Chinese Flex

Globalisation started out as a way of exploiting cheap labour while saving the environment in the West. Production was sent out to China and Services were sent out to India. In both cases, the cost differences between the West and the East were quite high.

In reality, the discontented middle America exists because of this strategy to outsource. Having done that for decades, today, China is in a position where it produces for most of the world.

Chinese manufacturing has been growing by leaps and bounds while at the same time, US has manufacturing has remained stunted and would have gone into inexorable decline but for the pandemic which made them realise their shortcomings and resulted in investments in that area. Earlier this year, I wrote a blog about outsourcing titled Why Globalisation Happened?, arguing that in the aftermath of the publication of Silent Spring, it was no longer possible to ignore the destruction that manufacturing brought along with it.

When you make everything, you know what it takes to make them. Most of us in cities would be incapable of growing the most rudimentary crop. We just do not know what goes into it.

China has been manufacturing for decades and have been working on manufacturing efficiency. As a consequence, they have had to source everything that is needed to manufacture those products. They began to corner the inputs required.

Electronics manufacturing uses rare earth metals. The extraction of these metals is extremely destructive to the environment. Rare earth metals are called “rare” not because they are rare, but because their concentration in the ore is extremely low. The lower the concentration, the greater the processing.

The value of any metal is proportional to the amount of ore you need to extract to generate the same quantity of metal.

Most geopolitical “strategists” condemn the abdication of the rare earth supply chain by the West. The thing is, they wanted to save their environment. How would you like it if Lake Tahoe was a toxic sludge of red goop?

China has no such concerns about its rivers and water bodies, and hence it was convenient to let them handle all the processing. Since they were the only ones processing, they were the ones buying it. Hence, they cornered all the sources!

To such as extent that today they practically own the supply chain.

Given that they control two-thirds of the key mineral supply chain, you would suppose that they have quite a bit of leverage.

Tit for Tat

America uses every multilateral organisation as a rubber-stamp. These organisations are merely meant to provide legitimacy to the illegal activities that the US engages in. The war to find the weapons of mass destruction in Iraq is one example in a long list of crimes. Currently, they are quite proactively supporting a genocide in Gaza, in contravention to every legal and moral tenet in the world.

In continuation with this kind of behaviour, America decided to bite the hand that feeds. Specifically, that of the Chinese.

US decided to ban the export of AI chips to China. Companies were decreed not to sell any advanced chips to China. There is absolutely no grounds for this ban and in a normal world, the countries that produce and export these chips would be well within their rights to ask, why?

In the world we live in, America claims that this is for the sake of “national security”. Also, they have military bases in all the countries that produce these chips.

The Americans just forgot to ask where are all the inputs coming from? This tends to happen when you are not in the business of making something.

You should not throw a punch if you cannot take one.

Among the materials banned from export were the metals gallium, antimony and germanium, China’s commerce ministry said in a statement that cited “national security” concerns.

Exports of graphite, another component in semiconductors, would be subject to “stricter reviews of end-users and end-uses”, the ministry said. The curbs strengthen enforcement of existing limits on critical minerals exports that Beijing began rolling out last year, but apply only to the US market.

“To safeguard national security interests and fulfil international obligations such as non-proliferation, China has decided to strengthen export controls on relevant dual-use items to the United States,” the ministry said.

Gallium and germanium are used in semiconductors, while germanium is also used in infrared technology, fibre optic cables and solar cells. Antimony is used in bullets and other weaponry, while graphite is the largest component by volume of electric vehicle batteries.

Source: Guardian

China Flexes

Part of the reason to do this now is to create a bargaining chip when Trump walks into office.

Another way of looking at it would be - China is close to Russia; Russia is close to Iran. By cutting off the supply of rare earth metals. China will deeply curtail the US capacity to build new bombs, since all of them depend on semiconductors for guidance. This would leave both Ukraine and Israel rummaging for weapons. Of course, the US will try to route shipments through other countries to itself, but given that semiconductor production is concentrated in a small number of countries, this would prove to be challenging.

During the Vietnam was 9 out of 10 bombs dropped by the US did not get their intended targets, this contributed to their loss. The company that solved this problem was Texas Instruments. Quite possibly the only reason they are still in business.

Today, 1 out of 10 land off target thanks to silicon. Remove the silicon, and they would be back to throwing chemicals in the dark.

If there was any doubt, China is making it very clear;

China on Thursday singled out dozens of companies from the United States, including Raytheon, Boeing and Lockheed Martin, in a series of punitive trade measures that could ratchet up tensions between the two superpowers.

With weeks to go before President-elect Donald J. Trump takes the office with a promise to impose new tariffs and sanctions on China, Beijing is once again showing it is ready to strike back.

China’s Ministry of Commerce said it added 28 companies to an export control list to “safeguard national security and interests.” It also banned the export of so-called dual-use items, which have both civilian and military applications, to those companies. And it placed 10 companies on what it calls an “unreliable entities list” related to the sale of arms to Taiwan, preventing them from doing any business in China and prohibiting their executives from entering or living in the country.

Source: New York Times

In 2023, there was a pretty long writer’s strike. The reason your Netflix feed in 2024 was filled with Spanish and Korean shows was because, when such systemic shocks occur, it takes a while for the impact to become apparent.

China has cut off the US. Between the transition and Christmas and H1B controversy, the news has been lost. But we will see the effects, 6 to 12 months from now.

Also, given that the entire western media is a propaganda machine, it is not in their best interest to highlight the pain until it becomes unavoidable.

How this play out over the next couple of years could decide if a multipolar world emerges out of it, OR if men and their bruised egos take the world to war.