Being saved 10 years ago, they're now burning the bridge

The following is an edited translation of a commentary on the global trade dispute from the Chinese-language "Commentaries on International Affairs (国际锐评)"

Recently, the European Union, Canada, Mexico adopted reciprocal measures to counterattack the United States' punitive tariffs on their exports of steel and aluminum products. Though it is a dispute largely between the US and western partners, there is always a voice in the West saying that the melee between Washington and Brussels is "sourced" in China because China's overcapacity has created a global problem in steel and aluminum products. The dispute has nothing to do with China, but it's still being attacked. What does this tell? 

President Donald Trump speaks during a meeting with leaders of the steel industry at the White House March 1, 2018 in Washington, DC. Trump announced planned tariffs on imported steel and aluminum during the meeting, with details to be released at a later date. [Photo: IC]

U.S. Commerce Secretary Wilbur Ross recently testified before the US Senate that while the U.S. does have a trade surplus in steel with Canada, the administration's strategy is to stop China from sending its products through other countries that receive better tariff treatment. What he is implying is that the U.S. has been forced to impose tariffs on Canada due to concern over China's overcapacity. The U.S. imposes tariffs on Canada, EU and other countries on the grounds of "national security," which can hardly be justified, while all the while pointing the finger at China. 

Ross' accusations can be traced back to China's 4 trillion yuan economic stimulus package in 2008. Indeed, China's decisive move at that time does have something to do with today's excess in steel production. However, Ross has either forgotten or ignored the reality on the ground. It was the Chinese policy that saved the global economy, including crisis-ridden Western countries. Trade disputes between Washington and Brussels is a matter between themselves, but if the ultimate target is directed at China, it is unfair and even a despicable act of burning the bridge after crossing the river.

Looking back, in 2008, the US subprime mortgage problems triggered a global financial crisis. Many countries' stock markets slumped, financial institutions collapsed, and the liquidity was squeezed. As a critical economy in the world, China was also affected, with exports recording negative growth, and some companies being forced to reduce or stop production. Against this backdrop, the Chinese government decided to launch a series of economic stimulus measures such as the 4 trillion yuan investment plan and the expansion of domestic demand. Subsequently, the Chinese economy took the lead in the global recovery. Economic growth in 2009 was 9.2%. In 2010, the economy increased by 10.3%. The 4 trillion yuan investment plan and related economic stimulus measures helped China quickly return to the model of rapid economic growth. Thanks to the strong demand of the Chinese economy, the international commodity markets of copper, coal, iron ore, crude oil, and timber have been boosted. Economies such as Canada and Australia were able to escape the economic crisis. In 2009, more than 50% of the world's new GDP growth was contributed by China, and, as a result, the US and European economies gradually got back on track. China was heaped with praise and gratitude by the international community. 

The newspaper Lianhe Zaobao in Singapore published an article saying; "Saving China is to save the world, when China improves, and the world will have hope." Dominique Strauss-Kahn, the then managing director of the International Monetary Fund, said of the Chinese move, "It's a huge package. It will have an influence not only on the world economy in supporting demand, but also a lot of influence on the Chinese economy itself and I think it is good news for correcting imbalances." "Correcting imbalances" means that China's economic growth will rely more on domestic demand rather than export. And the growth of China's domestic demand will undoubtedly boost the global economy. 

If people understand the background of China's rescue of the world's economy ten years ago, they should take a rational attitude toward the issue of overcapacity. One of the unavoidable negative side effects of the 4 trillion yuan investment, overcapacity is also partly a consequence of weakening global demand due to the crisis. China did not intentionally create the so-called "overcapacity," and China has been working hard to solve this problem and has achieved remarkable progress in recent years.

Statistics from the Chinese Ministry of Commerce show that since 2016, China has reduced its steel production capacity by more than 100 million tons. During the 13th "Five-Year Plan" period from 2016 to 2020, China will reduce steel production capacity by up to 150 million tons. China resettled 201,000 steel workers in 2016 alone, exceeding the total number of steel jobs in the United States and Japan, or equivalent to more than 60% of the European steel work force. China is already at the forefront of the world in resolving the excess capacity of steel.

As for the so-called aluminum industry overcapacity, it's basically a false proposition. Aluminum prices have now returned to a more rational range, reflecting a real supply and demand relationship. Moreover, the current operating rate of the aluminum industry has exceeded 80%, and 80% of companies are making money. Few would think that this is an industry with excess capacity. More importantly, the development of China's aluminum industry is entirely based on its own needs, and it contributes to the world aluminum industry instead of creating problems.

Unfortunately, the response of the U.S. and even many Western economies is not objective to the efforts and effectiveness of China's resolution of excess production capacity. For example, according to the agreement on China's accession to the WTO, China should automatically obtain "market economy status" 15 years after its accession, that is, at the end of 2016. However, the U.S., the European Union, and Japan have chosen to refuse to recognize China's market economy status. One of the reasons they cite is the issue of overcapacity. In 2008, China's 4 trillion yuan stabilized its economy and the world benefited tremendously from the Chinese measures. Many believe that China saved the world economy. Today, it not only has to bear negative side effects of that huge move, but also is under accusations by those beneficiaries. Where is fairness? Where is justice? 

Some Western scholars have pointed out sharply that the US under Trump's rule has gradually lost its global "moral leadership" because of its America First practice. In today's globalization, the development of all countries is closely related. The practice of burning the bridge after crossing the river is unfortunate and disgraceful. The world has benefited from China's 4 trillion investment. Today, we should treat the issue of overcapacity in an objective and rational manner.