The best hope of ending this farce is for bilateral trade to take a hit (a point of "punctuated equilibrium" for you economistas), thus obviating China's need to pile on so many Treasuries in a process that I've argued is of now negligible benefit to both parties or the world economy overall; it's time subprime globalization took it on the chin. Recently, we've focused on President Obama slapping tariffs on Chinese tires and the PRC's pushbacks [1, 2, 3]. Lest you think this one-upmanship is over, I have two more recent tit-for-tat retributions that suggest we're just warming up for some really brutal exchanges.
First up is news that China will appeal the WTO ruling that limiting the quantity and distribution of motion pictures and other media to official channels was not allowed. As usual, China claims the ever-popular excuse of protecting public morals. The LA Times suggests reasons for this appeal despite the chances of the decision being overturned being rather low as Hollywood sees a potential goldmine in cracking the China market via broader distribution:
By appealing the WTO ruling, China is showing it is still deeply upset about tariffs on Chinese tires, said Liu Baocheng, a professor at the University of International Business and Economics in Beijing. "They must show the government is not soft in the knees," Liu said. He added that Beijing also fears that the upholding of the WTO ruling will set an unwelcome precedent to open China's market for entertainment -- one that would test the limits of the state's censorship apparatus. "They see a danger of ideological confusion," Liu said, "and more cost in supervising the behavior of foreign publishers."Meanwhile, their compatriots in the United States selling coated paper have taken umbrage to a marked recent increase in the importation of such goods. This is not the first time we've seen US complaints over coated paper as the Department of Commerce previously applied countervailing duties to offset perceived state supports. Note though that these duties were subsequently withdrawn via a further, negative US International Trade Commission ruling. The WSJ now reports that the aggrieved parties were not particularly pleased with the latter decision and are now aiming to take up their case yet again. This time around, the complainants are joined by the United Steelworkers--the same folks who brought forth the China tires case:
Three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union's threat to protect other U.S. industries after winning a recent trade decision against China.Also see the news release on the NewPage website excerpted below. The United Steelworkers blurb is worth reading too if it's a bit obvious. Rulings should come in fairly short order. What is interesting to me is that the complainants are invoking both anti-dumping (selling below market value) and countervailing duties (to offset government support). Talk about the kitchen sink:
The petitioners said the timing of their complaint, on the eve of the G-20 economic summit here, was coincidental [Pittsburgh, steelworkers, G-20, Hu Jintao in town with Obama...purely coincidental]...The complaint alleges China and Indonesia have been dumping tons of shiny, coated paper used, for example, in car brochures and annual reports. The case is being pursued through a different legal avenue than the one that yielded the tire tariffs and doesn't require approval by Mr. Obama.
But it nonetheless puts the White House in a delicate position, especially since Chinese delegates are expected to confront the administration with allegations of protectionist moves by Washington. Leaders of the G-20 have pledged to resist efforts to curb job losses in their countries by restricting access to their markets. A White House spokesman declined to comment...
The companies need to prove to the Commerce Department that the governments of China and Indonesia provided subsidies to coated-paper producers, and that imports were sold in the U.S. at prices below the home-market price or the cost of production. The petitioners also need to show the U.S. International Trade Commission that the paper imports caused material injury to the U.S. market or threaten to. "We have very strong evidence on all the factors which are necessary to prove this case," Mr. Kaplan said...
A spokesman at the Chinese Ministry of Commerce said: "The rising trade protectionism is worrying. The U.S. should be aware that trade protectionism is a double-edged sword and will do no good to either side." The tire case was brought under a special [safeguard] provision for countries to temporarily shield their markets from disruptions caused by China's entry into the global trading system. The paper case, by contrast, is a more conventional trade dispute.
The case highlights the growing role of labor unions in U.S. trade issues. During last year's election, Mr. Obama promised to get tougher on trade -- a pledge that won him union votes. Unions now want him to make good on his promise and viewed the tire tariffs as a crucial step. "Neither the companies nor the union will tolerate being obliterated without asking our government to investigate and enforce the rules of fair trade," said Leo Gerard, president of the Steelworkers union...[they] represent about 6,000 hourly workers at paper mills in nine states operated by the three companies that joined in the complaint. The filings claim that imports of coated paper grew nearly 40% in the first six months of 2009 -- to 185,422 tons -- compared with the same period last year; shipments by domestic producers, at the same time, were estimated to have fallen by about 38%...
This isn't the first time the U.S. has wrangled with China over coated paper. In 2007, the Commerce Department slapped temporary tariffs on coated paper from China, Indonesia and South Korea, after U.S. producers made similar claims. The decision was later reversed by the International Trade Commission. Mark Suwyn, executive chairman of NewPage Corp., one of the paper companies that filed the petitions, said the trade conditions of 2007 have grown more severe. He estimated that three-quarters of coated-paper imports are from China, which has invested in factories capable of producing far more paper than the country can use.
The U.S. companies allege China is unfairly granting subsidies to its domestic paper producers in for the form of low-interest loans, tax subsidies and grants. Similarly, they allege that Indonesian paper companies are benefiting from government loans, as well as timber from government-owned land that is sold at below-market prices.
Under the antidumping and countervailing duty statutes, the International Trade Commission is expected to make a preliminary injury determination in November 2009 and the Department of Commerce is expected to issue preliminary determinations in the countervailing duty and antidumping duty cases in December 2009 and March 2010, respectively.Forbes correctly notes that these folks have been told to beg off before, so the onus of providing better evidence is on them in the new anti-dumping case. China Daily meanwhile is running a kumbaya-style article which fails to mention both the motion picture and coated paper disputes. While the potential sums involved in the movie case are far more than in the coated paper one, the latter shows how Obama's erstwhile organized labor allies are becoming more emboldened in seeking official redress. Don't be surprised to see more of the US president's supporters coming home to roost soon in a wide range of industries. After all, they're counting on the pied piper himself, "China Currency Coalition" Obama. Stand up to those PRC bullies.
The petitions estimate that total imports of covered coated paper have jumped from 131,687 short tons in the first six months of 2008 to 185,422 short tons in the first six months of 2009 -- an increase of nearly 40 percent. During the same period, covered coated paper shipments by domestic manufacturers are estimated to have declined by approximately 38 percent. China and Indonesia together are believed to account for nearly 30 percent of the U.S. market for the coated paper covered by the petitions in the first six months of this year, almost double the share they had at the same time last year.