China Market

The article provides details on China's attempt to curb the rare earths market by applying a wide variety of measures such as raising export taxes, banning new projects in rare earth separation and punishing any firms in the domestic mining industry trying to resell export quotas. Besides, over years, a surge in illegal exports and smuggling of rare earths has also been an issue of concern. Hence, the Chinese government is trying to tackle these problems.

Protectionism involves government actions and policies that aim to restrict or restrain trade of goods and services between countries. It is often done through several methods including tariffs, quotas, export subsidies and local business' tax cuts. The purposes are to prevent the free entry of imports from other countries as well as to protect the whole domestic economy from foreign competitions.

Moreover, Voluntary Export Restraint (VER), in this case is the export quotas in China, is referred as a specific exporting country (China) voluntarily restricts the legal quantity of goods that the country can ship to its trading partners, or imported countries over a particular period of time.

Next, an export tariff is a type of tax imposed on exported goods in order to protect domestic supplies while attempting to push prices in the international market up.

(Diagram 1) (Diagram 2)

Diagram 1 and 2 illustrate the effect of the export tariff imposed by China, increased to 60 yuan per ton on iron alloys containing more than 10% of rare earths by weight on China and global markets.

From diagram 1, assuming that initially China exports under free trade at price, PFT and quantity QFT. Then, the export tariff has been introduced; the rare earth becomes more expensive at (PFT + tax) when it is shipped to other countries. As a result, there is a surplus of rare earths where global quantity supplied Qs exceeds quantity demanded Qd.

Since the higher price causes a fall in worldwide...