Inches away from an Asian trade war (update 4) - first shots fired China/Japan embargo (rare earths)

If confirmed it would be the start of a full scale trade war that will draw the US in (re: tariffs on most Chinese imported goods pre: November 2010 elections). The smoking gun is the recent, and disturbing, embargo on rare earth shipments to Japan. Of course this will escalate the geo political tensions between China and Japan as discussed in Major war/conflict cycle commencing? (update 5) Japan/China

This will also be an excuse to not revalue the Yuan higher and the Yen will weaken further, as Japan will go all out to slam the Yen down further. The whole devaluation war (currency protectionism) will cause Asia to devalue all their own currencies. The USD will be bid, with the Fed putting through a second qualitative easing but without US government fiscal stimulus - the USD may not fall as hard as assumed on QEII). But rather a trade war with China, namely high taxed imported steel will be the US government response on a slowing economy.

NYT Sept 23rd 2010

HONG KONG — Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has placed a trade embargo on all exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

*Didymium oxide is a rare earth mineral used in delicate electronics.
Related

*An engine of a Toyota Prius. Each Prius uses at least two pounds of rare earth elements in its various parts.

Chinese customs officials are halting all shipments to Japan of so-called rare earth elements, industry officials said on Thursday morning.

On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese coast guard vessels about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.

A Chinese commerce ministry official declined on Thursday to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the Chinese government’s position.

China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company, said that several executives in the rare earths industry had already expressed worries to him about the export ban. The executives have been told that the initial ban lasts through the end of the month, and that the Chinese government will reassess then whether to extend the ban if the fishing captain still has not been released, Mr. Kingsnorth said.