January 30, 2018 | by    

USTR Takes Hard Line Against Chinese Overcapacity In Annual WTO Compliance Report

On Friday, Jan. 19, the Office of the U.S. Trade Representative (USTR) released its annual report on Russian and Chinese compliance with World Trade Organization (WTO) rules. In its report on China, the USTR said, “[I]t 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.”

The USTR criticized the Chinese government for continuing to allow growing steel and aluminum capacity. Specifically, the report said:

“In manufacturing industries like steel and aluminum in particular, China’s economic planners and their government actions and financial support have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting U.S. producers and workers in both the United States and third country markets such as Canada and Mexico, where U.S. exports compete with Chinese exports. While China recognizes the severe excess capacity problem in these industries, among others, and has taken some steps to try to address this problem, there have been mixed results.”

The report notes that, from 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth “even though China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking.” Today, China’s capacity makes up one-half of global capacity and “twice the combined steelmaking capacity of the European Union (EU), Japan, the United States and Russia.”

Primary aluminum production in China increased by more than 50 percent between 2011 and 2015, the report said, and “has continued to grow in subsequent years despite a severe drop in global aluminum prices beginning in 2015.”

As Connecting the Dots has reported, the steel and aluminum industries currently are waiting to hear what action, if any, President Donald Trump will take in reaction to the U.S. Commerce Department’s Section 232 inquiries into the effects steel and aluminum imports have had on U.S. national security. Click here (for aluminum) and here to read more about those inquiries and about MSCI’s own recommendations.

According to American Metal Market (AMM, subscription required), the president is considering imposing tariffs on aluminum imports. AMM also argued last week that “President Donald Trump’s decision to place double-digit-percentage tariffs on imported solar panels and washing machines indicates that he may take a hard-hitting stance on the steel Section 232 case.” Click here to read more about those tariffs.