Question

Examine how China’s policy of restricting REM exports can be considered as a sophisticated application of strategic trade policy? Please identify the underlying objective behind strategic trade policy in order to provide the relevant arguments in support of your explanation.

Answer 1

China is the current leading producer of Rare Earth Metals (REM)- taking care of 90% of the world demand for rare earth materials. REM is used in everything from the glass industry, high-tech devices, automotives to clean energy and defense. China has about 35% of rare earth global reserves and produces more than 120,000 metric tons annually. Because it has excess reserves of this natural resource, it is a global price setter in this industry. Restricting REM exports is a strategic way of controlling the global supply chain and China knows it wields enormous power in this regard.  

REM is commonly used as an intermediate product in many industries, hence if China increases the price of REM materials (by restricting exports) it could seriously mess up global value chains. This gives China geo-political power and lots of advantages in terms of controlling the global trade patterns.