American soybean farmers aren\u2019t alone in their dangerous overdependence on China. In a different way, so are many American manufacturers.<\/p>\n
The Chinese typically buy around half of US soybean exports, giving them the power to inflict pain by withholding purchases \u2013 a power they exercised for much of this year.<\/p>\n
For US manufacturers, the problem is that China is the only or main source for too many of the ingredients and components they need to make products.<\/p>\n
The example in the news most recently was rare-earth minerals<\/a>. China accounts for 97% of the world\u2019s production of these metallic elements, which are needed to produce such high-tech products as cellphones, computer hard drives, lasers and radar and sonar systems.<\/p>\n Rare-earth minerals were in the news because China was restricting exports in retaliation against high US tariffs. The restrictions were suspended for a year as part of the deal<\/a> President Donald Trump and Chinese President Xi Jinping recently reached.<\/p>\n Rare earths, however, are far from the only thing American manufacturers depend on China for. Consider this barely-scratch-the-surface list of materials whose production China dominates: graphite; gallium; germanium; magnesium; tungsten; permanent magnets; polysilicon.<\/p>\n The importance of these materials can\u2019t be overstated. Without graphite, lithium-ion batteries can\u2019t be made. Without gallium and germanium, there\u2019s no manufacturing of semiconductors, fiber optics and infrared systems. Without tungsten, you can\u2019t make drill bits or industrial cutting tools.<\/p>\n And then there\u2019s pharmaceuticals. A large percentage of the active pharmaceutical ingredients in many of the medicines Americans take come from China \u2013 ibuprofen, acetaminophen, some antibiotics and some blood pressure drugs, to name just a few.<\/p>\n US companies also import active ingredients for other drugs from India, but India depends on China for the chemicals to make many of these ingredients.<\/p>\n When Americans shop in stores, they often comment that everything on the shelves seems to be marked \u201cMade in China.\u201d But materials and minerals aside, there are plenty of things that aren\u2019t labeled that are also made in China. Many of the less advanced semiconductors used in autos and consumer products come from China, for example.<\/p>\n America\u2019s \u2013 and indeed the world\u2019s \u2013 overdependence on China didn\u2019t just happen. Supply-chain dominance has long been one of China\u2019s industrial-policy goals. China has worked hard to lessen its dependence on other countries and increase those countries\u2019 dependence on China.<\/p>\n By giving companies in targeted industries tax breaks, low-interest loans, subsidies and protection from foreign competition, China has encouraged companies to develop massive economies of scale. The resulting lowered costs allow them to flood overseas markets and put foreign competitors out of business.<\/p>\n The result is an economy that by some measures accounts for 35% of global manufacturing. And China hasn\u2019t restricted its focus to final assembly. It has worked, often successfully as in the case of rare earths, to dominate the upstream materials and components as well.<\/p>\n Its tactics have at times bordered on predatory. According to a Wall Street Journal article<\/a> on China\u2019s rare-earths dominance,<\/p>\n When the US tried to engineer a revival of its domestic industry a few years ago, China flooded the market with supply, throwing Western producers into a tailspin.<\/p>\n As Western rare-earth companies\u2019 valuations collapsed from the low prices caused by soaring Chinese production, they were forced to slow their expansions, and in some cases, sell their mines to Chinese buyers.<\/p>\n<\/blockquote>\n Washington is more than vaguely aware of the dangers of all this overdependence. Administrations of both parties have turned to industrial policy in response. President Joe Biden\u2019s administration set out to subsidize American manufacturing through legislation like the Chips Act. President Donald Trump uses high tariffs in an effort to achieve the same ends.<\/p>\n American companies that have the ability to diversify are moving to do so. Some of those that manufacture in China are bringing production back to the US or moving it to other countries.<\/p>\n The big problem these efforts face is China\u2019s scale advantage. Because of it, Princeton\u2019s Aaron Friedberg maintains<\/a>, \u201cNo country alone can contain the second China shock\u201d and China\u2019s increasing dominance of the most advanced technologies.<\/p>\n The answer, Friedberg and other experts argue, is for like-minded countries to band together and coordinate their tariffs and other industrial policies. Alas, under Trump, the US is moving in the opposite direction, imposing high US tariffs on allies as if they and not China were the threat to America\u2019s economic well-being.<\/p>\n All this should be of some consolation to soybean farmers. In comparison to manufacturers, the solution to their problem is straightforward. They just need to find new markets. Would that it were that simple for American manufacturers.<\/p>\n Former longtime Wall Street Journal Asia correspondent and editor\u00a0Urban Lehner<\/a>\u00a0is editor emeritus of DTN\/The Progressive Farmer.<\/p>\n\n