William Perry’s May 25, 2017 US China Trade War newsletter writes:

We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore. The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole. The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice. They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts. In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Screen Shot 2017-05-26 at 11.09.39 AMThe above quote is from beginning of newsletter, this April 21 US Trade War website post reports imports from China will be hit, but the impact will especially harm downstream US manufacturers who rely on these materials to manufacture finished goods:

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

Automotive News (May 16, 2017) in “Commerce Dept. investigates steel imports used in auto parts,” explains:

In the auto industry, cold-drawn mechanical tubing is used to make stabilizer bars, shock absorbers and struts, trailer suspensions, axle shafts, half shells, spacers, steering columns and gears. Tubes also help reduce the number of welds, saving manufacturers time and money, while strengthening the structure and reducing overall vehicle weight.

The article notes over 150 other trade restrictions on steel imports are in place:

As of April 19, the Commerce Department has 152 anti-dumping and countervailing duty orders in place on steel from 32 countries. Twenty-eight of the 152 orders, or 18 percent, are on steel products from China.

American steel producers, associations, and lobbyists have added The steel orders represent almost 40 percent of all anti-dumping and countervailing duty orders in place. There are also 25 investigations underway for steel products.

U.S. Steel Giants Warn Foreign Imports Imperil National Security claims to economic damage claims, “U.S. Steel Giants Warn Foreign Imports Imperil National Security,” (Bloomberg Politics, May 24, 2017):

Chief executive officers of America’s largest steelmakers said global overcapacity of the metal is at crisis levels as they urged the U.S. to determine that cheap steel imports are a threat to national security.

The story also reports:

China’s steel exports to the U.S. have declined by more than 67 percent since September 2015 and the U.S. has enough domestic supply to meet its own needs, Yu Gu, first secretary at China’s Ministry of Commerce, said at the hearing.

Similar national security/trade restrictions are in store for aluminum imports, according to the Financial Times: “US launches national security probe into aluminium imports,” (April 27, 2017):

The US has launched a national security investigation into imports of aluminium, warning that its capacity to domestically produce the metal needed for fighter jets and armour plating has collapsed in recent years. 

Daniel Griswold of the Mercatus Center, in “A Matter of Steel Industry Security,” (Reason.com, April 28,2017), counters that the U.S. is still a steel industry power, producing all the military could possibly need:

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips. While it’s true that steel imports have risen to about a quarter of U.S. consumption, domestic steel output remains robust. During the past decade, according to the World Steel Association, annual output at U.S. steel mills has been trending slowly downward but it was still an impressive 78 million tons in 2016. That ranks the United States as the world’s fourth largest steel producer.

Domestic steel production far exceeds any foreseeable need by the U.S. military, which is a relatively small customer for domestic steel. The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. The Pentagon still needs steel for ships, tanks, and warplanes, but the demand has been flat or trending down for years. …

The 2001 report found that the Department of Defense’s annual requirements for steel “comprise less than 0.3 percent of the industry’s output by weight (i.e., 325,000 net tons of finished steel per year).” It also found that the steel that was imported came mostly from a diverse and “safe” list of foreign suppliers, such as Canada, Mexico, and Brazil.

Higher tariffs on imported steel and aluminum will drive prices even higher and further hurt U.S. manufacturers, especially those using imported steel and aluminum in the goods they export to the world.

Lots of domestic and imported steel are used by foreign automakers exporting cars from the U.S.  “Trump Reportedly Wants to Stop Germans From Selling So Many Cars Here, Where They’re Made,” (State.com, May 25, 2017) reports:

In 1994, BMW opened a plant in Spartanburg, South Carolina. Having invested $7.8 billion in the plant, BMW now boasts that it is the company’s largest single facility in the world. And it has spurred investments by a range of suppliers throughout the state. The cars made in Spartanburg there include the EX3 and X5 Sports Activity Vehicle, and the X4 and X6 Sports Activity Coupe. Last year, Spartanburg produced a record 411,171 vehicles, about 34,000 per month. According to BMW, it sells about 26,000 cars per month in the U.S. Now, not all the cars BMW sells in the U.S. are made here. Some are shipped in from overseas. And many of the vehicles made in South Carolina—287,700 last year, or 70 percent—are exported to points around the world.

Mercedes and Volkswagen also have huge U.S. manufacturing operations, as do Japanese and South Korean carmakers:

IAMA , the trade group for Asian automakers in the U.S., said its members last year produced 4.6 million cars between them, equal to 40 percent of all U.S. vehicle production, at some 300 facilities.

As earlier Debate Central posts have noted and many online articles have argued, steel and aluminum imports help U.S. manufacturers. “U.S. Steel Tariffs Create a Double-Edged Sword,” (WSJ, May 31, 2016) as higher steel prices raise costs of US manufacturing:

Duties on steel products from China, Brazil, India, Japan and other countries have contributed to the U.S. benchmark hot-rolled coil index rising more than 60% this year to $615 per ton, after falling 33% last year. In Europe, the benchmark index is up by 34%.

The article quotes U.S. challenged by import restrictions that have raised prices:

Some manufacturers are pushing back. In a letter to the Department of Commerce requesting an exemption, Steelcase Inc. Chief Executive James Keane said a tariff on a special kind of Japanese steel could cost one of his subsidiaries $4 million to $5 million a year.

The subsidiary, Polyvision, makes whiteboards for schools at a plant in Oklahoma, where it employs about 50 people. “If nothing changes, we would have to close our Oklahoma plant,” he wrote. “Schools can’t afford to pay more for these whiteboards, so if we raise prices to our customers they will use lower quality substitutes that are likely not made in the U.S.”

 

 

From Paul Romer interview with Cloud Yip from iMoney magazine:

Q: The idea of Charter Cities originated from Hong Kong and Shenzhen, am I right?

Romer: The two most interesting precedents for Charter Cities are Hong Kong and Shenzhen, so it does have some origins here. They each played important roles in fostering reform of the Chinese economy. But it is an approach that can be used in any country that wants to implement reforms, even a developed country like the United States. It turns out that this is a unique time in human history when it is possible tScreen Shot 2017-04-22 at 10.55.15 PMo start many new cities because there is an enormous, unmet demand for city life.

Shenzhen was China’s first Special Economic Zone, opening to foreign investment and free enterprise in 1980 under Deng Xiaoping. An earlier post (Brexit, Texit, Calexit, and the Future of China) looked at Shenzhen and Shanghai Pudong New Zone, China’s early open reforms designed to follow the success of Hong Kong.

These three regions are the freest and prosperous in China. Hong Kong is considered the freest economy in the world (Hong Kong story about Heritage Economic Freedom Index, and here is story of Fraser Inst. Economic Freedom of the World Index).

And now China has opened a new Special Economic Zone, “China’s new special economic zone brings back memories of Shenzhen“:

On April 1, President Xi Jinping announced plans to transform a little-known farmland called Xiongan into a glittering technology and innovation hub, complete with new businesses, universities and state-of-the-art transportation.

Special Economic Zone aren’t automatic. Some succeed and residents prosper, while others don’t.  Lotta Moberg notes in “The political economy of special economic zones,” (Journal of Institutional Economics):

Policy makers introducing SEZs must overcome the knowledge problem to avoid misdirected economic planning. Yet, the scheme can only fulfill its purpose if it also prevents destructive rent-seeking behavior, both from businesses and from government authorities. The political economy framework of SEZs can be applied to judge their potential efficacy, something that orthodox studies of country features such as natural resources, infrastructure, and zone location fail to do. The Indian and Chinese experiences with SEZs illustrate these points.

China’s new special economic zone brings back memories of Shenzhen,” (BusinessInsider, April 20, 2017) notes SEZ status raised Shenshen from a fishing village of 30,000 to today’s dynamic megacity with almost 12 million people:

The Xiongan New Area, which will eventually cover 2,000 square kilometers—more than twice the size of New York City—is intended to relieve congestion in the capital of Beijing and nearby Tianjin. Among other potential consequences include spreading the country’s economy northwest, away from the bustling coastal cities…

Like Shenzhen before it, Xiongan is expected to offer phenomenal investment opportunities. Remember, we’re talking about a brand new megacity literally built from the ground up. According to UBS estimates, the project will require as much as $580 billion over the next 20 years.

The South China Morning Post‘s page on Xiongon New Area SEZ is here.

Lotta Moberg’s page links to a variety of articles on Special Economic Zones, including “Is It Time That America Adopted Special Economic Zones?” (Daily Caller, March 30, 2017) which looks at SEZs as a way to counter current protectionist and nationalist trends in the U.S. and around the world:

How do you solve a problem like protectionism? With a U.S. president threatening a trade war, populism dominating political headlines in Europe, and decreasing popularity of trade deals, think-tankers and political pundits are scrambling for ways to escape a vicious circle towards ever-higher barriers to trade. Turning this development around may take a long time. In the mean time, though, countries may still create spaces where the barriers do not apply.

Read more: http://dailycaller.com/2017/03/30/is-it-time-that-america-adopted-special-economic-zones/#ixzz4f35qgdOP

 

A Wall Street Journal headline writer likely sensed something amiss with calls by U.S. steel producers for more protectionism. The August 12, 2015 WSJ print edition article by John W. Miller was titled: “Steelmakers Lodge New Trade Gripe.” The online version, dated August 11, drops the “Gripe” for a less skeptical headline: “U.S. Steelmakers Again Ask for Tariffs on Imports” (as usual Google full title to find article ungated).

The article notes this was the third trade complaint of summer 2015 by U.S. steel producers, claiming foreign firms were “dumping” steel below costs:

The request targeted imports of hot-rolled coil—used in making cars—from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. China wasn’t named in the petition because the U.S. already has tariffs on imports of that kind of steel from China. The petition was filed with the U.S. Commerce Department and the U.S. International Trade Commission.

This Wall Street Journal article doesn’t mention “dumping” by name, but a July 15, 2015 Duluth News Tribune article does: “Trade commission agrees foreign steel was ‘dumped’ in U.S.

The U.S. International Trade Commission on Friday announced a preliminary determination that imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan injured the U.S. steel industry.

And:

 The companies claim that the increased below-cost imports of steel have reduced demand, in some cases forcing mill closures that have led to layoffs at Minnesota operations. …

“We are pleased the ITC has confirmed that the flood of unfairly traded imports of corrosion-resistant sheet steel has materially impacted our shipments, pricing and profitability,” said Mark D. Millett, chief executive office of Steel Dynamics. “SDI believes in fair trade, but the U.S. has become a dumping ground for world excess steel capacity.” 

However, the WSJ mentions the actual price of the hot-rolled coil steel used by U.S. carmakers and other manufacturers is actually higher than in Europe and Asia:

steel-mill-616536_1280The problem for U.S. steelmakers is sluggish prices, which are held down by inexpensive imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen more than 20% this year to $468 per ton.

That is still about $100 higher than the price in Europe and $200 above that in Asia, according to steel buyers, making the U.S. a tempting market.

Wait… what?  This hot-rolled coil steel–key for U.S. automakers–is 20% less expensive in Europe and 40% less expensive in Asia? Doesn’t that give a significant cost advantage to European and Asian automakers and other foreign manufacturers with access to significantly less-expensive steel?

If steelmakers in “Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K.” are dumping steel in the U.S., they must be ultra-dumping steel in Europe and Asia. Either that or shipping costs are extraordinary low to U.S. buyers.

Imports of hot-rolled steel have increased according to steel industry executives, with the implication that foreign firms are dumping excess capacity onto U.S. markets:

Imports of hot-rolled steel from the seven countries named in the latest petition increased by about 73% from 2012 to 2014, rising from 1.9 million tons to 3.3 million tons, AK Steel said.

Wow, 73% is a big increase!  But also between 2012 and 2014 was a huge increase in U.S. demand, with booming rail and oil and gas infrastructure as well as auto manufacturing expanding, rising 19% in 2012, 7% in 2013, and 5.4% in 2014.

A May, 7, 2015 WSJ article, “U.S. Steel CEO Says Tariffs Could Be Needed On Chinese Imports” quotes Mr. Longhi, the new head of U.S. Steel, who has been cutting costs, laying off workers and boosting stock prices (and his pay). In addition to streamlining steel production, Mr. Longhi is trying to raise tariffs on imported steel, particularly steel from China:

Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”

In this article, steel tube is the focus, where demand has been hit hard and unexpectedly this year, after oil prices dropped by half last fall, and demand for steel pipe by shale drillers dropped soon after. The article blames imports:

Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries. 

Consider though that for U.S. manufacturers and U.S. consumers, lower prices for steel is a good thing. Only for the U.S. steel industry is lower-cost imported steel a problem.

Students researching U.S. trade policy with China can research these ongoing debates over steel imports and tariffs.

Tim Worstall in Forbes puts the question of steel tariffs this way in a June 4, 2015 column:

There’s two ways that we can describe the attempt by the US steel industry to gain anti-dumping tariffs against China and other countries. The first is that it is an attempt by that US business sector to protect themselves from that foreign competition. The other is that it’s an insistence that all Americans should become poorer in order that those profits and those jobs should be protected. Both of these descriptions are true: and the second follows logically from the first.

U.S. steel producers have continued their call for higher tariffs on Chinese steel. “U.S. steel producers to file charges against Chinese competitors,” (Reuters, September 22, 2016) reports:

The U.S. Commerce Department last week set preliminary antidumping duties ranging from 63.86 percent to 76.64 percent on stainless steel sheet and strip imports from China after preliminary findings showed the imports were being dumped in the U.S. market at below fair value.

The petition alleges that Chinese producers diverted their steel shipments to Vietnam “immediately” after the duties were imposed.

According to the petition, Chinese steelmakers sent their shipments to Vietnam, where they were modified to make them corrosion-resistant, and then sent them to the United States by paying Vietnam’s U.S. tariff rate, which is lower than for China.

Economist Richard Ebeling posted on Facebook a quote from an 1830s economics textbook, to give people a sense of economic principles taught nearly two centuries ago:

Here is what economics books used to sound like, from Thomas Cooper’s “Lectures on the Elements of Political Economy” (1830), on the principles and policies of economic logic and understanding on the benefits of freedom of trade and enterprise:

“The true principles of Political Economy, teach us that a system of restrictions and prohibitions on commercial intercourse, cuts off the foreign market, diminishes the number of buyers, and the demand for our national produce; hence, the consumer is compelled to pay more to the home monopolist.

“Hence, the wealth of the nation is wasted; every consumer is abridged of comforts that he might otherwise procure, and his means of purchasing even home-commodities are diminished.

“They teach us also, that men should be permitted, without the interference of government, to produce whatever they find it their interest to produce; that they should not be prevented from producing some articles, or bribed to produce others.

“That they should be left unmolested to judge of and pursue their own interest; to exchange what they have produced when, where, with whom and in what manner they find most profitable and convenient; and not be compelled by theoretical statesmen to buy dear and sell cheap; or to give more, or get less, than they might do if left to themselves, without government interference or control.

“That no favored or privileged class should be fattened by monopolies or protections to which the rest of the community are forced to contribute.

“Such are the leading maxims by means of which Political Economy teaches how to obtain the greatest sum of useful commodities at the least expense of labor. These are indeed maxims directly opposed to the common practice of governments, who think they can never govern too much; and who seek to prey upon the vitals of the community.”

This remains wisdom for our own time. 

Students debating U.S./China policy have an opportunity to learn the principles of international trade, and apply these principles to various reform proposals.

Winners for the 2017 Young Patriots Essay Contest!

Three teens took home $9,000 in scholarships from Debate Central’s Young Patriots Essay Contest, sponsored by NCPA and Copart, with essays on whether international free trade agreements are in the best interest of the United States. Over 700 students entered and from those the 2017 Winners are [click to continue]

See more HERE.

In April, 2016 China’s government launched a new effort to restrict and control its society. “Clampdown in China Restricts 7,000 Foreign Organizations,” (New York Times, April 28, 2016) begins:

China took a major step on Thursday in President Xi Jinping’s drive to impose greater control and limit Western influences on Chinese society, as it passed a new law restricting the work of foreign organizations and their local partners, mainly through police supervision.

The 7,000 foreign NGOs have until the end of the year to take steps required by the new law, but these steps were unclear until this week.

China Unveils List of Activities Permitted for Foreign Nonprofits, ” (Wall Street Journal, December 21, 2016) reports the latest developments:

BEIJING—After months of uncertainty for foreign nonprofits, China released a list of activities the groups will be allowed to pursue under a controversial new law, with a surprising number of activities falling in potentially sensitive areas such as legal services.

Civil society institution are central to US/China engagement, and include international debate societies, educational associations, and thousands of international environmental, business, religious, and cultural associations.

These non-government organizations (NGOs), along with tens of thousands of international businesses operating in China, build personal and cultural connections between people and societies that are fully or partially independent of governments.

screen-shot-2016-12-23-at-4-20-45-amRotary Clubs meet weekly in communities around the world, including China. Rotary China explains:

Rotary is a global movement of business and community leaders from different walks of life – who come together to have fun, network and do good in our communities. …

Rotary encourages like-minded business and community leaders to share ideas, about how to build our clubs and expand our service project impact.

Rotary has just 15 chartered clubs in China. Yet there are over 100 Rotary Clubs in Washington State and 15 clubs in or within 100 miles of Bucharest, Romania.

Another business and community service organization, the Lions Club, has a long history in China, and by 2015 “there were 26,000 members in 758 clubs.”

Lions Clubs of China were shut down by the communist government in 1949, but returned in 2002, leading with a signature international program to restore eyesight, SightFirst.

SightFirst is working with its partners in China to increase low-vision services, including pilot centers in Liaoning and Guangdong provinces, to assess if blinding trachoma is a public health problem in China. SightFirst in China is also working to develop a regional training program model in Liaoning Province that better links eye care services in urban areas to those in rural areas.

With these spectacular results, the formation of new Lions clubs in China was not long in coming. In 2002, with the full support and endorsement of the Chinese government, Lions Clubs International issued charters to new clubs in Guangdong and Shenzhen with about 60 members each. Lions have grown rapidly in China. By 2015, there were 26,000 members in 758 clubs, ranking China among Lions’ fastest growing regions worldwide.

Kiwanis International, the third major business service organization, similarly leads an international health initiative:

Ganzu, China: For the past 10 years, salt manufacturers and health workers such as Dr. Ray Yip have worked together to solve the problem of iodine deficiency in China. Thanks to support from UNICEF and Kiwanis International, 95 percent of the population has access to iodized salt.

Kiwanis International also runs a Key Clubs program for high school students:

Key Club is the oldest and largest service program for high school students. What makes Key Club so successful is the fact that it is a student-led organization

Key Clubs are also operating in China:

We’re excited to announce a new Key Club nation: China! This takes our “international status” to a whopping 33 countries!The first chartered Key Club in China, which is located in Nanjing, already has more than 90 members!

So far, the club has organized several activities, such as charity fundraisers and performances, and tutors English to children from low-income families.

This 2009 Daily Kos article gives a brief history of Rotary, Lions, and Kiwanis clubs.

 

Apart from service clubs are educational organizations, like China high school debate supporter Sunrise International Education, whose goals are:

Sunrise is a social enterprise dedicated to reforming global education, in middle schools, high schools and universities, through experiential learning. Founded by two American education entrepreneurs in 2011, Sunrise pioneered an innovative model of student engagement, cultivating grassroots student communities and creating a bridge between them and institutions worldwide.

The National High School Debate League of China (NHSDLC) is a Sunrise program offering experiential learning:

The NHSDLC is a project of Sunrise International Education, a social enterprise dedicated to promoting American style extra-curricular education and cross cultural exchange in China and East Asia. Sunrise International Education also organizes the Association for Global Debate, the China Youth Business League, Yale Model UN China and InterPLAY China. [More links at website.]

The National High School Debate League of China (NHSDLC), for example lists its civil society activities:

We organise over 75 tournaments a year in cities all over China with 10,000 students competing. Our regionals vary in size from around one hundred students in smaller cities to more than 300 in the largest cities. The best students from each city qualify to compete at our yearly National Championship in Beijing; this year’s Championship had over 400 students participating, making it the largest ever in China 

So… here is hoping that high school debate societies continue to flourish in China, along hundreds of other international education, and business service clubs, and associations.

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