China Challenge Could Help Jobs, Prices, Obama's Re-election

The newest challenge may improve the president's image, record on job creation.

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The U.S. is joining the European Union and Japan in challenging Chinese export quotas on rare earth elements, as well as molybdenum and tungsten. China, the world's largest supplier of these essential elements to products many Americans use every day like hybrid car engines, light bulbs, and flatscreen TVs, has repeatedly moved to limit the quantities that it exports. A successful challenge before the World Trade Organization could reduce prices on these goods and potentially boost American jobs.

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In a statement delivered in the Rose Garden on Tuesday, President Obama said that economic cooperation with China has its limits. "We've got a constructive economic relationship with China, and whenever possible, we are committed to working with them to address our concerns," he said. "But when it is necessary, I will take action if our workers and our businesses are being subjected to unfair practices."

China has cut export quotas for its rare earth elements repeatedly in recent years in order to promote its own industries.

While the president has introduced the challenge as yet another a way to bolster the economy, there is an undeniable political benefit—especially in an election year—to a policy intended to shore up jobs and lower prices for consumers. Support for manufacturing has been a key part of the president's re-election message, and he sounded it once again in his Tuesday remarks.

"We want our companies building those products right here in America, but to do that, American manufacturers need to have access to rare earth materials, which China supplies," he said.

The challenge has the potential to both boost jobs in the U.S. and reduce prices on the many goods containing the elements in question. China has a commanding monopoly on many of these minerals: China produces over 90 percent of all rare earth minerals and tungsten in the world, as well as 36 percent of all molybdenum, according to figures from the EU.

In his remarks, Obama emphasized the job-saving potential of trade enforcement. He pointed to the newly created Trade Enforcement Unit and issued a warning to foreign competitors: "You will not get away with skirting the rules. When we can, we will rally support from our allies. And when it makes sense to act on our own, we will," said the president.

He also pointed to U.S. tariffs on Chinese tires that he said have put 1,000 people back to work in the U.S. (though earlier this year, the Wall Street Journal questioned the boost that these tariffs provide).

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Chinese export restrictions are affecting the American job market, agrees Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland, adding that if China stops restricting its mineral exports, it could also change prices enough to affect consumer behavior in the U.S.

"If we want people to move to these new light bulbs, for example, these restrictions could also significantly impact price enough to cause people to buy more of them," he says.

Morici says he expects the case against China to be successful, and that China will have great incentive to comply if the WTO should decide against it: "A sovereign government can always do what it wants, but if the Chinese want us to be bound by decisions that go against us, they will comply."

Adds Morici of the election-year challenge, "The timing of this is blatantly political."

While Morici believes that the challenge will be successful and benefit the economy, he thinks that both former President George W. Bush and President Obama are at fault for not doing more to challenge China on its trade practices. This lack of toughness, he says, is "one of the reasons that we have such high unemployment and the economy is recovering so slowly."

For its part, China is defending its export restrictions as an environmental action. The Chinese Minister of Industry and Information Technology told China's Xinhua news agency Tuesday that limiting exports is a reaction to concerns about environmental damage. He added that excessive mining could mean that China's stores of some minerals will last only 20 more years.