Chinese Monopoly on Rare Earths

    An occasionally used business strategy to maximize profits is to create a monopoly. This can be accomplished by buying out competitors or eliminating them through a price war on the products which each produce. For example, if General Electric makes and sells electric turbines and its competitor is Westinghouse, General Electric can eliminate Westinghouse as a competitor by buying the company. General Electric could also price turbines at such a low level that Westinghouse could no longer compete. The latter would be a capital war and the winner would be the one which lasts the longest. When the other company is out of business, the winner would then drastically raises its prices to recoup its losses and subsequently go on to a high-profit business.
    An alternative procedure to create a monopoly is for two or more competitors to agree on limiting supplies of a product or controlling its pricing..
    Whatever the method of creation, a monopoly is the altering of a product's availability and price, which is detrimental to prospective product buyers. Prospective buyers could be limited, such as with electric turbines, or in some cases can be the general public. For this reason, Congress many years ago created antitrust (monopoly) laws. The Department of Justice, in cooperation with the Federal Trade Commission, has the responsibility to observe business activities in the US to avoid creation of monopolies and to destroy and penalize those responsible, wherever a monopoly is found.
    On an international basis, there are no antitrust laws, and monopolies are used by countries or groups of countries against other countries. An example of a well known international monopoly is OPEC, which controls supplies and prices of crude oil on the world market.
    More recently China has engaged in a monopolistic practice on rare earth's. Rare earths are a group of chemical compounds which are mined and subsequently used in the manufacture of most electronic products, such as telephones, computers, etc. Deposits of rare earth's exist in the United States and some years ago there were several companies actively engaged in the mining, processing and supply of these materials to other manufacturers. China also has deposits of rare earths and the ability to supply processed materials. Several years ago, China apparently decided on a monopolistic program to control world supplies and prices of rare earths. China followed the traditional route of dropping prices to very low levels and drove American producers out of business. China then limited to supplies and raised prices drastically. The US electronics industry now has a limited supply of a critical raw material and available only at high price.
    Meanwhile, the US government, and particularly Congress, has taken no action in attempting to control international monopolies, which are obviously detrimental to US economic health and development. OPEC still reigns a strong hand in controlling crude oil supplies and prices in the US, and now China is doing the same on rare earths.
    The most obvious way to control a Chinese international monopoly is through import duties. Applying an import duty (tax) on rare earths coming into the United States would only exacerbate the rare earth availability/price problem, but an import duty could be applied on other imported products which are not necessarily essential to the American economy. Such duty would in effect be a retaliatory or countervailing duty.

Reference: Chemical and Engineering News, April 2, 2012, page 14.