Economist Paul Krugman's op-ed article about China's rare-earth exports, published in the New York Times last week, makes me wonder if his fierce policy critique of China's yuan exchange rate regime has now become an all-out war on China.

Rare-earth minerals or rare-earth metals are the 15 nonferrous metals from lanthanide through lutetium, numbered 57 to 71 in the periodic table, plus scandium and yttrium. They have a wide range of applications in hybrid vehicles, rechargeable batteries, mobile phones, plasma televisions, disk drives, catalytic converters, and last but not least, bombs dropped by the US fighter jets in Afghanistan.

The name can be misleading, as rare-earths are actually not that rare; China, Australia, the US, and others all have significant deposits.

China's rare-earth reserves make up 36 percent of the world's total, but its exports total 97 percent of the global demand. China has developed a seemingly near monopoly control over the world's rare-earth supply in recent years after Chinese producers' low prices drove many foreign competitors out of the market.

For example, the Mountain Pass mine in California operated by Molycorp Minerals LLC shut its doors in 2002 due to both environmental issues in California and low prices.

Monopolies are usually associated with high prices and excessive profits. The rare-earth situation, however, is exactly the opposite. The rare-earth market is fiercely competitive in China, with over a dozen companies in Inner Mongolia alone.

Environmental and workplace safety regulations are scant and their enforcement is lax. The industry is simply not sustainable over the long run with tons of social and environmental externalities whose costs are not incorporated in production but ultimately have to be borne by the Chinese public.

And the vicious price competition has been further exacerbated by the Japanese government's speculative activities, which has been for years hoarding rare-earths to the point that Japan can live without any imports for the next 20 years.

The huge inventory enables Japan to pocket a windfall by selling high and buying low, while substantially and artificially suppressing rare-earth prices.