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Economic Warfare

Posted Wednesday, September 19, 2012, at 10:17 AM

Three little islands in the Pacific Ocean don't seem very important to most of us here in America.

However, China is threatening war with Japan over them.

Briefly, there is a small chain of islands that have been claimed by Japan, China and Russia since World War II.

Three of the islands were privately owned by Japanese citizens.

The government of Japan bought those islands from their private owners. China is extremely upset.

Top Chinese officials are threatening war.

The top Chinese General has just instructed the army to prepare for combat.

On Sept. 18, the Chinese Commerce Ministry recommended implementing economic warfare.

China is Japan's biggest creditor, holding $230 billion worth of Japanese bonds.

According to the "experts," this could bring the Japanese fiscal crisis (which is similar to ours, but older) to a head.

At the same time, China is drawing up plans to cut off all exports to Japan.

That doesn't just mean cutting off cheep plastic toys, but also "rare earths."

Rare earths are rare minerals and exotic metals, which are becoming increasingly essential to manufacturing electronics.

Chinese newspapers report that Japanese joint venture manufacturing facilities in China could be shuttered and Japanese imports rejected at the docks.

This could cripple Nissan, Honda, Sharp and Panasonic.

Japan's trade with China was $354 billion last year.

Japan can't just give in and give these three tiny islands to China.

If they do, what will China demand next?

Yet, the experts believe that China could rapidly bring Tokyo to its "economic knees."

Moreover, China believes that it can do this with little cost to itself.

Mr. Jin, a Chinese Economic Minister, testified to the Politburo that, "China can afford to sacrifice its low-value-added exports to Japan at a small cost. By contrast, Japan relies on Chinese demand to keep its economy afloat and stave off irreversible decline. It's clear that China can deal a heavy blow to the Japanese economy without hurting itself too much."

Is there also a message for us in this?

What would we do if China threatened us with military confrontation?

What would we do if China decided to trash our bonds?

They are the largest foreign buyer of U.S. bonds.

What would we do if China cut off all exports to us and closed all of our manufacturing facilities in their country?

No more I-pods or I-pads.

How much of what we crave, even need, is made only in China?

China is the world's largest producer of rare earths.

What would we do if they cut off the supply?

What would we do if they simply stopped accepting the U.S. dollar and dumped all of their dollars for other currencies?

Do you remember how the United States defeated the Soviet Union? We didn't have to fire a single shot.

We convinced the Soviets to spend money until they bankrupted themselves.

How much of a nudge would it take for China to push us into national bankruptcy?

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