Despite recent shows of cooperation, Washington and Beijing seem to once again be drifting apart after failing to achieve much of substance on trade or North Korea at a bilateral meeting here Wednesday.
Not long after the so-called Comprehensive Economic Dialogue began, the U.S. Treasury Department called off a news conference planned for that day. The dearth of room for compromise was apparently clear from the start.
Hoping instead for headway on the trade deficit, the administration pushed China to reform its steel, information technology and financial sectors and to open up its markets. But Washington failed to draw out any concrete assurances Wednesday. The most that came from the dialogue was an American statement that “China acknowledged our shared objective to reduce the trade deficit.”
The failure of the world’s financial leaders to agree on resisting protectionism and support free trade marks a setback in the G20 process and poses a risk for growth of export-driven economies such as host Germany, economists said on Sunday.
Acquiescing to an increasingly protectionist United States after a two-day meeting in the German town of Baden-Baden, the finance ministers and central bank governors of the 20 biggest economies dropped a pledge to keep global trade free and open.
Instead, they only made a token reference to trade in their main communique by saying the G20 would work together to strengthen the contribution of trade to their economies.
“The weak wording on trade is a defeat for the German G20 presidency,” Ifo economist Gabriel Felbermayr told Reuters.
“This is particularly true in the light of the fact that Germany is one of the world’s strongest export nations and relies on open markets to maintain its prosperity like hardly any other country.”
Trump and Merkel to meet on Tuesday
Angela Merkel will lay out her government’s response to a proposed US border adjustment tax when she meets with Trump this week.
Der Spiegel said the German government is reviewing its response including a complaint to the WTO.
Responses could include higher duties on imports from the US and allowing German companies to make their US import tax deductible, according to the report.
The cross-border movement of goods, services, and capital increased markedly for the thirty years up to the Great Financial Crisis. Although the recovery has given way to a new economic expansion in the major economies, global trade and capital flows remain well below pre-crisis levels. It gives a sense globalization is ending.
The election of Donald Trump as the 45th US President has underscored these fears. His first few weeks in office clearly mark a new era not just for America, but given its central role in late-20th-century globalization, for the world as well. Trump is a bit of a Rorschach test. He did not win a plurality, let alone a majority of the popular vote, but that does not stop pundits from claiming that Trump won because of this or that issue.
There are some campaign promises which Trump has backed away such as citing China as a currency manipulator on his first day as President or pursuing legal charges against Hillary Clinton. His priorities have been repealing the national health insurance, formally withdrawing from the Trans-Pacific Partnership, and signaled an intention to re-open the North American Free Trade Agreement.
Trump and his closest advisers seem intent to unwind not just his predecessor’s initiatives, but the general thrust of America’s grand strategy since the end of WWII. His rhetoric of America First harkens back to Warren Harding, who succeeded Woodrow Wilson after the US Senate rejected the League of Nations. Some historians refer to that period as ‘isolationism, ’ but in practice it was unilateralist.
“It’s a great thing for the American worker, what we just did,” Trump said on Monday after signing an order withdrawing the U.S. from the Trans-Pacific Partnership accord with 11 other nations. He didn’t sign any actions to direct a renegotiation of the Nafta accord with Mexico and Canada, yet he said on Sunday he would begin talks with the two leaders on modifying the accord, BBG reported. “We’ve been talking about this a long time,” Trump said.
Trump’s trade focus fulfills a campaign promise to rewrite America’s trade policy during his first days as president. In declaring his determination to renegotiate Nafta, Trump would rework an agreement that has governed commerce in much of the Western hemisphere for 22 years. By scrapping the Trans-Pacific Partnership accord negotiated by former President Barack Obama, Trump will delight many of his most fervent supporters as well as a good many Democrats, while opening an economic vacuum in Asia that China is eager to fill.
Trump campaigned against the TPP and other trade deals, including Nafta, during his campaign for the White House. In a video released in November, Trump promised to exit TPP “on day one,” calling it “a potential disaster for our country.”
A reversal in U.S. trade policy could make 2017 the year that efforts to build multinational trade zones crumble, returning the focus to tough, bilateral dealmaking.
In October 2015, officials from 12 nations including the U.S. and Japan gathered in the American city of Atlanta to ink the historic Trans-Pacific Partnership, confident of the dawning of a new age of trade governed by such high-level, multilateral agreements. Yet that dream lies all but dead just over a year later, not least due to Donald Trump’s presidential victory and his pledge to pull the U.S. from the agreement upon taking office Jan. 20.
Yet Trump prefers his trade pacts one on one — the better to drive hard bargains, leveraging U.S. economic and diplomatic might to secure the most advantageous terms. Multilateral pacts involve far more careful compromise and require each nation to give and take small concessions rather than pushing for an unambiguous win.
On Monday China followed through a warning to “take further measures” against WTO members which continue to impose tariffs on its goods 15 years after Beijing’s accession to the organization.
On Monday the Commerce Ministry said that China has launched a dispute resolution case at the WTO, demanding that all WTO members, particularly the US and EU, stop using the “surrogate country approach” to impose higher tariffs against Chinese goods, which they claim to be exported at artificially low prices. “Regretfully, the US and EU have yet to fulfil this obligation,” the ministry wrote on its website. Sunday December 11 marked the 15th anniversary of China’s WTO accession, and China expects governments which have not already done so, to lift anti-dumping tariffs against its exports and treat Beijing like a fully-fledged member of the organization. The WTO and China agreed an accession protocol when Beijing joined the organization in 2001. Article 15 of this protocol dictates the terms which importing WTO members can use to compare their prices with those of Chinese producers, to determine if that producer is competing fairly with the domestic producers in the importing country. Some WTO members including the US and EU want to reserve the right to restrict Chinese imports with higher tariffs, in order to protect their manufacturers against “dumping,” the process by which a manufacturer exports a product to another country at a price below that charged in its home market, or at a price lower than the cost of production.
In order to investigate whether China is dumping goods, for the first 15 years of WTO membership Beijing was subject to the “surrogate country approach,” as laid out in Article 15.
Refusal by the U.S., European Union and others to recognize China as a market economy is the latest sign of intensifying trade friction between the Asian economic giant and other world powers, exacerbated by a supply glut in such industries as steel.
U.S. Secretary of Commerce Penny Pritzker said Wednesday that the time was “not ripe” to grant China market-economy status under World Trade Organization rules. A spokesperson for China’s foreign ministry shot back at a press conference the following day, claiming that “the world recognizes China’s success in developing a market economy.”
Prices in China are far lower than international prices for many goods. Steel products, the leading point of contention, go for 10-20% cheaper here than in Japan due to production overcapacity. China made 800 million tons of crude steel in 2015. But the domestic industry was capable of pumping out more than 1.1 billion tons, putting excess capacity at nearly three times Japan’s actual output for the year.
China has sought to close this gap by boosting exports. The country sent 24 million tons of steel overseas in 2009. By 2015, that amount had more than quadrupled to 112 million tons. The influx of cheap steel eroded earnings at Japanese, European and American steelmakers, forcing widespread layoffs.
India’s core sectors – coal, crude, natural gas, refinery products, fertilisers, steel, cement and electricity – rose 5 per cent in September compared with 3.2 per cent in August.
Data showed the eight core industries grew 4.6 per cent in the April-September period.
With a weightage of some 38 per cent of India’s industrial output, core sector index is seen as a barometer of how India’s industry is doing.
Analysts said the range of tariff protection that India has given to the steel sector from dumping by Chinese and East Asian competitors helped.
“Steel growth shows that demand from downstream industries remains and that they are replacing imports with domestic production,” said Sudipto Bose, an independent steel sector market analyst.
The refinery sector reported the second highest growth rate at 9.3 per cent, while cement, which reflects on downstream construction and infrastructure, showed a 5.5 per cent growth.
However, electricity generation grew just 2.2 per cent while fertiliser grew 2 per cent. Three key sectors – coal, crude and natural gas – contracted. Coal output contracted 5.8 per cent, natural gas output shrank 5.5 per cent, while crude production contracted 4.1 per cent.