Complaints Over State Support Exacerbating Global Excess Capacity
China’s state-led economic model finances the rapid expansion of capacity and production in government-selected industries such as steel, aluminum, and solar energy. Frustrated by the market distortions these policies create, the United States, European Union, and Japan made a joint statement at the World Trade Organization’s recent ministerial conference.
Although largely directed at China, the statement does not mention China by name:
“We shared the view that severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies, and state owned enterprises, forced technology transfer, and local content requirements and preferences are serious concerns for the proper functioning of international trade, the creation of innovative technologies and the sustainable growth of the global economy,” the statement said. “We, to address this critical concern, agreed to enhance trilateral cooperation in the WTO and in other forums, as appropriate, to eliminate these and other unfair market distorting and protectionist practices by third countries.
In steel, China’s subsidization and other state support generated roughly three-quarters of the world’s expansion in steel capacity from 2000 to 2014, contributing to massive global excess capacity and production, according to a recent report from the US-China Economic Security Commission. China has made incremental steps in the last two years to rein in its excess capacity, but the state continues to bail out unprofitable steel companies, reinforcing the same drivers that exacerbated global excess capacity and production.
In 2016, global excess steel capacity reached 737 million metric tons—its highest historical level, according to the report, just as the annual growth of long-term steel demand slowed to one percent. The G20 established the Global Forum on Steel Excess Capacity in December 2016. The forum has compiled an extensive database on capacity developments, but that has not led to any new policy commitments.
The US is stepping up its efforts to address China’s dumping of its subsidized excess production in the US market. On November 28, 2017, the U.S. Department of Commerce (DOC) self-initiated an antidumping (AD) and countervailing duty (CVD) case into U.S. imports of Chinese aluminum sheets—the first self-initiated trade case in over 25 years. The DOC found evidence that Chinese aluminum sheets were sold below market value and China’s aluminum industry benefited from subsidies. If those allegations prove to be true, the DOC will release final determinations in April 2018 for CVD and July 2018 for AD.