately panned out, but you’re encouraged to recall that at one point last year, the US was set to spend nearly a quarter of a million dollars buying ham from a Chinese conglomerate as part of the farmer bailout package. Here, for those who need a refresher, is how that initially came about:
Just when you thought things couldn’t possibly get any more ridiculous, they did, because on Wednesday, The Agriculture Department announced that the U.S. government is all set to buy nearly a quarter of a million dollars worth of “ham products” from U.S. pork producer Smithfield as part of the farmer bailouts.
Why is that ridiculous (well, I mean besides the fact that we’re now bailing out farmers who Trump insisted would be among the main beneficiaries of his trade policies)? It’s ridiculous because Smithfield is owned by a Chinese conglomerate. The Virginia-based pork producer was acquired by WH Group five years ago.
So, in essence, China just sold 144,000 pounds of ham to the U.S. government as part of a bailout program put in place after Trump slapped tariffs on China in an effort to reduce the trade balance between the U.S. and China. Just try to wrap your head around that.
Again, I have no idea whether anyone took steps to mitigate that manifestly self-referential situation, and it doesn’t matter. The point is, we’re living out what amounts to a sitcom. And that’s appropriate, considering the man behind it all delights in reality television.
Read the more on the farmer bailouts
Of course, there’s a lot of tragedy embedded in this story. Farmers have seen their livelihoods destroyed, American companies are facing undue hardship from the tariffs and, soon, American consumers will be forced to pay higher prices.
Figuring out the right balance between poking fun at the hilarity of it all and showing the proper respect for the people who are suffering as a result of Trump’s “greatest” trade war, is no easy task. And it’s about to get harder still, because recent events suggest more escalations are all but certain, which, in turn, means that while the opportunities for satirical headlines will be plentiful, the war is about to exact a serious toll across the global economy.
The Huawei escalation was something of a gut punch to China and ever since Xi visited a rare earths mining and processing facility earlier this month, speculation that Beijing could use the materials as an economic weapon is rampant.
On Tuesday, comments attributed to “a relevant official” from the National Development and Reform Commission, stoked the rumor mill again.
“You suggested that rare earths could become one of China’s countermeasures against America’s unwarranted suppression. What can I tell you is that if anyone used products that are made with the rare earths that we export to curb the development of China, then the people of Jiangxi as well as all the rest of the Chinese people would be unhappy”, the official said, according to CCTV.
Yes, “people” would be irritated if “anyone” hostile to China was using products that contain Chinese rare earths against the country.
Later, the People’s Daily underscored the point. “It’s not hard to answer the question whether China will use rare earths as a weapon to retaliate during the trade war”, a Wednesday commentary reads. “The United States is heavily reliant on China’s rare earths for its consumer electronics, defense and other products”, the Party mouthpiece goes on to say, adding that “currently, the U.S. has totally overestimated its ability to manipulate the global supply chains.”
How big of a deal is this? Well, that’s debatable. To be sure, rare earths are found in a lot of high-tech products that we depend on every, single day. Here’s a summary table from BofA:
“China has accounted for around 78% of global REE mine supply in 2018, an initial indication of why markets have become so concerned about REE availability given the ongoing trade dispute between the US and the Asian country”, the bank writes, in a note dated Thursday. “The elevated market share of China is particular noteworthy when considering that the country accounts for only 40% of global reserves.”
BofA goes on to cite the DoD, who last September said the following about the situation:
Rare earths are critical elements used across many of the major weapons systems the U.S. relies on for national security, including lasers, radar, sonar, night vision systems, missile guidance, jet engines, and even alloys for armored vehicles. A 2016 study by the Department of Commerce’s Bureau of Industry and Security reported that 66% of respondents, the majority of whom are vendors to DoD, indicated they imported rare earth or related materials. China’s domination of the rare earth element market illustrates the potentially dangerous interaction between Chinese economic aggression guided by its strategic industrial policies and vulnerabilities and gaps in America’s manufacturing and defense industrial base.
That’s scary-sounding, which I’m sure was on purpose.
BofA’s rare earths exposition is tedious. It reads like a chapter out of a geology textbook. Eventually, the bank gets around to noting that after securing a “near monopoly” on REEs, China proceeded to proactively manage the market.
“Steady shipments of rare earths to the international market in the 1990s depressed prices and reduced the appetite of Western producers to continue operating in the industry”, BofA says, before providing a brief history lesson:
That said, in September 2010 China decided to reduce its export quotas by 40%, not long after a Japanese Coast Guard Vessel collided with a Chinese fishing ship in the East China Sea. As prices spiked, many countries were looking for alternatives, while at the same time filing a complaint with the WTO, which ruled in 2014 that China’s export restriction were illegal. This then led to a decline in prices. This episode highlighted how dependent the global manufacturing sector is on China’s rare earth supplies.
Naturally, this dependency led some countries and companies to work towards developing REE supplies of their own and decrease the extent to which their products depend on rare earths, respectively.
Still, China could certainly disrupt things if it saw fit, and you can bet any headlines to that effect would not be greeted warmly by markets. Ultimately, though, this is probably more about the signaling effect than anything else. That is, jitters about the rare earths headlines likely stem primarily from the idea that if China is sending thinly-veiled REE threats, it says something about how contentious the situation has become.
Of course, you already knew the situation was dire. Because nothing says “serious” like a 25% tariff on imported false beards.