Monday, February 9, 2026

China vs. Obama at the WTO 2015

Last update: Tuesday 3/2/26 8:09pm

Deng Xiaoping's image appears on this page because, as the 'father of modern China', he inspired his country to greatly enhance its power by leveraging its abundant rare earth resources.  In 1992 he famously declared, "The Middle East has its oil, China has rare earth: China’s rare earth deposits account for 80 percent of identified global reserves, you can compare the status of these reserves to
that of oil in the Middle East: it is of extremely important strategic significance; we must be sure to handle the rare earth issue properly and make the fullest use of our country’s advantage in rare earth resources." 

Full text ➡ HERE

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 Introduction  |  Context  |  China vs Obama |  Steve Job's Vision  | 
 Ecosystem | China vs Trump-1 |  China vs Biden  |  China vs Trump-2   

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1) Introduction
With these ambitious words Deng launched an inevitable conflict with the ambitions of another great power, the United States. The English translation of his words appears in the following report: 
This 2019 ASPI report provided an authoritative overview of the specific steps the Chines government took to implement Deng's visionary strategy; hence the next section will include bullets that contain verbatim quotes from this report. However the reader should always bear in mind  that China willingly paid a high price for its success in the form of toxic wastes, a price that other nations, including the United States, were unwilling to endure, as recounted by the following NY Times report.

  • "China Has Paid a High Price for Its Dominance in Rare Earths", Keith Bradsher, NY Times, 7/5/25
The previous Context installment of this report provided a low key introduction to heavy rare earth elements (HREEs), China's dominant position in their refinement, and their largest known reserves in Greenland. The first two sections of this installment continue in that vein.

But the final section will read more like a reporter's round-by-round notes about a heavy weight championship boxing match, a match that is still ongoing. China, inspired by Deng Xiaoping's vision, was the upstart challenger who had been quietly training for more than two decades to get into the best possible shape. Then it suddenly won round after round against the U.S., the hitherto unchallenged champion.


2) Training
Here are a few quotes from the ASPI report that describes China's extensive efforts to implement Deng's vision.
  • "China’s mercantilist approach to rare earths was reinforced by Deng’s successor Jiang Zemin ... who declared that China’s task was to ‘improve the development and application of rare earth, and change the resource advantage into economic superiority’"

  • "At least 40% of China’s output was ‘illegal’ production by small-scale entrepreneurs in the south of China who found they could extract rare-earth oxides from clay soils either with strip mining or by soaking trenches with sulphuric acid. Efforts to shut down these operations, which cause extensive environmental damage, have been only been partially successful, in a striking reminder that the power of the monolithic Chinese state diminishes with the distance from Beijing."

    -- Editor's note: These '    illegal' miners did not sell all of their ore to China's refineries; they smuggled the rest to overseas buyers.

  • "While building its own production, China has also sought to control the output of rivals. In 2005, the China National Offshore Oil Corporation [CNOOC] bid US$18.5 billion for the US oil business Unocal ... Unocal also owned the only rare-earths mine in the US, Mountain Pass (it was mothballed at the time). CNOOC’s bid raised a political storm in the US which ultimately led it to withdraw."

  • "In the mid-1990s, GM was going through a period of corporate restructure, shedding ‘non-core’ subsidiaries, and the magnet-making firm was sold to a joint venture of two Chinese state-owned firms for US$70 million. The sale was controversial—regulators demanded a commitment that the Chinese buyers would retain the assets of the business in the United States for at least five years ... In 2002, the day after the five-year commitment expired, the US manufacturing operations were closed and the entire plant was shifted to China. The US has only regained a fraction of its capacity to manufacture rare-earth magnets." 

  • "Chinese investors remain active in securing stakes in rare-earth prospects around the world, including in listed Australian rare-earths companies Arafura and Northern Minerals".

3) China's challenge and President Obama's WTO response
This section presents an unusual timeline of the most important events that occurred during the interactions between China and the Obama administration. 

It is unusual because it includes all of the events that the editor has selected with the benefits of perfect 20-20 hindsight. However, there is little reason to believe that the Obama administration was aware of  significance all of the actions taken by the Chinese leadership.

(a) China joins the World Trade Organization (WTO)   ... "China became the 143rd WTO Member on 11 December 2001. ", WTO, 12/11/2001

(b) China announces a five month crackdown on illegal rare earth mining starting in 20 June 2010 ... "Govt cracks whip on rare earth mining", China Daily,5/21/10

Note: This announcement pressured smugglers to raise their prices immediately because each was not sure how long it could evade the government's crackdown. Indeed, the surge in prices that resulted from the "clampdown on illegal mining" was confirmed by The Guardian, 6/18/11

Thereafter, between 2011 to 2015, China demolished smuggler facilities and reorganized them into six state owned enterprises that deploy non-toxic mining tech ... "How China seized global domination of rare earth metals", NPR, 10/24/25

(c) According to the Congressional Research Service (CRS), China cut its export quota during the 2009 to 2012 period from year to year. The biggest reduction came in 2009. The 2009 quota 48,155 was reduced to 30,259 in 2010. This represented a reduction of about 18,000 metric tons in one year. Alternatively it might imply 18,000 metric tons might have been produced, but stockpiled ... CRS

(d) China imposes an export tariff on rare earth exports ... "China to hike some rare earth export duties", Terra Daily, 12/14/10

Note: The export tariff raised the price of legal exports. So China's foreign buyers were now paying higher prices for legal as well as illegal smuggled rare earths; but China did not raise prices for its domestic buyers.

(e) Mountain Pass revival "Rare Earth Production Rises At Molycorp’s Mountain Pass Mine",  Sentinel, 2/1/15

Note: China’s legal and illegal rare earth producers were charging historically high prices, which encouraged investors to believe that Molycorp could profitably reopen its Mountain Pass mine. Even though Mountain Pass had higher mining costs and a more expensive non-toxic refining process, China’s inflated export prices created a wide enough margin for Molycorp to undercut them and still turn a profit. This business case depended entirely on China keeping prices high.”


(f) President Obama went to the WTO ... "The U.S. Will Bring a New Trade Case Against China", The White House, 3/13/12

Note: The U.S. and other nationss had been complaining about China's rare earth export policies, with some success, before President Obama appealed to the WTO. The appeal to the WTO was seen as an appeal to the 'highest court' that would render further appeals unnecessary.

(g) The WTO rejected China's claims ..."China — Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum", World Trade Organization, 5/20/15

Note: The WTO rejected China's sustainability rationale. If rare earths were limited, China should have also reduced their access for its domestic buyers, but it did not restrict its domestic buyers.

For similar reasons the WTO also rejected China's export quotas. China's decision not to reduce quotas for its domestic buyers put its foreign buyers at a disadvantage not faced by its domestic buyers. The WTO's GATT regulations regulations prohibit such domestic favoritism.

However, the WTO does allow its members to impose excise tariffs on products that are listed in a table in Appendix 6 of its Accession Protocol when the nation is admitted to the WTO. If the reader clicks this link, China Accession Protocol, then searches for the words "Products subject to export duty", China's table will be displayed.  The reader will see that China did not include "rare earths" in its table, so the WTO declared that China would have to remove the tariffs on its rare earth exports.

China complied with the WTO's decisions: (1) it lifted its export quotas, and (2) it removed its export tariffs, i.e., it made large reductions in its prices

4) 'Unintended Consequences'
"Molycorp is filing for Chapter 11 bankruptcy", Fortune, 6/25/15  ... "Five years ago, Molycorp was flush with a market value $6 billion because China, the world’s most dominant supplier of rare earths, had restricted their exports. But those fortunes faded when China eased its export rules and as magnet and battery makers turned to rare earth alternatives." 

Note: When China dropped its prices, Molycorp could not afford to offer comparably low prices, so it filed for bankruptcy.

Molycorp was just one of many rare earth mining and refining operations outside of China that were devastated when China overwhelmed global markets with low priced ores and refined rare earth elements. Interested readers can check the following links to reports that describe the bankruptcies and near bankruptcies inflicted on other rare earth companies during the turbulent 2010 to 2016 period.
With the benefit of 20-20 hindsight, the reader can see that the Obama administration's successful appeal to the WTO tribunal was a pyrrhic victory. China's "loss" was a strategic triumph that enabled it to greatly strengthen its dominance of the world's markets for rare earths. 
  • China knew that 'everybody' dreaded the day when its ever greater dominance of the world's rare earths markets would lead it to charge sky high 'monopoly' prices.

  • And China knew that its threatened crackdowns on smugglers would pressure the smugglers to raise their prices for the five months they were still in operation. Why else would China provide its criminal smugglers with five month warnings about police raids??? ... 😎

  • China knew that its 'failure' to reduce its domestic customers' access to rare earths would invalidate its professed concerns about the sustainability of its limited supply of rare earths ... 😎

  • China also knew that the WTO would reject its imposition of export tariffs that raised the prices of exports because China had 'forgot' to include rare earths on its list of Products subject to export duty in its Annex 6 of its Access Protocol ... 😎

  • So China knew that the WTO's rejection of its justifications would 'force' it to cancel its export tariffs, i.e., to make large reductions in the the prices of its exports. Had China greatly reduced its prices 'voluntarily', it would have violated the WTO's GATT rules against 'dumping'

  • And one more thing. President Obama had filed a previous complaint against China at the WTO in June 2009 with regards to its imposition of export tariffs on nine materials that were not listed in Annex 6 of its Access Protocol
    -- "United States Files WTO Case Against China Over Export Restraints on Raw Materials", USTR, 6/23/2009

    China lost on all nine counts. Here's the list of materials; note that none of them are rare earths --     Coke, Fluorspar, Magnesium, Manganese, Silicon carbide, Silicon metal, Yellow phosphorus, and Zinc. Somehow China 'forgot' to add these nine materials to its Annex 6. Then just three years later, China imposed export tariffs on rare earths because it also 'forgot' that these critical materials, the stuff of Deng Xiaoping's vision of China's future, were also not listed in Annex 6. 

    Die hard fans of President Obama may believe that China's leaders really were that stupid. But other folk who play the holy game of poker might draw a different conclusion. Good poker players sometimes lose small stakes by deliberately playing their cards badly. This convinces lesser players that the good players really aren't so good after all. So when a good player bets and raises heavily when he or she has a royal straight flush, the lesser players bet their three aces just as heavily .. and lose very, very badly ...     😎
Bottom line 
'Everybody' feared that monopolies could charge sky high prices. But 'everybody' seems to have forgotten that near monopolies, like China in 2010, can crush their remaining competitors and thereby become full monopolies by flooding the market with goods at prices that their weaker competitors cannot match.

What really happened and why 
As as noted in our previous discussion of the dramatic drop in export quotas between 2009 and 2010, China may have stockpiled the extra 18,000 metric tons it produced each year, but did not sell from 2010 to 2015. By the time China canceled the export quotas in 2016, it might have accumulated 6 X 18,000 = 126,000 metric tons of rare earths in its stockpile. 
  • In 2020, Science Direct estimated the global market reached about 123,000 metric tons in 2016. (Search the link for "2016" with your browser).

  • On the other hand, China produced about 70% of the world's total rare earths production in 2015, according to Roskill Information Services. China's share of total world production had been increasing, so it would have produced at least 70% of the world total in 2016. The rest of the world only produced at most 30% x 123,000 = 36,900 metric tons in 2016. 
So its stockpile of 126,000 metric tons would have equalled the rest of the world's demand for at least 3 years because its stockpile 126,000 was greater than foreign demand = 3 X 36,900  = 100,007 metric tons.

China has voluntarily polluted a large section of Inner Mongolia, its northern most province, with toxic refineries that other nations would not accommodate. So how did flooding the market for rare earth ore consolidate the chokehold China wanted to have over the world's trillion dollar civilian and military big tech sectors?  Consider the impact of flooding on three groups:
  • Foreign mining operations
    Most mines would be pressed into bankruptcy if China underpriced them for  three years. But thereafter, as China required its newly formed six state owned mining companies to implement efficient, non-toxic, but more expensive  mining procedures, its mining costs would rise. Foreign mines might emerge from bankruptcy and thrive by selling their ores to China. China would refine their ores and sell them to its domestic or foreign buyers.

  • Foreign refining operations
    Refineries would buy lowest price Chinese ore but using less toxic, more expensive refining procedures would produce more expensive refined REEs. So they would be pressed into bankruptcy.

  • Foreign buyers
    Buyers would no longer buy rare earth ore from anyone; they would merely buy refined REEs from China, the world's low cost producer of refined REEs.
China provoked the Obama administration’s legal challenge before the WTO tribunal by deliberately and repeatedly violating its WTO Access protocol. But it is a supreme irony that this legal rebuke was sought by a U.S. administration that was fully aware that many of its own constituents had previously purchased a substantial percentage of their rare earth ores from criminals, i.e., from Chinese smugglers.

QUESTION: Why did China omit rare earth from the list in Appendix 6 of its Access Protocol when it applied for admission to the WTO?  Why did it resort to trickery?

ANSWER: Had China put rare earths on its list, it would not have been admitted to the WTO. 

The WTO was founded by an 'old boys' network of savvy trading nations -- the U.S., Japan, and the European Union -- nations whose leaders were well aware of Deng Xiaoping's vision that China should strive to greatly enhance its power via astute utilization of its rare earth resources. Had they approved China's application for membership with rare earths listed in its Appendix 6, China would have been able to charge the founding nations sky high prices for its rare earths via sky high export tariffs. 







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