Last night Beijing announced that there had been a preliminary decision affirming dumping and subsidies from American steel exports.
While the tonnage involved in this trade suit – 75,000t, or less than a tenth of a percentage point of the Chinese market – is truly trivial, this decision is anything but.
In our view, this trade case reflects an effort by Beijing to stem a surging tide of Western complaints about China’s high cost and subsidized steel industry’s exports, which have been sizable at times over the last half-dozen years in virtually every region of the globe.
The West has taken a 3-pronged approach in dealing with this problem, and the effort is fairly unified. First, the US and Europe have filed official complaints with the WTO regarding WTO-illegal subsidies to steelmakers via controls on the export of steelmaking raw materials. Second, 8 global steel trade associations combined to issue an “advisory” last spring regarding the need for Chinese steel restructuring/rationalization and suggested a path to effect that. Finally most Western countries have placed some type of limits on Chinese steel imports, via their own individual WTO-compliant remedies.
This seemingly trivial man-bites-dog decision is a reflection of the pressure that Beijing is feeling from the unified West. While China is clearly fighting Western pressure on exports, at the same time we see Beijing for the 10th time in as many years come out with yet another attempt at cutting production at the so-called “backwards and polluting” steel players in the provinces.
The social issues Beijing faces are acute; while many view China as a dictatorship, we see the “democracy by civil unrest” aspect to the culture loud and clear in the mob-led reactions to Beijing’s attempts at rationalizing their high-cost steel industry.
Beijing needs to take a lesson from the West – and focus resources on the lower-cost efficient players like Baosteel – and provide retraining and subsidies to the workers who get displaced in rationalizing the higher cost players. In the US a similar rationalization was protracted and took over a decade by allowing free market forces combined with union & politics to drive these changes. China should take heed and learn from our mistake – inevitably economics win out. The US today is a globally competitive low-cost producer as contrasted with the dinosaur that existed 30 years ago. China can make the same change – but only if they want to!
Disclosure: No Positions
