Steel Trade War Is Glimpse of Future: Great Political Changes Underway

EU must take tough stance in steel dispute with China - German economy minister
"What is really at stake in the EU is whether we have the courage to take an aggressive position against China," Gabriel said in the German Bundestag lower house of parliament, adding that he would be in favour of taking such a stance.
The U.S. is getting aggressive: U.S. Steel accuses China of stealing trade secrets
Pittsburgh-based U.S. Steel said regulators should remove "all unfairly traded Chinese steel products" from the U.S. market, claiming the Chinese firms illegally conspired to fix prices, stole trade secrets and circumvented trade duties by using false labels.

"We have said that we will use every tool available to fight for fair trade," U.S. Steel CEO Mario Longhi said in a statement.
An article in iFeng reads: China's Steel Overcapacity Words Do Not Match Actions, US-EU Furious
iFeng: 中国钢铁去产能“言行不一” 现在欧美怒了
Chinese Ministry of Commerce website shows that this complaint is for China Hebei Iron and Steel Group Corporation, Shanghai Baosteel Group Corporation and other Chinese steelmakers about 40 carbon steel and alloy steel product exports to the US. United Steelworkers of America expressed support for the US Steel action.
A big dispute between the US and EU is over China's market status. The EU wants to designate China as a market economy, while the U.S. opposes the move. Tariffs on steel are much harder to impose if China gains market economy status, which is why this battle comes at an inopportune time for China.
In addition, the EU will decide in December whether to grant China market economy status, and now the steel issue a "handle" by the United States and the European Union grabbed hold. Under the terms of "China's WTO accession protocol," after December 11, 2016, against China's anti-dumping "surrogate country" approach will lose multilateral legal basis, Members shall immediately stop using the "surrogate country" approach. This way, the Western countries an important opportunity to recognize China's market economy status.

If China successfully obtain this status, then think about Europe on Chinese goods if anti-dumping duties, it becomes increasingly difficult. Many EU member states and then worry if the grant China market economy status, with the lifting of the EU anti-dumping measures, the relevant European industry and employment will be subject to further shocks.
The Chinese response is laughable:
For China steel dumping, the Chinese side had explained that the Chinese government attaches great importance to overcapacity, has taken positive steps over the past three years reduced the more than 9,000 tons of steel production capacity, the future will again Yajian crude steel production capacity of 1 on the basis of to 1.5 million tons.
This is like U.S. government accounting, propose a big spending increase, then call it a cut when the increase is reduced. Steel production hit a record in March. There are no cuts in production because China's capacity utilization is so low, it could still increase production amid mill closings.

The iFeng article admits the Chinese actions haven't matched the leadership's words:
February 4, the State Council published "on the iron and steel industry to resolve the overcapacity views the development of a turnaround," he pointed out from the beginning of 2016, within 5 years reduce steel production capacity by 100 million to 150 million tons. Recently, according to media reports, accounting for about 27% of the total capacity of Hebei Iron and Steel announced plans to phase out 100 million tons of production capacity in the next five years. Jiangsu has put forward, by the end of 2018, 12.55 million tons of steel production capacity Yajian. Plus Guizhou, Liaoning and other provinces, the local and national goals over 100 million to 1.5 million tons. There insider said, on the one hand officials would like to take over the fight performance, on the other hand in order to win more central resettlement funds and preferential policies.

However, the truth is that many Chinese steel mills have resumed production. According to "21st Century Business Herald" message, shut down for five months Songjeong Tangshan Iron and Steel Plant has been re-ignited. In addition, the recent days Rail Group, Tangshan Port and other steel production fully restored, Shanxi Haixin also plans to resume production by the end of April early May. It's expected China's average daily steel output in April will be a record high. Earlier, Reuters quoted Macquarie analyst Ian Roper said last year China closed 50 million -60 million tons production capacity, and has now resumed production of more than 40 million tons.
As with other failed reform efforts, this looks like another case of the local governments ignoring central mandates:
In fact, steel prices are a lot of local economic "lifeline", when the performance evaluation of the performance of the "key", in addition also involves local employment stability. Therefore, many local governments unanimous choice is, even if it is "zombie companies", but also with local finance its "continued life."
Finally, U.S. steel tariffs are working, cutting Chinese imports in half in April.

Steel Industry Executive Summary: April 2016 (PDF)
To give you an idea about why this is all about China, here's monthly production through February. Chinese production spiked back to 70 million tons in March and as mentioned above, is expected to go higher in April.
The U.S. industry's steel report shows the U.S. doesn't have the biggest complaint with China. That would be Vietnam, Thailand, India, Pakistan, Turkey, Saudi Arabia and Italy.
In conclusion, the case for countervailing duties is clear. China is by far the largest steel producer and due to its own sclerotic economic policies, increased production by 15 percent since 2013. Now it says the world must share the burden of overproduction, but China can't even make it's own local governments shut down local production. Meanwhile, the rest of the world wants China to absorb all of its own self-inflicted losses. The political climate has changed and I would bet on Donald Trump winning the presidency at this moment, but even if Clinton wins, the U.S. will at least side with the steel makers on this narrow issue. Tariffs are having positive effects in the U.S. Everything is working in favor of a protectionist U.S. policy on steel, which will very likely be replicated across other industries with the implementation of a national economic policy under a President Trump. With a President Clinton, there is likely no change in the free trade orthodoxy and both TPP and TPIP will pass, despite what she says during the campaign. (One reason why I expect Trump will win is that voters will want the sure thing in November on trade.)

Trump has created the coalition I predicted in The Logic of Strategy: Yuan Devaluation and the Road to Trade War
The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.
This is crystallized in Trump's foreign policy speech, when he said, "We will no longer surrender this country, or its people, to the false song of globalism."

Trade Conflict Inevitable

One way or another, China will see the terms of trade changed and it will not be in China's favor. The best way for China to strengthen its position without any negative diplomatic effects: slash overproduction. If China doesn't cut production, it will hold the weak hand because it will bear the entire brunt of a trade war.

As touched upon in The Logic of Strategy: Yuan Devaluation and the Road to Trade War, once trade is subordinated to national security, once free trade orthodoxy is removed and trade becomes negotiable, you will rapidly see a coalition of business, foreign policy, military and security interests which will emerge to support a new trade policy. Countries such as Vietnam will likely jump on board with a policy to slow China's economic growth, and thus its military spending and ability to project power into the South China Sea. If China understood even a hint of what may be coming, they would be rolling tanks into the steel mills.

The Bigger Political Shift

Very few people predicted the rise of Trump, but I laid it out back in 2014. (Immigration Issue Set to Explode in America; Prepare for Political Volatility) Once he rose, experts didn't think he could win. Now the same people think Trump won't win in November. I expect he will win an electoral college landslide because major changes are underway as negative social mood has finally found its political agenda.

I explained the political shift here: Political Revolution Comes to America Via Immigration Issue. Way back in 2013 I wrote: Rise of the New American Right Leaking Into Mainstream; What is Neoreaction? and this week, it finally made the NYTimes in The Reactionary Mind, the first in a series of articles by Ross Douthat.

Trump isn't connected to neoreaction (since it dislikes democracy and populism), but the forces that have pushed neoreaction to the fore are similar to the forces propelling Trump to the White House. This is a giant wave with many unrelated parts and it only makes sense if you are looking at the macro scale. The conservative movement that arose in response to the communist threat amid the Cold War, is dying. As in Europe, socialism was seen as an acceptable compromise if it meant stopping communism, but now that communism is gone and the old Clash of Civilizationsis back, the table is being reset. There's a lot going on: neoreactionaries are attacking the heart of modern Western ideology, nationalists have secured power in Hungary and Poland, with nationalist parties rising across Europe, identity politics is replacing ideological battles in the mainstream political debate, and there are focused attacks on institutions such as the current war within the GOP. While some of these groups are literally at odds with each other, they all share in the current socionomic zeitgeist. Until social mood bottoms and turns higher once more, these trends will remain in place. Should they secure meaningful victories, they may also reshape politics, culture and society for generations.

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