Tariffs on China and the rampant US inflation

By: Azhar Azam

Markets in the U.S. may receive yet another hot reading from the country's Bureau of Labor Statistics on January 12 when it releases the Consumer Price Index (CPI) for December 2021. The data would follow last month's grim announcement in which the agency revealed inflation had soared for a sixth consecutive month to 6.8 percent in November, the largest annual increase since the worst economic downturn of 1982.

In August 2021, Jerome Powell asserted the high inflation numbers were "transitory" and the U.S. central banking system will keep it close to its 2 percent objective over time. But heavy criticism forced the Fed Reserve chair, as well as Treasury Secretary Janet Yellen, to retire the term and made him concede the supply chain "factors pushing inflation upward will linger well into next year."

Rolling back tariffs on imports from China, a holdover from Donald Trump, could have eased inflation and supply chain woes of the U.S. that would perforce bite American consumers and importers; the U.S. President Joe Biden seems much too cautious to do so over fear of political backlash from Republicans especially before midterms.

Yet in the process, Biden's indecision is costing his acceptance in the American public once the sticker shock hit families across the board with food, electricity, gasoline and used car prices going up by 6.4 percent, 6.5 percent, 58.1 percent and 31.4 percent, respectively, in the last year. The inflationary turmoil will further dampen the consumer confidence, which sank to a nine-month low in November 2021, and could even beat economists' predictions that this phase could "last another year easily."

After tormenting inflation figures, the Fed officials in a policy meeting in December also noted the supply chain bottlenecks and labor shortages, limiting companies' ability to meet prodigious demand, will "persist well into next year at least" and "be more widespread" than originally thought. With Omicron as well as more forceful and severe supply chain issues posing downside risks to the economic activity and upside risks to inflation, 2 percent inflation target appears distant in near term.

The year 2021 was believed to bring some stability to the U.S. and international economy on the back of a moderate Biden's election as American president. The U.S. companies pinned hopes on him to tone down Washington's harsh stance toward Beijing for the sake of the national economy and their business interests in China that had been adversely affected first by Trump's acrimonious tariffs and then by the pandemic.

Nevertheless, apart from announcing a top-to-bottom China review in January, Biden hasn't adopted any tangible action to simmer down the U.S. trade disputes with China, including reducing or eliminating duties on $350 billion Chinese goods. It is despite the fact that this administrative incapacity has harmed U.S. economy and national competitiveness by raising the manufacturing costs for American manufacturers.

The contradictions, such as Yellen's criticism of tariffs hurting U.S. consumers and the phase one deal, slow review process and amplified sanctions on Chinese companies will bewilder and disappoint U.S. business leaders who campaigned for and welcomed Biden. Still, the U.S. industry isn't as pessimistic about a thaw in the China-U.S. relationship as it was prior to the Xi-Biden virtual summit in November, and it has urged the administration to reduce "harmful Section 301 tariffs and broaden the tariff exclusion process" to curb the inflationary spiral.

Rising prices are one major factor for Biden's popularity decline, notwithstanding odd gains in GDP and employment numbers. Tariffs on imports from China couldn't protect American jobs; they cost America 300,000 manufacturing jobs, said Kamala Harris in her vice-presidential debate with Mike Pence. With inflation acting as a "repressive tax" overburdening the poor and negatively impacting the domestic consumers using mostly Chinese goods, tax rate hike would squeeze business operations and slow the U.S. economic growth.

Trump's trade war with China was a sharp divergence from the U.S. decades-old credo of free trade and open markets. Ideas such as "cap-and-trade system," based on an outdated 1980s proposal by issuing dollar-equivalent import certificates to exporters to reduce trade deficit, will do little to repair the tensed trade ties between the two largest economies as well as drive up inflation for American consumers.

In an article for the Wall Street Journal, former U.S. officials blasted Biden's "worker-centric" policies that were "gouging" Americans and stoking inflation. While his strategy to toe Trump's line on trade war with Beijing won't stop the vertical rise in the prices of household items, risks of stagflation and frustration stemming from the U.S. president's inaction would make 2022 a challenging year for the administration.

Controversial legislations like "Uygur Forced Labor Protection Act" – just before the largest global trade deal among 15 countries excluding the U.S. known as Regional Comprehensive Economic Partnership took effect on January 1 – was an attempt to disrupt the global trade and regional harmony. The move out of sheer frustration exposed the so-called America's indispensability in international trade and is likely to backfire since it would further feed the almost five-fold inflation in the country.

Biden's initial $1.9 trillion early economic recovery plan was warned of a "nasty" spike in inflation not seen in a "generation" by the prominent economists. As the White House sought even more fiscal stimulus, they in May foresaw the threat of the economy overheating and a price boom. Rather than stopgap solutions, the U.S. president should strengthen supply chain cooperation with China and come up with an unequivocal answer to the entrenched tariff issue, brunt of which is borne by American companies and consumers and that remains one of the core factors behind high inflation in the United States.

*This is my opinion piece that originally appeared at "China Global Television Network (CGTN)":
https://news.cgtn.com/news/2022-01-12/Tariffs-on-China-and-the-rampant-U-S-inflation-16Ljvl0Gpq0/index.html

America's rare earth vulnerability deepens

By: Azhar Azam

Rare-earth elements (REEs), categorized as light and heavy subsets, are the necessary components of our everyday products. The critical minerals and materials have downstream applications in petroleum refineries, hard disk drives, TV and computer screens, wind turbines, electric vehicles (EVs), medical technologies as well as precision guided munitions and a range of military systems.


Over the next two decades, global demand for many rare-earth metals is projected to grow as the world moves to cut down carbon emissions. For example, international demand for lithium and graphite, key elements for EV batteries, is expected to surge by more than 4,000 percent and 2,500 percent in 2040, respectively. According to Reuters, around 70 percent of graphite used in lithium-ion batteries comes from China and it is the only country that can provide the quantity of graphite the U.S. industry needs.

The global trade of REEs is just over 1 percent of $1 trillion world oil trade, according to an article by ChinaPower under the Center for Strategic and International Studies, but the value of goods they generate could be assessed from Apple's strong reliance of these metals to sell iPhones worth over $142 billion a year, or mere $613 million of the U.S. REE imports that unlock roughly $496 billion of economic activity in vital civilian sectors, such as petroleum refining, automotive, electro medical devices and aeronautical instruments.

According to a report by the official website of the Government of Canada, China is the world's largest producer of 15 elements referred to as lanthanide series in the periodic table of elements alongside scandium and yttrium, accounting for 62 percent of global 213,000-tonne production. Even as the U.S. (12.2 percent), Myanmar (10.3 percent) and Australia (9.9 percent) produce these materials, Beijing is also the only producer of the valued heavy REEs used in high-technology and clean energy applications.

Between 2008 and 2018, 42.3 percent of the REE exports came from Beijing. In 2019, about 87.8 percent of these supplies were exported to the world's major economic and technological powerhouses, which shows how the developed countries greatly benefited from the low-cost Chinese REEs, according to ChinaPower.

A document on the official website of the U.S. Geological Survey indicates that the U.S. became almost completely dependent on REE imports from China in late 1990s. Washington was particularly concerned about overreliance on Beijing for metals critical for defense applications, including jet fighter engines, missile guidance systems and electronic countermeasures. About 20 years on, the U.S. defense contractors still can't find any alternative REE source to keep its F-35 aircraft airborne, according to ABC News.

Reports by the United States International Trade Commission suggest that in 2019, America emerged as the top global exporter of REEs by volume in wake of its inability to process the materials, forcing Washington to export 100 percent of domestic production. In 2017, China became the world's largest REE importer by volume as worldwide states continued to ship the newly mined materials to Beijing for processing.

Over the years, Washington has been increasingly dependent on Beijing for processed REEs. The reports also point out that having exported 98 percent of its unmined production to China in 2019, 75 percent of U.S.'s predominantly processed rare earth imports were from China. America also secured materials from Malaysia, Estonia and Japan. These countries exported materials to the U.S. after importing semi-processed products from China. Estimated at 98 percent, America's imports of processed supplies from Beijing reflect the former's reliance on China and the latter's crucial role in global REE processing.

The drive to end the U.S. economic and military dependence on Chinese REEs in 2017 emboldened then-President Donald Trump to issue an executive order, and the country's Interior Department in 2018 added these elements to items deemed critical to the economic and national security. The Biden administration is doubling down on these efforts through its $2-trillion infrastructure bill; the push may stymie for it faces awkward challenges and China isn't ruled out either.

In recent years, the U.S. Defense and Energy Departments gave a myriad of grants and contracts to Las-Vegas headquartered MP Materials to ramp up the domestic REE supply chain from mine to magnet and Australia's Lynas to build a heavy REE facility in Texas. While heavy elements like dysprosium and terbium used in defense, technology and EVs are harder to find and their prices have risen by 50 percent in 2021, demand for light REEs such as neodymium and praseodymium has shot up with tech growth.

Washington's new plan would run into difficulties as Chinese REE processing and refining firm, Shenghe Resources, owns a stake in MP and is one of the largest company's customers. Through Shenghe, also a shareholder in the Australian Greenland Minerals, concentrate produced at the sole U.S. commercial Mountain Pass facility in California is distributed to refiners in Asia because the West simply lags behind in these capabilities.

As the journalist John Koetsier analyzed in his commentary for Forbes, the U.S. needs 10 times the amount of REEs to meet Biden's ambitious goal of selling 50 percent zero-emission EVs by 2030 in addition to 20 to 25 times more to satisfy the ever-growing requirements of the green economy. These grandiose objectives can't be achieved given Washington lacks an "apparatus" like that of Beijing and will rather consume another couple of decades.

An aggressive approach and fraying relations with China is doing an uncontrollable damage to the U.S. economic, industrial and technological future. It won't be wise on the part of Washington to expose its vulnerability to the world and waste the next twenty years in seeking "rare earth sovereignty." Only a truce and cooperation between the two major economies across all domains can fix many of America's predicaments including the REE nuisance and would allow the economic duo make progress on bilateral and global prosperity.

*This is my opinion piece that originally appeared at "China Global Television Network (CGTN)":

https://news.cgtn.com/news/2022-01-04/America-s-rare-earth-vulnerability-deepens-16wqHHvL5gQ/index.html

Why should the US get back to science and technology cooperation with China?

By: Azhar Azam

Almost two decades back, the U.S. started seeing China's centrality to the global supply chain for technology goods of increasing sophistication, production and export of advanced technology goods and booming tech infrastructure and industries a significant competitive challenge to America's technology, economic and military dominance across the world.

Still, the U.S. officials and analysts realized they couldn't hobble China and emphasized "running faster" by investing more in Science and Technology (S&T). Between 1995 and 2010, both countries continued their academic exchanges and increased the number of co-authored articles by about tenfold to almost 11,000. Meanwhile, in 2009, China's share in world S&T articles rose to 9 percent after becoming second-largest producer in 2007.

The S&T cooperation with China benefited the U.S. in many areas, including gaining access to well-trained researchers and high energy physics facilities built at Chinese expense. Beijing's adoption of clean energy technologies presents opportunities for U.S. companies. Joint research into Chinese mineral resources provide alternatives to the Mideast oil. China's leading position in remote sensing and mapping research helps Washington monitor transboundary environmental phenomena, and bilateral cooperation brings advantages to U.S. agriculture and seafood production and common climate change challenge.

Within weeks of normalizing ties in January 1979, the Jimmy Carter administration signed the U.S.-China Science and Technology Cooperation Agreement with Beijing. Since then, it has been renewed by every administration. The S&T framework boosted American interests in innovation and earth and space exploration, outweighing "costs and risks" associated with fear of losing economic and military edge to Beijing in the White House policymakers.

In its 2016 report declassified in November 2017, the U.S. State Department admitted cooperative activities with China had accelerated scientific progress in America and provided direct benefit to the country's technical agencies during the reporting period, 2014 to 2015.

The biennial information acknowledged collaboration with China assisted the U.S. institutions to increase their capacity of numerical weather models to produce more accurate forecasts; address national priorities on robotics, molecular electronics and photovoltaics and quantum computing; and advance basic science and train next-generation of scientists as well as highlighted cooperation on pandemic response, environmental issues, global immunization, epidemiologic training, vaccine development, oceanographic research, smart infrastructure and innovation ecosystem.

Yet, in recent years, the U.S. has continued to trade this collaborative ethos with technology war. Washington has imposed sanctions on Chinese technology companies, bullied allies to stop deploying Chinese 5G infrastructure and targeted Chinese nationals and even renowned American scholars, such as Harvard's nanotechnology researcher Charles Lieber, through the Donald Trump era's China Initiative. In short, the so-called national security concerns have pushed the U.S. interest to the backburner.

Due to the discriminating character of these practices, the Presidential Science Advisor Eric Lander in August urged the Joe Biden administration to "assiduously avoid basing policies" that could fuel "anti-Asian sentiments or xenophobia." This "prejudice is fundamentally unacceptable and will backfire because it will make it harder to attract the best scientific minds from around the world."

Quite a few in the U.S. higher education, hoping for a change in Washington's attitude under Biden and expecting him to strengthen academic collaboration with China, are disappointed as the U.S. president sticks to the controversial China Initiative that disproportionately victimizes American scientists of Chinese and Asian descent.

According to current estimates, about 115,000 Chinese masters and doctoral students and postdoctoral and visiting scholars are doing research work to further U.S. technology. The growing anti-tech approach in the White House would indeed prevent the next generation of Chinese scientists from coming to the country, depriving the American economy of billions and high-tech startups a crucial talent source.

China's progress in scientific research has been considered one of the 21st century's most surprising developments. In 2016, more than one-third of global scientific articles were attributed to Beijing. The initiative that impedes the advancement of knowledge by denying collaboration between American and Chinese scientists raises concerns about racial profiling and loss of U.S. research and scientific competitiveness among hundreds of American academics.

A recent report from Harvard Kennedy School reveals China is poised to overtake the U.S. in the next 10 years or already has won the race in core technologies such as artificial intelligence, 5G, quantum information science, semiconductors, biotechnology and green energy. As Beijing put in strenuous efforts and money over the last two decades – the findings, which pressed one of the authors urge Washington retire its concept of China as a "near-peer competitor" and replace it with "full-spectrum competitor" – shouldn't be dumbfounded, at least the China watchers.

The U.S. National Academies of Science, Engineering and Medicine in 1999 forecasted America to remain the single largest determinant for the 21st century and later envisioned China didn't matter. Others guessed Beijing couldn't grow into an industrial giant because its population was too large and its GDP too small. But by becoming the world's top high-tech manufacturer and evolving in foundational technologies, Beijing has proved everyone wrong, including those seeking to dominate the world's future.

China's steady development in S&T today is unsettling the U.S. as Washington tries to limit Beijing's tech growth by suppressing the Chinese companies. Yet the restrictions on science exchanges, research collaboration and Chinese students and scientists have done and would do nothing but steal away immense opportunities and palpable benefits from Washington. Conversely, two powerhouses can work together to shape a technological world that is best armed to take on the challenges of today and tomorrow.

*This is my opinion piece that originally appeared at "China Global Television Network (CGTN)":

https://news.cgtn.com/news/2021-12-26/Why-should-the-U-S-get-back-to-technology-cooperation-with-China--16huIk4fZUQ/index.html#:~:text=The%20S%26T%20cooperation%20with%20China,presents%20opportunities%20for%20U.S.%20companies.

A new Cold War embedded in 'strategic competition'

By: Azhar Azam

Not mentioning his support for the 2003 invasion of Iraq, Joe Biden in 2019 promised to end U.S. wars in Afghanistan and the Middle East and forge new trade agreements to create a more balanced international economy. But just a few months into the White House, he appears to be dialing back on his commitment by submitting a FY2022 defense budget request of $715 billion to Congress for the Department of Defense that topped Donald Trump's FY2021 by 1.6 percent.

Before ratification from the House and Senate, lawmakers added another $25 billion to push Pentagon spending to $740 billion (National Defense Authorization Act and National Defense Toplines: $768 billion and $778 billion respectively including $28 billion for Energy Department's nuclear weapon program and $10 billion for defense-related activities).

The move aiming to keep the U.S. military ahead of China's has shocked defense watchers, expecting at least a flat defense budget after the U.S. pullout from Afghanistan. The staggering surge even surprised the Joint Chiefs of Staff Chairman General Mark Milley who thought the request was just right, having envisaged a budget cut over the pandemic and country's struggling economy.

Ironically, both sides of the aisle agreed to significantly raise the provision to focus on "strategic competition" with China and Russia. On top of that, they managed to conceal the actual national security bill that had quietly reached a stupefying $1.3 trillion if budgets relating to intelligence, defense retirement and health, veteran and international affairs, homeland security and interest on debt were accounted for.

With a view to bolster the Pacific Deterrence Initiative, bipartisan consensus earmarked in excess of $7 billion ($2 billion more than Biden's request) to undermine peace and stability across Asia Pacific "through strength," requiring the U.S. president to develop a "grand strategy" against China. The authorization also booked $4 billion for the European Deterrence Initiative as a counterweight to "rising threats" from Russia.

America's offensive approach would heighten apprehensions about a new Cold War and kill the cooperation between the world's two largest economies on global threats such as climate change and future pandemics. It further takes attention from other pressing domestic priorities like infrastructure, homelessness, white supremacy activities and racial and economic injustice.

Biden's overemphasis on competition with Beijing and scaling back presence in less-vital theaters has worried allies in Europe, the Middle East and other parts of the world. They are expressing their "angst" to his aides about the U.S. reduced regional commitment for "a hazily defined, global contest" with China.

The defense bill drives the U.S. "further into a Cold War with China" and is "likely to fuel a cycle of military escalation" in the Pacific, said progressive Democrat Barbara Lee. Calling it "shameful," the California Representative said "don't ever tell me we can't afford to invest in our communities when we just approved $778 billion for the Pentagon."

A rise of more than 5 percent or about $37 billion from last year's $703.7 billion in the defense budget doesn't tally with Pentagon's claim to address threats to global security such as climate change and the pandemic. More ship, jet and fighter plane purchases and disproportionate concentration on "strategic competition" with China suggest the U.S. military isn't keen on losing the title of the world's largest institutional consumer of fossil oil.

Between 2001 and 2017, the Pentagon emitted 1.2 billion metric tons of greenhouse gasses and roughly consumed 80 percent of all U.S. government energy consumption. If it were a nation state, the Pentagon would have been the 47th largest carbon dioxide emitter in the world. There seems to be a whole-of-government approach as one of the biggest climate polluters in history continues its reliance on for-profit defense contractors, responsible for U.S. mission failures and prime beneficiaries (one-third to one-half) of the Pentagon's $14 trillion war spending in Afghanistan, to keep the planet contaminated for mankind and all living organisms.

The Pentagon recently announced Biden has accepted recommendations of the Global Posture Review formed by Austin. As expected, it makes the Indo-Pacific a priority region and considers Beijing as a "pacing challenge." The assessment directs "additional cooperation" with allies to advance initiatives – including gaining greater regional access for military activities, enhancing infrastructure in Guam and Australia and constructing military installations across the Pacific Islands – to contribute to regional stability and deter China and the DPRK.

Clearly, the analysis of U.S. forces' worldwide deployment is blatantly threatening the regional peace through the AUKUS, a trilateral alliance stoking concerns of an arms race within the Pacific nations. The stark contrast, pursuing stability and seeking confrontation simultaneously by relocating military assets from the Middle East to the Indo-Pacific, shows the U.S. still believes it can play the role of a global policeman and wage and win a new Cold War. Yet the idea is being contested strongly.

The mostly-classified document bewildered even a former Pentagon official who, over growing sense of the U.S. unreliability, doubted Washington would ever obtain the level of cooperation from the region. The Biden administration's shrill focus on China while downplaying threats to NATO in Northern and Central Europe and absence of changes in American force posture in Southern Europe and the Mediterranean made the review a "highly disappointing product" for him.

America is facing "devastating" impacts of shutdown and debt default and experiencing the worst economic downturn since the Great Depression of the 1930s. On Tuesday, the U.S. Senate barely managed to avert a default by increasing the debt ceiling; it's just a stopgap solution. To overcome the country's deafening economic and other internal challenges, Washington must toss out its Cold War posturing reflected in the "strategic competition" with China, and ease pressure from the $29-trillion indebted nation.

*This is my opinion piece that originally appeared at "China Global Television Network (CGTN)":

https://news.cgtn.com/news/2021-12-18/A-new-Cold-War-embedded-in-strategic-competition--165PA6mujmM/index.html