Just when I thought I'd have a nice, quiet New Year's, I am once again reminded that trade squabbles follow no set time schedule. They don't declare a holiday ceasefire and sing "Silent Night" in the trade trenches. No sir, combat in the IPE Zone is ongoing 365/24/7. This one has been expected for quite some time. American unions together with a number of domestic steelmakers had not been content with their prior victory at the US International Trade Commission (USITC) on applying punitive measures against Chinese subsidies and dumping of steel pipe. (The earlier determination is available online if you're interested.) Hence, they took the fight back to the USITC by successfully petitioning for even more punitive measures.
Before getting to today's main event, let's retrace our steps a bit. After the first USITC decision on steel pipe, the EU decided to levy a 39.2% duty on these products for a period of five years. Expressing particular displeasure with these sanctions, the Chinese recently countered by imposing its own duties on certain specialty steel products from America. From the FT:
China imposed duties on Thursday on imports of certain speciality steel products from the US and Russia, in the latest sign of trade tensions between Beijing and its main trading partners. The Chinese commerce ministry said the duties were a response to the dumping of products in the Chinese market by companies from the two countries. Beijing also alleged the US companies were receiving what were in effect subsidies as the result of “Buy American” legislation.Fun stuff. Let's now turn to today's decision which slaps even more countervailing duties on steel pipes:
The ministry said it was the first time China had investigated the role of subsidies in lowering prices for imported goods, a riposte to the common claim that Beijing subsidises its companies. The case involves flat-rolled steel used in the electrical power industry.
Analysts said the duties affected only a small volume of trade, worth well below 1 per cent of the Chinese steel market. Coming at a time when China is under international pressure to let its currency appreciate, the new duties are the latest trade spat between China and the US. Tension began to escalate in September when the Obama administration imposed punitive tariffs on imports of China-made tyres. The US has also placed duties on Chinese steel pipes, while China has opened an inquiry into US imports of poultry, cars and auto parts.
The US will impose tough new duties on Chinese steel piping imports, raising tensions with its biggest trading partner and emerging geopolitical rival. With Chinese piping imports worth $2.8bn in 2008, the case is the biggest against China brought before the International Trade Commission, a US trade body, but follows other US actions to counter a flood of goods that Washington claims China is exporting at below market prices.Also note the context of these events as they may be mitigating factors in all this China-bashing. Steel pipe is used especially in oil drilling. When energy prices kept hitting record levels up to about one and a half years ago, Chinese producers naturally ramped up production in expectation of continued demand for these products. We of course know what happened--oil prices tanked and with it demand for oil steel pipes. Stuck with new overcapacity, the Chinese are said to have resorted to dumping these products abroad to deal with the problem:
The Chinese Ministry of Commerce said it was ”strongly dissatisfied with and resolutely opposed” to the piping duties. ”US domestic industry has been seeking opportunities to win trade relief and protection, and shifted the blame for its hardships onto imports,” the ministry said. “Finding that Chinese oil well pipes have damaged US industry is a mistaken step that ignores the facts.”
The ITC’s ruling will hit Chinese companies with additional taxes ranging from 10 per cent to 16 per cent, and backs an earlier claim from the commerce department that argued that the US steel industry was being harmed by Chinese dumping. The US government has been under intense pressure to protect domestic industries to stem the flow of job losses...
According to the Steel Manufacturers Association, China’s trade practices had cut US steel pipe and tube production 40 per cent in the past year and cost thousands of jobs. In spite of those claims, four of the six ITC commissioners based their ruling on the threat of future harm to the industry rather than on existing damages.
Steel piping is widely used by the oil industry for drilling and was in great demand last year when oil prices surged. The commerce department estimated that between 2006 and 2008 Chinese pipe imports surged 203 per cent. Daniel Porter, a lawyer representing 11 of China’s largest steel pipe exporters, said the decision was not fair because US steel pipe producers notched record profits in 2008 when they could not keep up with demand, which fell in 2009 along with oil prices.Yes, take it to the WTO by all means. However, I don't think an argument of "We've had to dump because of our mistaken forecasts for future demand of steel pipe" holds any water. In any event, my opinion of these trade conflicts remains the same: (1) these people keep pretending there's no tit-for-tat when there's palpable mistrust between them; (2) China won't budge on bad old habits of overproduction and the US of debt orgies; (3) neither of their choices are good for the world economy. So, (4) in the absence of constructive action by either party, it's best to egg these trade combatants on in a direction that should help them go cold turkey with their respective overproduction and debt fetishes.
“We’re obviously disappointed,” Mr Porter said, noting that his clients would consider appealing the case to the World Trade Organisation. “Demand collapsed, but that’s not the fault of the Chinese. In our view, the Chinese were just responding to the market.”
For the umpteenth time, America and China, why don't you just cut the crap and start fighting already? Get it over with since you obviously don't like each other much. With any luck, we'll all be better off as we're beginning to get somewhere with these skirmishes. Whatcha gonna do about it, PRC? Don't be a wuss. Fight back. Sell a few billion dollars' worth of junk American paper. Hopefully, 2010 will bring the coup de grace to subprime globalization.
UPDATE: Also see the WSJ for a nifty graphic on Commerce Department actions against China in 2008 and 2009.