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China-Japan trade war over territorial dispute

Sep 19, 2012

In recent weeks there has been an escalation of the territorial dispute over some uninhabited islands between Japan and China.

Warships have been sent to the area from both nations. Demonstrations have been happening, along with each nation singling out businesses from the other country, not only as the site of demonstrations but also for destruction.

Neither country wants a trade war, but now a Chinese official is suggesting that they wage economic warfare. China holds a lot of Japanese debt, and dumping that debt on the market would bring Japan's already precarious debt load to a crisis point rather quickly.


Jin Baisong from the Chinese Academy of International Trade – a branch of the commerce ministry – said China should use its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal crisis to a head.

Another war front centers around rare earth metals, of which 99% are mined in Mongolia. Much of their production is shipped to Japan in order to build flatscreen TV's and multiple electronic gadgets that support much of Japan's industry.


The mines at Baotao have slowed production in the light of the Diaoyou situation; they provide around 99 per cent of the world's supply of rare earths. Indeed, the Chinese government has explicitly stated it will not allow the shipping of these rare earths to Japan, which currently consumes around 60 per cent of Baotao's output.

Those rare earths, shipped from Mongolia to Japan, go into practically every gadget we buy or make. Almost every flatscreen TV, every mobile phone, everything that requires memory, requires parts made in Japan with Chinese minerals. The Japanese can't switch suppliers or buy the elements from somewhere else for more money. No rare earths, no manufacturing.

If the supply of rare earth metals is stopped, even for a short time, Westerners might find it difficult to purchase the gadgets that they love so much. But there is not much way that Japan could fight China. Not economically. Not militarily. Both would suffer economically, of course, but Japan's debt load is twice as bad as it is here in America--and ours is enough to sink the dollar soon. So Japan's economy could collapse with just a little more pressure, but China's economy would take enormous headwinds to damage it.

A military confrontation might spark a larger war with unforeseen consequences, but there is no law that I know of which forces China to sell rare earth metals to anyone, including Japan. It seems like a more practical strategy to concede those islands to China and remove that barrier to good relations. If Japan used that strategy as a good will gesture instead of waiting to be forced out, it could still be used to their advantage, both economically and diplomatically.



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Category: News Commentary

Dr. Stephen Jones

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