Belligerent US trade commissioners are urging Barack Obama to toughen his China policy on import market dumping.
Global recessions can bring the worst of business partnerships. The sharp drop in domestic demand made producers in both countries victims of overcapacity. American companies are now accusing their Chinese rivals of dumping their surplus products in the United States – selling them at below-market prices. This dispute could represent the first commercial challenge for the next American President, Barack Obama, who must keep his promise of a tougher policy towards China, while taking into account the need for America that China finances an estimated federal budget deficit of $1 trillion.
Moreover, this controversy is fueled by the sudden activism of the Bush administration, which US lobbyists have often accused of being too soft on China. In the White House, Bush and his administration filed many dumping cases, but tried to avoid larger disputes by remaining silent. However, on December 19, during one of her last appearances as the US government’s trade commissioner, Susan C. Schwab filed a radical petition with the World Trade Organization, arguing that China is helping local exporters of Chinese-branded products, from household appliances to clothing, have been illegally subsidized through credit agreements and cheap loans. ‘The programs are coordinated by agencies within the central government itself and their tentacles hit hard in the provinces and major cities,’ said a government official in charge of US trade. We are talking about hundreds of companies here.’
China has denied the charges, but many U.S. companies are seeking to contest it. The U.S. textile industry says China has taken over more than half of the U.S. clothing market for the first time this year by tapping into $10 billion in new export subsidies since July. Industry lobbyists want Obama to adopt a far more aggressive policy, both in toughening trade laws and exerting diplomatic pressure.
It is very likely that the biggest conflict concerns steel. In December, the United States’ International Trade Commission, in a separate proceeding from the petition initiated by Schwab, set taxes of between 35% and 40% on certain Chinese steel products to offset the alleged subsidies. ‘Steel is often an early indicator of other trade issues,’ says Scott N. Paul, executive director of the Alliance for American Manufacturing, a Washington-based trade group. . We need to let it be known that China’s use of dumping will not be without consequences.’ But Beijing disputes the conclusions made by Washington within the WTO.
Since April, China’s monthly steel exports to the United States have almost tripled. The biggest increases actually happened in the fall – although the US economy was already starting to slip into a deep recession. In October, Chinese steel exports to the United States hit a record high. At the same time, US steel mills are operating at 43% capacity, reaching their lowest rate in 25 years, and dozens of steel mills have closed. After announcing record profits in 2007, US Steel (X) closed steel mills in Michigan, Minnesota and Missouri on December 2, leaving behind 3,500 unemployed.
Belligerent U.S. trade commissioners say part of the problem is Beijing’s use of subsidies, currency manipulation, and tax cuts for exporters to stem unemployment and preserve some stability. The data suggests that China is looking to further increase its 2009 steel exports, according to Barry D. Solarz, senior vice president of trade and economic policy departments at the Iron & Steel Institute. (Iron & Steel Institute). ‘What we fear, he admits, is that China is trying to get out of the economic crisis by dumping on our territory.’
William H. Barringer, a Washington Bar specializing in trade and representing Chinese steel producers, reports that most of the surge in imports this fall is due to the installation of oil drilling pipelines. It had been months since the orders were placed, at a time when oil prices were high, he notes. Now Chinese steel exports are falling. Barringer argues that American producers are trying to scapegoat China. From a historical point of view, at least that is what the American steel industry is currently doing, he adds. There is always a crisis that arises.’
A miracle built over six years
Several factors make China the main target of trade disputes, the biggest of these factors being the record US trade deficit involving China (233 billion dollars in October 2008). And since its entry into the WTO in 2002, China has become a heavyweight in terms of production. Six years ago, China exported little steel. Since then, it has increased its production capacity, more than double the total output of the United States, and now produces 40% of the world’s steel.
Beijing has not improved its situation by encouraging a policy aimed at boosting exports. In November, China began granting VAT reductions on thousands of goods for export, but reduced the scope of this controversial benefit in 2007. Beijing also stopped letting the yuan rise against the American dollar. While none of these measures are likely to breach WTO rules, there has been concern that China is boosting exports while global industries are slowing down.
Peking University economics professor Michael Pettis even goes so far as to compare China’s tax cut to the 1930 Smoot-Hamley Tariff Act, the US law that dramatically increased tariffs. to protect American producers. Often, the Smoot-Hamley Act is held responsible for the wave of protectionism that led to the country’s entry into the Great Depression. At the time, America was the workshop of the world and suffered from huge overcapacity, even as world trade contracted. “Nowadays, China is in a similar situation,” Pettis said. So far, China has acted as if it thought it could get out of trouble by exporting a lot. I am very, very worried.’