Chinese overcapacity on global trade is exaggerated

  • Author Name : IMR
  • Publish Date : May 5, 2018

GENEVA: The concept of global excess capacity, commonly used to support the creation of trade defenses against China, is imprecise and unsound as a justification for US protectionism, a study by a Swiss-based trade watchdog said on Thursday.

Global Trade Alert, an initiative coordinated by Simon Evenett, professor of international trade at St Gallen University in Switzerland, sought to quantify excess capacity, especially in steel, and the damage to global trade.

Its report, by Evenett and Johannes Fritz, a research fellow at St Gallen, found that there was no compelling case for governments to get upset about global excess capacity in manufacturing.

“On examination, it turns out that the phrase excess capacity is slippery — rhetorically useful, but hard to pin down, even harder to operationalize, and at the same time woefully misleading.”

The United States, the European Union, and Japan have accused China of trading unfairly by subsidizing bloated steel and aluminum sectors and flooding the world with cheap exports.

US President Donald Trump has used China’s mammoth steel and aluminum sectors as justification for imposing tariffs on global supplies, causing an outcry from many countries.

Even before the recent steel tariffs were imposed by the US, the cumulative effect of the 144 American actions to limit steel imports still in effect today covered 96.8 percent of US steel imports,” the report said.

Targeting excess steel capacity was “a fool’s errand”, because measuring it was very difficult, and estimates of China’s steel production capacity varied enormously, it said.

Drawing on Chinese and US sources, the study said other sectors thought to have overcapacity .