How the US has become dependent on Chinese Imports

By George Tait Edwards

1 Introduction McGill’s Answer on Quora tothis issue is interesting but incomplete. There are perhaps five major ways that the US has become dependent on China and each of these is specified and commented upon below.

2 The Key Dependencies

2.1 Rare Earths and their Contribution to US Military and Computer Products

China after 2017 now produces 97% of the “rare earths” which are a key component of many military hardware products.

The World Trade Organisation has had a run-in with China on behalf of the West and persuaded China to agree to the export of these rare earths, after the Chinese Government implemented a 2010 ban on exporting these. See China loses trade dispute over rare earth exports That article states that

“China produces more than 90 percent of the world’s rare earths, key elements in defense industry components and modern technology from iPhones and disk drives to wind turbines.”

In view of the tarrifs against Chinese imports, it is now likely that China will reinstate their 2010 export-limiting rare earth ban.

This is not a minor matter. A few of the major uses of rare earths are tabulated below and the Chinese dominance of the market is illustrated.

Source: Namibia Rare Earths Inc.

One major use of rare earths is in the production of superstrong magnets which are required for the successful production of “green energy” through high quality wind turbines. See Rare-earth magnet — Wikipedia where ”the strongest and most affordable type of rare-earth magnet” Neodyniam magnets are discussed and where their common and other applications are listed as

“Common applications of rare-earth magnets include:

• computer hard disk drives
• wind turbine generators
• audio speakers / headphones
• bicycle dynamos
• Magnetic resonance imaging device
• fishing reel brakes
• permanent magnet motors in cordless tools
• high-performance AC servo motors
• traction motors and integrated starter-generators in hybrid and electric vehicles
• mechanically powered flashlights, employing rare earth magnets for generating electricity in a shaking motion or rotating (hand-crank-powered) motion
• industrial uses such as maintaining product purity, equipment protection, and quality control capture of fine metallic particles in lubricating oils (crankcases of internal combustion engines, also gearboxes and differentials), so as to keep said particles out of circulation, thereby rendering them unable to cause abrasive wear of moving machine parts

Other applications

Other applications of rare-earth magnets include:

• Linear motors (used in mag-lev trains, etc.)
• Stop motion animation: as tie-downs when the use of traditional screw and nut tie-downs is impractical.
• Diamagnetic levitation experimentation, the study of magnetic field dynamics and superconductor levitation.
• Electrodynamic bearings
• Launched roller coaster technology found on roller coaster and other thrill rides.
• LED Throwies, small LEDs attached to a button cell battery and a small rare earth magnet, used as a form of non-destructive graffiti and temporary public art.
• Neodymium magnet toys
• Electric guitar pickups
• Miniature figures, for which rare-earth magnets have gained popularity in the miniatures gaming community for their small size and relative strength assisting in basing and swapping weapons between models.”

High-strength magnets are an indispensable part of modern technological development and I have italicised the major developments dependent upon their availability. A world with fewer of the linear motors of mag-lev-trains, wind turbine generators, diamagnetic levitation, and effective computer hard disk drives, to name but five from the above list, would be a much more backward world.

The American military use of rare earth magnets includes

• Air-to-air missiles, where such magnets control flight trajectory
• Air-to-surface missiles, ditto
• The guidance system of the Tomahawk cruise missile is connected to tail control fins that use direct drive rare earth magnet actuators
• Smart bomb target delivery
• Laser uses in rangefinders
• Underwater mine detection
• Satellite communications
• Stealth technology
• Etc, etc

See https://ewi.org/eto/wp-content/u... for images and more data.

2.2 US Business and Consumer Consumption of Chinese Computer Products

American businesses and consumers annually buy about half a trillion dollars’ worth of Chinese products. If they stop buying these, there is at present often no other large source of many of these cheap excellent items. See Explore all $506 billion in goods that the US imported from China in 2017

which not only lists the type of these goods imported from China but comments on whether these are easy, or likely to be difficult, or nearly impossible, to source from elsewhere.

The US 44 page List or Docket No. USTR-2018–0005 specifies in its 44 pages ANNEX (pages 14–58) the items which will attract higher import taxes. See

https://ustr.gov/sites/default/f...

That list starts with Thorium and uranium products and lists drugs and mendicants, iron or steel products including stainless steel, alloys, aluminium products, parts for motor vehicles, nuclear reactors, boiler parts, marine propulsion units, parts for and internal combustion engines, turbopropellers and turbojets, other reactions engines, hydraulic, pneumatic engines and motors, all kinds of pumps, air or gas compressors, furnace burners and bakery ovens, catering equipment, paper-making machinery or plant, machinery for purifying water and other liquids, centrifuges, household and commercial dishwashers, packing, wrapping and weighing machines, fires extinguishers and their parts, sand blasting machines, hoists, pulleys, towers, cranes, derricks, elevators, bulldozers, pile drivers, snowploughs, coal and rock cutters and tunnelling machinery and associated parts, many farm or harvesting machines (plows, or for haymaking, harvesting, milking or other dairy, pressers and fruit or grape crushers, poultry machinery, bee-keeping, cereal milling, pasta or confectionary making,and brewing) and paper pulp, book-binding and box making machines, and printing or copying on paper card or textiles, weaving, looms, sewing and knitting machines and looms and their parts, a long list of metal-working machine tools and lathes, boring, grinding, milling, planing and drilling machines, and all their parts; chain saws, blow torches, cash registers, magnetic disk drives and storage units, crushing and grinding machines for earth, stones, ores or minerals, machines for assembling electric or electronic lamps, injection-moulding machines, extruders, blow- and vacuum-moulding, rubber and plastic working machinery and the parts thereof, tobacco machinery, public works machinery, robe or cable making machines, industrial robots, all kinds of trash compactors and their parts, molds of all kinds, pressure-reducing check safety and relief valves, ball bearings and associated parts, flywheels, pulleys, clutches, housings, ships’ and boat’s propellers and blades and electric motors, whether universal AC/DC or AC,and electric generation sets, convertors, and parts, suitable for aircraft, electric transformers, speed drive controllers, printed circuits, permanent magnets and electromagnetic couplings, batteries, industrial or laboratory microwave ovens, electric soldering irons and guns, resistance welding apparatus and parts, blank magnetic and optical media, sound recording apparatus, pre-recoded magnetic and optical media, transmission apparatus for radio broadcasting, transceivers, gyrostabilised and portable TV cameras, radar kit, radio navigation aid kit, video monitors of all definitions, colour video projectors, TV printed circuit assemblies, TVs, printed circuit and other TV subassemblies, tuners, parts for electrical signalling, safety or traffic control for transport, ceramic dielectric fixed capacitors and resistors, circuit breakers and isolators, starters and switches, touch screens, arc lamps, transistors, electrical particle accelerators, semiconductors and printed circuit makers, flight data recorders, insulted winding wire and electric conductors, externally powered rail locomotives, tramway coaches and trucks and all their parts, diesel-driven motor vehicles some with electric motors, allotter piston-driven motor vehicles including goods transport vans, motorcycles and their parts, balloons, dirigibles and non-powered aircraft, gliders and hang gliders, helicopters, powered airplanes, communication satellites and their parts, spacecraft and their launch vehicles, aircraft launching and landing gear, air combat ground flying simulators, all sea vessels, mounted prisms and mirrors, cinema cameras and their parts,stereoscopic microscopes and their parts, optical microscopes, telescopic sights, lasers, gyroscopes, electrical detection finding compasses, appliances for optical or space navigation, ships’ logs and depth-sounding apparatus, rangefinders, seismographs, electrocardiographs and their printed circuit assemblies, and ultrasonic, magnetic resonance imaging, scintigraphic and electro-diagnostic apparatus and patient monitoring systems, syringes, needles, catheters and dental drills, mirrors and reflectors, anaesthetic and electro-surgical instruments, defibrillators and their printed circuits, psychological aptitude testing apparatus, dental fittings, artificial joints, hearing aids, pacemakers, X-ray tubes and all their parts and accessories, machines for testing the mechanical properties of metals, clinical thermometers, barometers, hygrometers, thermographs, liquid flow and pressure meters, chromatographs, spectrometers, exposure meters, nuclear magnetic resonance instruments, specific printed circuit assemblies, resistance measuring instruments, ionising radiation detectors, test benches, profile projectors, aromatic thermostats and manostats, automatic voltage and current regulators, LEDs for backlighting LCDs, touch screens, artillery weapons and all kinds of hand-held weapons, aircraft and motor vehicle seats of all kinds.

The above summary is a 672 word listing of a 44 page document and is obviously more illustrative and descriptive than it is complete. For completeness, refer to the original source 301RFN.pdf document.

This short list is very revealing, because it is a list of the products which American businesses and consumers purchase from China in preference to buying the more expensive, sometimes lower quality, often not available US equivalent.

The implications of this are discussed at section 3.2 below.

2.3 Chinese Past Years Financial Support of US Revenue Overspending The Chinese have in past years supported the USA by buying American Government debt. This may be less likely in future.

The US Government has an estimated total debt of $19.4 trillion in mid 2017.

That’s about 100% of the 2017 $19.36 tr. GDP of the USA. See

Central Intelligence Agency where that GDP is estimated

And see China Owns US Debt, but How Much?

which comments

“China took the top spot among foreign creditors at $1.17 trillion, followed by Japan, at $1.07 trillion as of January 2018.

Japan and China own about 5.3% and 4.8% of the U.S. debt, respectively. Japanese-owned debt doesn’t receive nearly as much negative attention as Chinese-owned debt, ostensibly because Japan is seen as a friendlier nation and the Japanese economy hasn’t been growing at an 7% clip year after year.”

As that article points out, the Chinese purchases of US debt keep the Yuan down in value and help the American international finance of their balance of payments and the continuing purchase of of cheap good quality Chinese goods by US consumers.

If due to tariffs China sells less to the USA, then the major Chinese motivation — for buying US debt and supporting US consumption of Chinese goods — will reduce.

2.4 US Farm Exports to China China is a major consumer of many American farm goods, most notably soybeans. The threats to these farm exports have been high enough to make the Trump administration seem to reconsider the import tariffs — see

Trump says China to buy more U.S. farm products, offers no details

But the US import policy is now so well specified and most recent announcements stress the continuation of the trade war — see the “15 hours ago”/20 July report at

Trade war risks becoming a dangerous currency war as China weakens yuan the most in 2 years and

Trump says he’s ‘ready’ to put tariffs on all $505 billion of Chinese goods imported to the US and

How the Trade War with China Will Affect the U.S.

which reports the view of Yasheng Huang, a political economist, MIT professor, and the author of Capitalism with Chinese Characteristics, who argues that “a trade war would negatively affect the interest of U.S. consumers, companies, and the financial system of the United States.”

I think that result is very likely.

2.5 Chinese purchase of Intel Chips China has previously built the fastest computers in the world using over three million Intel Computer cores in each of these computers. The Tianhe-2 for example [see Tianhe-2 — Wikipedia] which says

“It was the world’s fastest supercomputer according to the TOP500 lists for June 2013, November 2013, June 2014, November 2014, June 2015, and November 2015.[4][5]

“The record was surpassed in June 2016 by the Sunway TaihuLight. In 2015, plans of the Sun Yat-sen University in collaboration with Guangzhou district and city administration to double its computing capacities were stopped by a US government rejection of Intel’s application for an export license for the CPUs and coprocessor boards.[6][7][8]

So the Chinese purchase of Intel CPUs and coprocessor boards was stopped by the US government.

3 The Results of Shifts In These Linkages

3.1 Rare Earths and their Contribution to Military Computer Products The US will become less capable of producing some key military hardware, and may need to invest in rare earth mining and production. This will be expensive but may become essential. The use of strong magnets in electricity generation may become much more difficult for the USA to access unless alternative sources of key rare earths are found and exploited.

3.2 US Businesses and Consumers Become More Expensively Updated or Less Computer-Capable

There are perhaps half a dozen major categories in the list of products attracting higher US import tariffs. These are

• Pharmaceutical and Medical Services American medical services are privately provided and are currently the most expensive and the least effective in the world, consuming a larger percentage of US GDP than any other country and failing to produce the additional lifespan encountered in other national (usually public) health service systems. The cheapest Chinese source of many drugs and a great deal of medical equipment from the most basic syringes up to the highest quality complex diagnostic and treatment apparatus are likely to made more expensive due to these new import tariffs. The sheer scale of these imports means that there is not likely to be any easy transfer to other foreign sources and US domestic production of these items is obviously currently inadequate and unlikely to increase by much.
• Capital Goods required To Update American Industrial Production and Consumer Services The US machine tool industry — one of the truly major components of the industrial revolution everywhere- was largely shut down in parallel with the closure of much of American manufacturing industry. These tariffs make the updating of production machinery in a large range of industries — such as catering (“bakery ovens, catering equipment, household and commercial dishwashers) and paper-making (“paper-making machinery or plant”) and the production of rubber and plastic products and a wide range of equipment for construction industries, farming, and high tech assembly — all more expensive to update. One major result of these extra tariffs is that many industries will delay updating their equipment and stay with the obsolete kit currently in use for many more years, so their outputs will be less than those possible with modern “state of the art” technology. And US production facilities will become more outdated.
• Land Sea And Air Transport Products Virtually all imports of motor vehicles from China, of sea vessels and all air transport whether powered or otherwise will be affected by these tariffs. Again, older vehicles are likely to be kept in use or where these are replaced the costs of transport will be higher for the consumer.
• Iron, Steel and Aluminium items The previous republican Governments of the United States shut down their iron and steel factories despite the fact that these facilities are a key part of the foundation of a high-productivity, high-quality manufacturing economy. Donald Trump and his administration are trying to blame not only China but the rest of the world for the relative economic decline of the United States which is an American result of a less than capable economic understanding.
• High Technology Plant and Items enabling Scientific Measurement and Advancement While the most prominent item in this category is Nuclear Reactors, may items on the higher tariff list such as rare earths are essential for scientific advancement, which will become less effective in the USA when the import tariff is applied.
• Hand Held Guns, Rifles and other such Military Equipment This will obviously be an advantage to the American factories producing guns for the US public and facilitating the high levels of American suicide these guns mainly bring about. See

George Tait Edwards’ answer to When will people realize that guns don’t kill people; people kill people?

The CIA preamble to their comments on the US economy begins with the words

“The US has the most technologically powerful economy in the world, with a per capita GDP of $59,500. US firms are at or near the forefront in technological advances, especially in computers, pharmaceuticals, and medical, aerospace, and military equipment; however, their advantage has narrowed since the end of World War II. Based on a comparison of GDP measured at purchasing power parity conversion rates, the US economy in 2014, having stood as the largest in the world for more than a century, slipped into second place behind China, which has more than tripled the US growth rate for each year of the past four decades.”

Let’s put that comment into perspective. The USA GDP was $19.36 tr in 2017 PPP values and China is listed as having a GDP of $23.12tr (19.4% larger than the USA) on the same year and on the same basis.

The percentages of the economy devoted to industry were 18.9% in the USA and 39.5% in China. So Chinese industry in 2017 produced a total output of $8.9 tr while US industry produced $3.64tr. In other words Chinese industry has an output which was 2.45 times the American one in 2017.

In theory US industry could gear up to supply from domestic sources the half-trillion dollar long list of products which have now been made much more expensive to acquire from Chinese sources. How likely is that?

American manufacturing would need to expand by half a trillion dollars to produce domestically the items listed — an increase of 13.9% in industrial production. That’s possible but given the almost total lack of bank-provided capital loan funds with no US government industrial policy is very unlikely.

The CIA idea that America is in the forefront in technological advances is probably no longer the case in the following areas:

• economic understanding (very second-rate -US economists appear have no knowledge of Shimomuran/Tokyo Consensus Macroeconomics which economic understanding is responsible for the economic rise of China)
• advanced manufacturing technology (which is only developed by doing)
• computers (see section 3.5 below)
• probably pharmaceuticals and medical items, where the scale of Chinese production infers higher technical knowledge.

In these areas the better economic understanding and higher production of finished and consumer goods has resulted in a better technology which the CIA do not yet recognise, although they concede that the American advantage “has narrowed since the end of World War II” which could perhaps be added to, by remarking “particularly during the last decade.”

It is quite impossible for the US manufacturing industry, when it is only 40% of the size of Chinese industry, to provide the vast range of items produced by China. The proposed tariffs do not acknowledge that fact.

3.3 US Revenue Overspending Is Less Financed by Chinese Debt It seems likely that China may not continue to purchase US debt as it has previously and given the worsening international attitudes to the US it might become necessary for the FED (which already has about 5% of the total US debt) to substantially increase its holdings of US debt.

The possibility of devaluation the dollar due to the increasing weakness of the US economy may make US debt less attractive than it was previously.

3.4 US Loses Permanently Some Farm Exports to China If the trade war goes ahead, China is likely permanently to switch its purchases of soybeans to Brazil and elsewhere.

3.5 China Develops its Own Computer Chips The ban on Intel exports to China has resulted in Intel losing its largest customer and China refocusing its microchip policies on domestic production. That is not a theory -it has already occurred, although the full implications of that development are not yet all visible. As Tianhe-2 — Wikipedia remarks

“In response to the US sanction, China introduced the Sunway TaihuLight supercomputer in 2016, which substantially outperforms the Tianhe-2, and now ranks second in the TOP500 list while using completely domestic technology including the Sunway manycore microprocessor.[9]”

The USA is not the only location of high quality microchip technology and the long term result of this export ban is very likely to bring about the Chinese domination of the future microchip market.

After losing the lead in computer speed since 2013, the Trump adminstration is trying to catch up on Chinese developments through a $248bn investment in faster computers.

4 Conclusions

4.1 The US tariffs on Chinese imports are likely to result in the Chinese re-instatement of their ban on rare-earth exports. That ban will reduce the US capability to produce key military items used in guiding missiles and thus in a reduced ability to use such items.

4.2 The proposed US tariffs on Chinese imports of capital goods will reduce the quality and increase the cost of goods to consumers as US businesses either pay more or update less.

4.3 Chinese industrial manufacturing is now about 2.45 times larger than that of the USA. That is the result of the absence of both economic understanding and a competent industrial strategy in the USA and is a self-inflicted injury for which China and the rest of the world is not responsible.

4.4 The American economy is likely to be damaged by these proposed tariffs

• financially, due to lower Chinese support for US debt
• operationally, as US industry either pays more for updating their kit or works with less effective equipment
• with lower US farming sales to China
• by losing the “Intel advantage” as China now produces its own domestically-produced computer chips.
• The view of Yasheng Huang, a political economist, MIT professor, and the author of Capitalism with Chinese Characteristics, who argues that “a trade war would negatively affect the interest of U.S. consumers, companies, and the financial system of the United States” is absolutely correct
• Militarily, because key components of US items (such as the air-to-air missiles, and air-to-surface missiles, where such magnets control flight trajectory, the guidance system of the Tomahawk cruise missile’s tail control fins, that use direct drive rare earth magnet actuators, smart bomb target delivery etc) will not be possible without the superstrong magnets only constructed via the use of imported rare earths from China which may not now be provided

5 Over-arching Conclusion Tariffs against $505 billion of Chinese imports to the USA does not seem to be a sound or well considered policy. The USA will lose more than it could possibly gain from the implementation of these tariffs.

Originally published at www.quora.com.