China Trade Tensions Spreading Fast

If you thought signs of economic recovery would bring a relaxation of trade tensions, guess again. In China’s case, the friction with U.S. producers looks likely to grow even as recovery unfolds. Following imposition of tariffs on Chinese tire exports due to dumping (selling below home-market prices), the Obama Administration is also looking at similar complaints about Chinese exports of paper and steel products, and glass may follow. The pattern in each of these industries is similar to the predatory pricing seen in tires…

— Imports of Chinese carbon and alloy steel pipes tripled between 2006 and 2008, severely depressing the revenues of domestic producers; the U.S. imposed $2.7 billion in initial duties on Chinese pipes in September, with more likely to follow in the months ahead.

— Imports of Chinese shiny, coated paper grew 40% in the first six months of 2009 while domestic shipments declined 38%, according to the Wall Street Journal; following a doubling in China’s domestic market share, the United Steelworkers joined with U.S. paper makers to file a trade complaint.

— The Washington Post reports that imports of glass from China tripled in this decade, even as 40,000 jobs were being lost in the domestic glass industry; the Alliance for American Manufacturing alleges that the Chinese government has given its glass industry billions of dollars in subsidies, allowing it to compete successfully against more efficient U.S. producers.

Few policymakers in Washington have noticed the similarities in Chinese trade behavior across diverse product categories, but the evidence is growing that China is acting in a predatory, mercantilist fashion. For example, how is it possible that Chinese steel companies consistently under-price U.S. producers when their country has limited iron ore reserves, has to ship steel halfway around the world, and steel makers there pay three times as much as their American counterparts in taxes?

A similar pattern is unfolding in pharmaceuticals, where almost half the plants applying to sell generic drugs in the U.S. are Chinese (13% are American). The New York Times quoted a European drug consultant on January 20 stating that the Chinese government has invested huge sums in penicillin fermenters, “disrupting prices around the globe and forcing most western producers from the market.” The last U.S. plant producing key ingredients for antibiotics like penicillin closed recently, leaving the nation dependent on foreign sources (mostly Chinese) for production of antibiotics. This doesn’t sound like what proponents of free trade had in mind when they supported China’s admission to the World Trade Organization.