Gary Hufbauer, The Reginald Jones Senior Fellow at the Peterson Institute for International Economics (http://www.piie.com) joins us to discuss why China made this move and what is yet to come that will affect your business in the region and beyond... Read the Transcript

Gary Hufbauer Reginald Jones Senior Fellow The Peterson Institute for International Economics http://PIIE.com

Gary Clyde Hufbauer, Reginald Jones Senior Fellow since 1992, was formerly the Maurice Greenberg Chair and Director of Studies at the Council on Foreign Relations (1996–98), the Marcus Wallenberg Professor of International Finance Diplomacy at Georgetown University (1985–92), senior fellow at the Institute (1981–85), deputy director of the International Law Institute at Georgetown University (1979–81); deputy assistant secretary for international trade and investment policy of the US Treasury (1977–79); and director of the international tax staff at the Treasury (1974–76).

Each month, we highlight a company, country, entity or individual who chooses to ignore evolving trends, feasting instead on a steady diet of their own propaganda. China recently showed the world their true colors by withholding rare earth mineral shipments to Japan to basically show the world that they had power over at least some of earth’s precious resources.  In this article, we explore the actions taken by China to be a bigger player but also their mistakes in making too many misplaced moves, too early. The Chinese are not only known for their product manufacturing but also for their massive stores of valuable Earth resources, including rare earth minerals. China thought about the situation and, knowing the difficulty in mining, decided to control the market to their advantage. It turns out that the regulations to conduct these activities are stringent due to the radioactive waste they produce; so few companies will attempt such an act. Flexing their resource muscles, China decided to institute an embargo on all shipments of rare earth minerals to Japan. Why? A land dispute. Most importantly is that China used the issue to make an example of Japan. China acts like the school bully but without any real strategy to face the real world. Had they been less arrogant and more strategic, they might have waited to inflict larger economic wounds on the larger countries of the world, or at least waited until the rare materials were near gone from supplies. They played their economic cards much too early to be effective. The PR machine that China should be using to support their actions, remains poorly thought out. This is the same country that has produced lead contaminations in everyday products from children’s toys to dinner glasses. China should have waited to play their cards as they are now facing a world that is aware of their arsenal, and their intentions. This is pure arrogance without strategy. Countries and businesses of the world beware, China is coming after you, and not waiting for the best opportunity to do so. Prepare your defenses. The lessons from this month’s Self Tending Mushroom Award are many. First, your competitors will react to your moves, so choose your actions carefully. Arrogance will lead to wasted advantage. Anticipate the repercussions of showing your hand. Choose the right time to use your political and economic advantages. Lastly, do not waste your advantage on low-win situations.