The New York Times runs a story today saying China is flexing its muscle with both Japan and the US. The diplomatic dispute with Japan last week over the Chinese fisherman had rumours of a ban on selling rare earth metals to Japan (later denied). China of course has a stranglehold on the production of rare earth metals having control of over 95% of the worlds supply – rare earth metals have a variety of uses not the least hybrid cars.
The jockeying with the US heated up in earnest about a fortnight ago when Larry Summers visited China. One suspects he gad a lot to say over the valuation of the Yuan. This in turn was backed up by the most forthright comments yet from Trsy Sec Geithner with President Obama also getting in on the act. China’s steep tariffs on imported poultry of up to 105% is just China turning defense into attack.
China was on the offensive again in Asia today with the Yuan fix surprisingly weak in the face of US Dollar weakness towards the end of last week when China was on holidays. Funnily enough the spot market for once ignored the weak fix and traded Yuan on the strong side of its range – perhaps the locals were warned that the weak fixes would not last.
All up the last thing the world economy needs is a TRADE WAR.