On the steel front, the Chinese government in November 2017 began a series of efforts to cut capacity, billed as a large-scale plan to crack down on rampant pollution in the country. Despite those cuts beginning at the outset of the winter season, China closed 2017 having produced 831.7 million tons (MT) of steel, up 5.7% from the 786.9 MT produced in 2016, according to the World Steel Association. China’s share of global steel production even increased slightly in 2017, sitting at 49.2%, up from 49.0% in 2016.
Many have questioned the efficacy of the cuts, as new production has come onstream during that time, in some cases effectively negating the efforts. Even so, the Chinese government in February 2018 announced it planned to meet its goal of cutting capacity by 150 MT — originally targeted for 2020 — by the end of 2018, Reuters reported.
Nonetheless, in March Trump opted to impose tariffs on steel and aluminum imports of 25% and 10%, respectively. Temporary exemptions from the tariffs were initially granted to a select few, those being: Canada, Mexico, Argentina, Australia, Brazil, South Korea and the E.U. In April, the U.S. announced a long-term exemption for South Korea — in tandem with an agreement in principle on a revamped U.S.-Korea Free Trade Agreement (KORUS) — that included a quota equivalent to 70% of South Korea’s average annual steel exports to the U.S. between 2015-2017. Then, just before the May 1 deadline, the U.S. announced long-term exemptions for Australia, Argentina and Brazil, and a 30-day extension of the temporary exemptions for the E.U., Canada and Mexico.
U.S. steel prices have received a boost from the Section 232 ruling. According to MetalMiner IndX data, from March 1-April 29, the price of cold rolled coil (CRC) has risen 12.6%. Hot dip galvanized (HDG) is up 14.3%. Hot rolled coil (HRC) is up 14.6%. U.S. steel plate is up 16.7%.
Meanwhile, on April 5 China requested consultations with the U.S. over the steel tariff through the WTO’s dispute settlement mechanism.
“The 232 measures of the US was actually trade protectionism in the guise of safeguarding ‘national security,’” China’s Ministry of Commerce said in an official release. “On the one hand, the US excluded some countries and regions selectively, and on the other hand, the US slapped duties on some WTO members including China. The US practice severely violated the non-discrimination principle of the multilateral trading system and its commitments on tariff concession of the WTO and the rules and disciplines of safeguards, and harmed the legitimate interests of China as a WTO member.”
There are also still ongoing intellectual property theft cases being investigated under Section 337 of U.S. trade law involving allegations by U.S. companies such as: U.S. Steel; Allegheny Technologies, Inc.; Alcoa, Inc.; and the U.S. branch of multinational SolarWorld AG.
The 'One-Million-Dollar Question'
Trump met with Chinese President Xi Jinping at Mar-a-Lago in April 2017, the beginning of his administration's attempts at dialogue with China regarding its economic policies.
The dialogue, dubbed the U.S.-China Comprehensive Economic Dialogue (CED), aimed to address “macroeconomic policy, financial stability, currency and energy issues,” according to the aforementioned USTR report to Congress.
In May, a 100-day action plan from China was formed, with both the U.S. and China drafting outcome goals. However, by the first CED meeting in July, “no outcomes were achieved,” according to the USTR.
Trump met with the Chinese president in Beijing in November, at which point the USTR report makes clear that the U.S. team was not looking for talks like those held in the spring, talks that “only achieved isolated, incremental progress on Chinese trade and investment barriers.”
The USTR report runs along these lines for 148 pages, addressing a wide range of topics, ranging from corruption to land and labor laws, among many other things.
In short, the U.S. does not seem inclined to budge on its determination of China’s non-market economy status.
“China largely remains a state-led economy today, and the United States and other trading partners continue to encounter serious problems with China’s trade regime,” the USTR report states. “Meanwhile, China has used the imprimatur of WTO membership to become a dominant player in international trade. Given these facts, it seems clear that the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market-oriented trade regime.”
Not surprisingly, China pushed back against the USTR report. Gao Feng, a spokesman for China’s Ministry of Commerce, called the report’s claims — that China had not made much progress since its WTO accession in 2001 — false.
“Many arguments in the reports not only ignore but also falsify the facts, and are self-contradictory," Feng said at a news conference in Beijing, according to one report.
In another report, Feng decried what China perceives as a rise in U.S. protectionism.
“We’ve noticed recently that protectionist voices have been rising in the U.S.,” Feng was quoted as saying in one Reuters report.
Trade tension has only continued to rise in recent months.
In August 2017, the USTR launched a Section 301 probe of China, seeking to determine whether “acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
Tensions truly ramped up when President Trump announced in March that the U.S. was considering slapping approximately $50 billion in tariffs on Chinese goods. In the announcement March 22, Trump said he had asked Chinese President Xi Jinping to work to reduce the U.S. trade deficit with China by $100 billion. The U.S. ran a trade deficit in goods of over $375 billion in 2017; through the first two months of 2018, that deficit is just over $65 billion, according to the U.S. Census Bureau.
In early April, the USTR unveiled a list of 1,300 Chinese products which could be hit with a 25% tariff. The list included motor vehicles, televisions, and industrial equipment, among a wide range of products.
Not long after, China responded with the threat of $50 billion in tariffs on U.S. goods, marking a significant escalation in tensions and sparking fretting about the potential for a trade war between the two countries. Trump’s subsequent announcement of an additional potential $100 billion in tariffs on Chinese goods did not do much to allay those fears.
Speaking of Section 301, the USTR recently released its annual Special Section 301 report, in which it identified a total of 36 countries to be placed on its Priority Watch List or Watch List vis-a-vis intellectual property enforcement.
China was included on the Priority Watch List for the 14th consecutive year. Despite ongoing efforts to overhaul its regulatory framework with respect to IP rights, the USTR report claims those efforts have not been good enough.
“The state of intellectual property (IP) protection and enforcement in China, and market access for U.S. persons that rely on IP protection, reflect the country’s failure to implement promises to strengthen IP protection, open China’s market to foreign investment, allow the market a decisive role in allocating resources, and refrain from government interference in private sector technology transfer decisions,” the Special Section 301 report states. “While some positive developments have emerged in this complex and fast-changing environment, right holders continue to identify the protection and enforcement of IP, and IP-related market access barriers, as leading challenges in what is already a very difficult business environment.”
On the one hand, you have the U.S., with its Section 232 tariffs, accusations of intellectual property theft and its ongoing opposition to market-economy status for China. On the other hand, China sees the Section 232 measures as falling afoul of WTO rules and stretching the definition of what constitutes “national security,” and has expressed the intent to defend itself — and its Made in China 2025 strategic plan — against what it perceives to be undue U.S. protectionism.
Undoubtedly, trade tension between the two countries is only growing. With the Section 232 verdict and a host of other trade case verdicts coming down (or pending), not to mention the ongoing WTO saga, it’s difficult to see that tension slackening in the near future.
So, the million-dollar question is: how can the world bring China and its developing economy into a proper place within the WTO and the global trade ecosystem, while preserving jobs and economic prosperity for Western trading partners?
It’s a complex question that has no easy answer.
“There are lot of factors that go into the mosaic that makes up our economic relationship with China,” conceded Scott Paul, president of the Alliance for American Manufacturing.
Indeed, there is no easy fix. For now, an amicable resolution seems far off — even further off is China’s inclusion among the world’s ranks of market economies, unless a truly comprehensive wave of economic and governmental reforms takes place in the country.
China has grown exponentially in the nearly two decades since its accession to the WTO. Throughout that time, there were expectations in the West that China would embark upon a path toward an economy driven by free-market principles. That has not happened — in some cases, central control of Chinese industry has tightened.
What Comes Next?
So, the international trade community is at an impasse.
The election of Donald Trump has certainly changed the tone of the relationship, to put it lightly. Whether the Trump administration is successful in enacting trade policy vis-a-vis China that benefits American industry remains to be seen. However, at least in word, Trump has embarked upon a more aggressive Chinese trade policy, and underscored the U.S.’s opposition to China receiving market-economy status under current conditions.
As for the WTO, which will serve as a forum for dispute settlement between the U.S. and China, it is an organization that has come in for significant criticism from the U.S., including from the president, who in March said the WTO has been very “unfair” to the U.S.
Trump is not alone in holding a dim view of the WTO.
“The problem that we have is … we are Boy Scouts,” said Barry Zekelman, CEO of Zekelman Industries, during his appearance on The MetalMiner Podcast in late 2017. “We sit there and worry about the WTO. The WTO is a farce. … [The U.S.] is the biggest economic engine on the planet and yet we have one vote at the WTO. It’s ridiculous. The WTO is designed to take advantage of America and its markets.”