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.
China Trade Surplus Hits An 18 Month High The U.S. Customs bureau reported this week that China’s trade surplus hit an 18-month high in July as exports rose and import gains slowed, which added pressure on Chinese officials to allow faster appreciation of the yuan. According to a survey of 29 economists by Bloomberg News, the trade gap surged 170% from a year earlier to $28.7 billion. Exports advanced 38.1% to $145.5 billion, while imports increased only 22.7% to $116.8 billion. July Chinese Imports into the US Still at High Levels. Hitting a 14-month high, Chinese steel imports into the US in July grew 21% from June (based on licenses), following June’s 35% increase, continuing to outpace overall imports into the country.
The deficit on international trade in goods and services was $41.5 billion in June or 3.4 percent of GDP, According to Peter Morici.The trade deficit is a huge drag on economic recovery and jobs creation.In the second quarter overall, the imports grew so much more rapidly than exports that the growing trade gap subtracted 2.8 percent from growth.
But for the increase in the trade gap, GDP would have grown 5.2 percent instead of 2.4 percent. At that pace, unemployment would fall by 2013 to less than 5 percent, the level accomplished the two years prior to the Great Recession The United States is doing too much buying but not enough selling.
Oil and consumer goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unemployment around 10 percent indefinitely. To keep Chinese products artificially inexpensive on U.S. store shelves and discourage U.S. exports into China, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars to augment the private supply of yuan and private demand for dollars. In 2009, those purchases were about $450 billion or 10 percent of China’s GDP, and about 35 percent of its exports of goods and services. This year,the trade deficit with China reduces U.S. GDP by more than $400 billion or nearly three percent. Unemployment would be falling and the U.S. economy recovering more rapidly, but for the trade imbalance with China and Beijing’s protectionist policies.
In June, China indicated it will adopt a more flexible exchange rate policy, but it has made clear Americans should not expect a dramatic change in the value of the yuan.
Wake up Washington. Its the China Currency and balance of trade. St*pid.
Comments from Peter Morici, various press reports, and our favorite Steel Analyst, Michelle Applebaum.
Michelle Applebaum is the analyst we follow for steel industry developments.
She has the best handle on the statistics that we care about and a lifetime of experience to help her craft that “handle.”
In her latest piece for American Metal Market Ms. Applebaum lists 3 meaningful structural issues to be addressed:
1) Call China a currency manipulator once and for all.
2) Steer clear of trade agreements that turn into legalized rape.
3) Create a government platform where stability – of environmental costs, social costs, and defense against assaults on our trade laws will enable industry to make long term financial commitments.
Michelle led her piece with the following line- I think it is really the perfect closing to this discussion: “Its absurd- and even arrogant- to expect to be able to export our products into other countries when we can’t even defend our markets at home.”
The World Trade Organization has agreed to investigate whether China’s export duties on nine commodities that are used as raw materials for various basic industries ( including aluminum and steel) provide a trade-distorting competitive advantage to Chinese producers.
The investigation was prompted by complaints from the US, the EU, and Mexico that Chinese export restrictions were discriminatory and violated WTO rules. The Chinese government defended the tariffs saying they are intended to inhibit overproduction and emissions as well as conserve scarce natural resources.
Read Steel Industry Analyst Michelle Applebaum’s update on this hoarding dispute here.
Our original post from November 4, 2009, explaining this dispute can be found here.