The World Trade Organization ruled Tuesday that China was unfairly protecting its domestic manufacturers by limiting the export of nine raw materials that are used widely in the steel, aluminum and chemical industries.
Today, the WTO panel ruled for the United States, European Union and Mexico, all of whom had filed complaints against China using export duties and quotas to drive up the prices they pay for raw materials such as coke, bauxite and zinc.
The panel rejected China’s argument that its export limits were needed to “protect its environment,” and said those export restrictions should be removed.
The WTO panel concluded that “China’s export duties were inconsistent with the commitments that China had agreed to” when it joined the trade organization in 2001.
This is an important development for our industry which uses vast quantities of raw materials such as steel aluminum, and brass.
But it is also an important bellwether for the Chinese export restrictions of rare earth metals.
I received an email from a trusted colleague that had a letter attached describing the writers frustration with outsourcing.
Here at pmpaspeakingofprecision. com, we are all about people making things to make our world safer and our lives better. So when we read this letter describing one engineers frustration when trying to do exactly that, well, we asked for permission to share it with you.
The writer, a maritime design engineer, is trying to source wheel fenders so that hulls of “80,000 DWT” oil tankers don’t rupture when contacting a fixed surface of the dock. It really matters, when “The potential impact of failure is 2000 years” if the hull tears. This post takes some highlight’s from that letter. Guest post by Vitaly Feygin
My name is Vitaly Feygin. I am a Structural Engineer, not a writer, but I urge you to read this post.
Like many immigrants I came to this great country 20 years ago. Twenty years ago we all were shocked to discover the prosperity of this country and how much this country achieved using competition of small and medium size businesses.
Today, I want to ask you: “Where is that competition? Where are professionals and skilled craftsmen who made this country?”
Instead of professionals who are doing and managing their work and are proud of what they were doing, we developed a gang of MBA (Masters of Business Administration) who mastered bureaucracy, who have not created anything but hurdles for those who could work. What these MBA have done to us- they sold us out.
Doing nothing, their only significant task was to sell our work to countries like China or India. That is the “real” Business Administration. Here is an example.
I am a Maritime Structural Engineer. In our business we are quite frequently use special rubber fenders that protect ships from destruction during dock operations. Five years ago there were 5 companies producing these fenders in US. Today there is only one company, and after that company swallowed all her competitors they moved manufacturing facilities to where? You are right, to China.
We became a nation that sells to each other Chinese products- products that are produced in Communist China at a time when millions of US workers are without work and with no means to support themselves. Go to any store and try to find any merchandise that is produced in this country. You will find none.
We are discussing Health Reform with whom? With destroyed small and medium size businesses who cannot compete with subsidized Chinese labor.
More than half of the 763,000 jobs lost in the first two quarters of 2008 were lost in small firms, and unincorporated self-employment fell from an average of 10.4 million in 2007 to an average of 10.1 million in 2008—9.6 million by November and December.
Obama’s policies not enough.
Guest post by Peter Morici
The Labor Department reported the economy shed 36,000 jobs in February and the unemployment rate held 9.7 percent. Counting workers compelled to work part time for lack of full time opportunities and discouraged workers that have quit looking, the unemployment rate rose to 16.8 percent.Continuing job losses indicate President Obama’s stimulus spending and support for the banks have failed to turn the economy around. In an economic recovery, jobs are a lagging indicator, not a never indicator.Eight months into the much touted recovery, the economy should be adding jobs not losing jobs at a slower pace. No study of economic history could yield a conclusion other than that the U.S. economy walls along the precipice of a double dip recession.To add jobs, businesses need customers and capital. Businesses lack customers because of the yawning trade deficit with China, and capital because the Bush-Obama bank bailout enriched Wall Street financiers without fixing the problems of the 8,000 regional banks that do the tough lending.
Nearly all the sustainable GDP growth accomplished in the second half of 2009-GDP growth less adjustments for inventory changes–went into the pockets of Wall Street bankers as bonuses.
When dollars leave the United States to purchase imports and do not return to purchase exports, Americans cannot sell all they make-be it manufacturers, software makers, movie producers, or clean shirts from the corner laundry.
From 2005 to 2008, by consuming more than they produced and earned, through excessive foreign borrowing, Americans sustained a false prosperity with a trade deficit in excess of 5 percent of GDP. That line of credit has run out, and either Americans balance their trade accounts or reconcile to slow growth, no jobs and economic decline.
Stimulus spending and subsidies for Wall Street financiers are palliatives-more accurately, an ice pack for the hangover from the Bush years of heavy borrowing, and shabby financial practices that began with Enron and continue at Goldman Sachs today, through shameful tactics such financial engineering to cover up Greece’s financial blight to selling of mortgage backed securities to investors while it shorts the market.
Regional banks have not benefited from the TARP, which was intended to create an elaborate analog to the Savings and Loan Crisis Resolution Trust Corporation. Instead, the 8,000 regional banks lack money to lend businesses. No customers, no capital, no jobs Failing to address root causes of economic malaise invites decline.
President Obama and speaker Nancy Pelosi obsess about income redistribution in every piece of legislation, ranging from health care reforms to road construction.
A just distribution of wealth is a noble goal, but there must be wealth to distribute.
The American economy is at sea. Without rudder or compass, America navigates an iceberg field while the ships’ captain and pilot focus on a well stocked bar, lest the passengers become aware of their imminent peril. Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.
A tentative agreement reached between the U.S. and Canada would provide Canadian suppliers access to state and local public works projects under the American Recovery and Reinvestment Act of 2009. At the same time, US suppliers will now have access to provincial, territorial, and municipal supply contracts in Canada.
Originally, the Buy American provisions of the ARRA had mandated that all steel and manufactured goods purchased with the stimulus funds be made in the United States or in countries with U.S. agreements on government procurement. Local-level projects were also mostly confined to U.S.-made goods.
Canadian Officials contested these provisions, despite Canada’s exclusion of US suppliers from bidding on provincial and territorial supply contracts. Guaranteed Reciprocal Access
According to the february 5, 2010 agreement, Ottawa will also provide U.S. suppliers with access to construction contracts across its provinces and territories, as well in as a number of municipalities – a breakthrough according to US officials.
“This administration made clear to Canada from the outset that any agreement to provide Canada with expanded access to U.S. procurement absolutely must provide guaranteed reciprocal access for US exporters to supply goods and services to Canada through provincial and territorial procurement contracts,” USTR Ron Kirk, the top U.S. trade official, said. “USTR has won that access for American firms, and I look forward to signing the agreement soon,” he said. “The value of new job-supporting contracts open to US firms will be tens of billions of dollars.”
Nice to see that win-win based on mutual respect and mutual opportunity can be the basis of trade. Trade doesn’t just have to be beggar thy neighbor.
Exports hit $130.7 billion during the month as global trade perked up, bringing China’s full-year export figure to $1.20 trillion, according to figures from the General Administration of Customs.
The nation’s trade surplus hit $18.4 billion for the month of December,
According to Agence France, ” With China’s trade data for all of 2009 now out, the nation’s crowning as the 2009 export champion is expected to be confirmed when Germany releases full-year trade figures on February 9.”
We wonder if predatory currency manipulation might be involved?
“China needs the U.S. economy to recover strongly and renew its import growth. Otherwise, China will have a tough time sustaining its recovery,” said Eswar Prasad, an economist at Cornell University. That is one of the key reasons China is reluctant to lift its currency now.”
Guest Post by Peter Morici
No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans. Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes. Americans are not sharing in those benefits because President Obama, like President Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion.
The World Trade Organization has greatly reduced tariffs, prohibits virtually all export subsidies, and regulates other national policies that could subvert trade, such as health and product safety standards arbitrarily slanted to favor domestic suppliers.
For these rules to optimize trade, raise productivity and boost incomes, exchange rates must adjust to reasonably reflect production costs. To buy Chinese televisions, Americans must be able to purchase yuan with dollars; however, an artificially strong dollar that overprices U.S. tractors and software in China will unravel the benefits of trade by denying Americans opportunities to export to pay for those televisions.
Exchange rates are established in currency markets, created by businesses trading through major financial institutions. Unfortunately, China and several other Asian governments blatantly manipulate those markets without a credible U.S. response and with ruinous consequences for American workers.
The United States annually exports $1.6 trillion in goods and services, and these finance a like amount of imports. This raises U.S. gross domestic product by about $170 billion, because workers are about 10 percent more productive in export industries, such as software, than in import-competing industries, such as apparel.
Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, where productivity is at least 50 percent lower. This slashes GDP by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.
The trade deficit creates an excess supply of dollars in international currency markets, as Americans offer more dollars to purchase foreign products than foreigners demand to purchase U.S. products.
Simple supply and demand should drive down the value of the dollar against the yuan and other currencies, make U.S. imports more expensive and exports cheaper, and reduce or eliminate the trade deficit. But the Chinese government subverts this process by habitually printing and selling yuan for dollars in currency markets, keeping its currency and exports artificially cheap.
Currency manipulation creates a 25 percent subsidy on China’s exports, and other Asian countries are impelled to follow similar policies, lest their exports lose competitiveness to Chinese products.
Also, huge trade imbalances between Asia and the West, perpetuated by currency mercantilism, create an imbalance in demand-a shortage of demand for the goods and services produced in the United States and Europe, and artificially robust demand for products made in China and elsewhere in Asia.
Consequently, to keep the U.S. economy going, Americans must both borrow from foreigners and spend too much, as they did through 2008, or their government must amass huge budget deficits by borrowing from abroad, as it is now does thanks to stimulus spending and the TARP.
In the bargain, the United States sends manufacturing jobs to Asia in industries that would be competitive, but for rigged exchange rates. The trade deficit slices $400 to $600 billion off GDP, and Americans suffer unemployment above 10 percent.
China grows at nearly 10 percent a year and makes American diplomats look like fools for advocating free markets as a growth policy.
Campaigning for the Presidency, Barack Obama promised to do something about Chinese currency manipulation. Instead, like a good supplicant, he now thanks Chinese officials for buying U.S. Treasury securities.
China’s development policies make its leaders look smart but nothing makes them look like geniuses better than an American president who appeases their beggar-thy-neighbor policies.
It will be impossible for the United States to create the 9 million jobs needed to bring unemployment down to pre-recession levels without taking on China’s currency manipulation and other unfair trade practices.
For that Americans may need to wait for a better president-one with the courage to stand up to China. Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.
The story: “China said Thursday it will impose penalties on steel imported from the United States and Russia, claiming the countries were allowing it to be sold at a cut price.”
“The (Chinese) domestic grain-oriented electrical steel industry suffered material damages” due to the dumping, the statement said following an investigation. Dumping occurs when a foreign company sells a product in another market at less than normal value. ” The analysis: Normally I would make some witty comment here, but my favorite steel analyst, Michelle Applebaum of Michelle Applebaum Research Inc. (MARI) beat me to it in an email dispatched Thursday December 10th. Here’s what she had to say:
“Last night Beijing announced that there’d 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. (emphasis Miles’)
“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.” end Michelle Applebaum quote. From where we sit: This “Man Bites Dog” trade filing by the Chinese is as much a result of their impotence to restructure their high cost high polluting steel industry as it is about a “truly trivial tenth of a percent of market” grain oriented electrical steel issue. Canadian Aspects: http://www.canadiansteel.ca/index.php/en/media/archives/4
The comment period for USEPA proposed Greenhouse Gas (GHG) Regulations is coming to a close on 28 December 2009. It is important to understand that GHG emissions are a global problem, and without global solutions, all that these “US ONLY” regulations will do is distort and reduce even further the competititveness of US manufacturers compared to countries that are not held to the same standards.
Unilaterally regulating US GHG emissions will actually make world GHG conditions worse, by creating a vicious cycle:
US GHG regulations increase costs for US manufacturers;
Increased manufacturing costs result in US customers shopping for cheaper goods;
Cheaper goods will be produced by manufacturers in countries where GHG regulatory controls are not enacted;
US manufacturing declines as production is moved overseas;
Jobs are lost;
Imports of High GHG produced goods replace US goods in our market;
US deficit in balance of trade grows;
Increase in Global GHG emissions as regulated US manufacturing is replaced with high emitting Non Regulated GHG production overseas.
GHG is a global issue, not just a local issue.US manufacturing jobs are the only thing likely to be reduced under the USEPA’s proposed regulations, and world GHG emissions will continue to rise. What am I missing here? Do you see unilateral rules as being in our favor? Or is the plan to eliminate manufacturing here in the US, to Export our pollution? What do you think? To comment :
Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2009-0517 by one of the following methods:
• http://www.regulations.gov. Follow the online instructions
for submitting comments. Attention Docket ID No. EPA-HQ-OAR-2009-0517.
• E-mail: vog.ape@tekcod-r-dna-a. Attention Docket ID No.
• Fax: (202) 566-9744. Attention Docket ID No. EPA-HQ-OAR-2009-0517.
Breaking news. Bloomberg and other sources report that duties up to 31% will be imposed on Chinese produced OCTG (Oil Country Tubular Goods) on the basis of their production with the support of unfair government subsidizes. Average duties are expected to be about 21%, according to the Commerce Department preliminary report.
In my International Trade Class, we discuss the subject of mercantilism, which is the best way to describe China’s trade policy. When I was in college, the Chinese called the US “imperialists.” This Department of Commerce finding supports the claim made by many laid off US manufacturing workers that today China, Inc. is a “commercial imperialist.”
We believe that this case and the forthcoming Chinese tire case (see our blog story dated July 2) are bellwethers of the road ahead for trade relations between the US and China. Trade need not be a zero sum or negative sum game. But artificially manipulating a firms “comparative advantage” is not the way that trade can be sustained in the world today. China produced 38% of world crude steel production in 2008 according to World Steel Association . With that much power must come discipline. Harm to the US manufacturing industry continues as a result of both the past and current adminstration’s failure to act on China’s mercantilist trade practices and predatory pegged currency scheme. We are glad to see the Commerce Department is at least functioning and reviewing trade cases.
Hey Washington, how about some change? How has the impact of Chinese currency manipulation or mercantilism/subsidies impacted your company or your employment? Post your comment here. photo credit : thechinabeat http://thechinabeat.blogspot.com/2009_04_01_archive.html