The coming international trade war

Discussion in 'Economics' started by SouthAmerica, Dec 17, 2009.

  1. .

    December 17, 2009

    SouthAmerica: “The handwriting is on the wall”

    The United States and Europe should worry about China's commodities glut, the new protectionism, and the resulting international trade war.


    “China's 'Made in China' Problem”
    The downside to Beijing's huge stimulus is a glut of factories and output that may spur trade frictions
    By Dexter Roberts
    Business Week
    December 21, 2009

    Beijing - It's been a rough year for Inner Mongolia Baotou Steel. Revenues for the company, based on the windswept grasslands 350 miles northwest of Beijing, are off by 21%, and the steelmaker is likely to book its first loss since going public nearly a decade ago. Slowing exports have hurt, but the biggest problem has been surging output at home. Chinese steel production is up 10.5% this year, and capacity is on track to exceed 700 million metric tons annually—about 200 million more than China consumes. [Overcapacity] is affecting every company in the industry," says Yu Chao, Baotou's investor relations chief. "We have no choice but to accept this."

    Can this be the same China that's expected to grow by more than 8% this year? While Beijing's $586 billion stimulus package has helped the mainland navigate the global financial crisis, there's a downside. Fixed asset investment—money spent on factories, highways, and other big-ticket projects—soared 40% in the first half and accounted for nearly all of the country's growth.

    The easy credit helped boost demand for commodities such as steel, chemicals, and glass. But it also led to a boom in new factories to make those goods. That may increase trade frictions if China starts exporting the excess at cut-rate prices—what trade experts call dumping. With the mainland's steel production capacity outstripping domestic demand by nearly 30%, "will they shut those plants down and lay those people off, or export their way out of it?" asks Daniel R. DiMicco, CEO of Charlotte-based steel producer Nucor. "Their tendency is to export."

    China's state planning agency is warning of massive overcapacity in a half-dozen industrial sectors. Cement makers have added 600 million tons of annual production capacity this year to the 1.9 billion tons China already had. Aluminum smelters are running at only two-thirds capacity vs. nearly four-fifths last year. And over the past two years the number of Chinese companies making wind power equipment has quadrupled to more than 80.


    Washington is starting to take action. China now faces duties that nearly double the price of tubular steel exports to the U.S. after the Commerce Dept. issued a preliminary ruling that Beijing is dumping the tubes, which are used in the oil industry. "China keeps adding capacity even though there's no need for it anywhere in the world," says Roger Schagrin, a Washington lawyer representing American steelmakers in the tube complaint. He says Chinese exports of tubular steel to the U.S. tripled over the last three years to 2.1 million tons annually, though the surge has slowed since the ruling. American manufacturers of coated paper have filed a similar complaint.

    Beijing, too, is concerned about the industrial glut. If companies adding capacity can't sell their extra output, they risk defaulting on their loans. And plans to wean China off state spending, creating a more consumption-driven and innovative economy, could suffer if companies continue to overinvest in commodity production. "We need to think about what our economy should rely on," says Zha Daojiong, a professor at Peking University's School of International Studies. "Low prices and large quantity or higher value-added products?"

    China has taken some steps to rein in the expansion. The state planning agency is limiting new projects in the cement, aluminum, and glass industries that don't meet strict standards for pollution control, energy efficiency, and size. It has ordered two top steel producers, Shanghai's Baosteel and Wuhan Iron & Steel, to stop building a pair of mills with annual capacity of 10 million tons each. And it has banned construction of smaller factories making polysilicone (used in solar cells) and silicone monomer (used for everything from skin lotions to electronics). "We like what the Chinese government is doing: They're focusing on who is using resources efficiently," says Tom Cook, Greater China chief at Dow Corning, which may see some smaller rivals shut down due to the rule changes.

    That doesn't mean it will be easy to fix the problem. Most companies in the hardest-hit industries are big employers, state-owned, and a key source of revenues for regional governments. As such, they enjoy subsidized energy and land—not to mention close ties to local banks—so adding new capacity can be a breeze. When other countries could afford to buy the surplus, "China got away with it...but now it's a pressure cooker with steam coming out," says Joerg Wuttke, president of the European Union Chamber of Commerce in China. His group on Nov. 26 released a report on overcapacity that predicts growing trade frictions.

    And China may not be willing to make the macroeconomic changes required to face up to the challenge. At Beijing's annual policy-setting conference on Dec. 7, the government hinted that its spending would continue to drive growth for at least a year. Officials have also shown little willingness to revalue the currency, the yuan, so China's surplus output will continue to be relatively inexpensive on the global market. "Some countries are calling for yuan appreciation while imposing trade protectionism on China, which is unfair and actually limits China's development," Premier Wen Jiabao told European officials at a Nov. 30 meeting in Nanjing.

    Chinese economists, meanwhile, argue that growth eventually will eat up any excess production. "In a competitive environment, overcapacity is inevitable," says Lu Feng, a professor at Peking University's China Center for Economic Research. In normal times, that doesn't usually create the trade spats and other concerns now faced by China. But these are hardly normal times, says Xiong Bilin, an official from the state planning agency's Industry Dept. "The global financial crisis," Xiong says, "has made this problem even more pronounced."

    With Nanette Byrnes, Steve LeVine, Charlotte Li, and Mark Drajem
    Roberts is BusinessWeek's Asia News Editor and China bureau chief.

  2. Brazil will be immune. :cool:
  3. for sure, jajaja.
  4. .

    December 18, 2009

    SouthAmerica: Reply to Nazzdack and to rubibond007

    The Brazilian economy it will not be immune to the coming international trade war – it will hurt most industrialized countries at various degrees.

    It will be very bad for everybody.

    United States “real” GDP = US$ 11 trillion

    European Union GDP = US$ 14 trillion

    Brazil GDP = US$ 2 trillion

    In a Nutshell:

    Massive overcapacity = lower prices = dumping = trade war

  5. .
    January 10, 2010

    SouthAmerica: Some Chinese organization keeps sending me all kinds of information about China on a regular basis.

    Today they sent me the following article about China’s monopoly regarding rare metals – it is just another shot in the coming international trade wars.


    “China clamps down on rare earth exports”
    By Cahal Milmo
    Saturday, 2 January 2010

    Neodymium is one of 17 metals crucial to green technology. There’s only one
    snag – China produces 97% of the world’s supply. And they’re not selling.

    Britain and other Western countries risk running out of supplies of certain
    highly sought-after rare metals that are vital to a host of green technologies, amid growing evidence that China, which has a monopoly on global production, is set to choke off exports of valuable compounds.

    Failure to secure alternative long-term sources of rare earth elements
    (REEs) would affect the manufacturing and development of low-carbon
    technology, which relies on the unique properties of the 17 metals to
    mass-produce eco-friendly innovations such as wind turbines and low-energy lightbulbs.

    China, whose mines account for 97 per cent of global supplies, is trying to
    ensure that all raw REE materials are processed within its borders. During
    the past seven years it has reduced by 40 per cent the amount of rare earths available for export.

    Industry sources have told The Independent that China could halt shipments of at least two metals as early as next year, and that by 2012 it is likely to be producing only enough REE ore to satisfy its own booming domestic demand, creating a potential crisis as Western countries rush to find
    alternative supplies, and companies open new mines in locations from South
    Africa to Greenland to satisfy international demand.

    Amid claims that Beijing is using its rare earths monopoly as a tool of foreign policy, the British Department of Business, Industry and Skills said it was "monitoring" the supply of REEs to ensure China was observing international trade rules.

    Jack Lifton, an independent consultant and a world expert on REEs, said: "A
    real crunch is coming. In America, Britain and elsewhere we have not yet
    woken up to the fact that there is an urgent need to secure the supply of
    rare earths from sources outside China. China has gone from exporting 75 per cent of the raw ore it produces to shipping just 25 per cent, and it does
    not consider itself to be under any obligation to ensure supplies of rare
    earths to anyone but itself. There has been an effort in the West to set up
    new mines but these are five to 10 years away from significant production."

    After decades in which they were considered little more than geological
    oddities, rare earths have recently become a boom industry after the
    invention of a succession of devices, including iPhones and X-ray machines,
    which rely on their specific properties.

    Global demand has tripled from 40,000 tonnes to 120,000 tonnes over the past 10 years, during which time China has steadily cut annual exports from
    48,500 tonnes to 31,310 tonnes.

    Worldwide, the industries reliant on REEs, which produce anything from
    fibre-optic cables to missile guidance systems, are estimated to be worth £3
    trillion, or 5 per cent of global GDP.

    Beijing announced last month that it was setting exports at 35,000 tonnes
    for each of the next six years, barely enough to satisfy demand in Japan.
    From this year, Toyota alone will produce annually one million of its hybrid Prius cars, each of which contains 16kg of rare earths. By 2014, global demand for rare earths is predicted to reach 200,000 tonnes a year as the green revolution takes hold.

    Nearly all of China's supply of rare earths comes from a single mine near
    the city of Baotou, in Inner Mongolia. The remainder comes from small and
    sometimes illegal mines in the south of the country, leading to devastating
    pollution from the poisonous and sometimes radioactive ores.

    Environmentalists argue that this, coupled with widespread criticism of
    China's stance during the Copenhagen climate summit, adds to the need for a "plurality" of rare earth resources. One campaigner said: "There are legitimate questions over Beijing's control of these resources. Copenhagen showed they are not above putting national interest ahead of global efforts to curtail global warming."

    Once extracted and refined, the rare earth metals can be put to a dizzying
    range of hi-tech uses. Neodymium, one of the most common rare earths, is a key part of neodymium-iron-boron magnets used in hyper-efficient motors and generators. Around two tonnes of neodymium are needed for each wind turbine.

    Lanthanum, another REE, is a major ingredient for hybrid car batteries (each
    Prius uses up to 15kg), while terbium is vital for low-energy light bulbs and cerium is used in catalytic converters.

    In October, an internal report by China's Ministry of Industry and Information Technology disclosed proposals to ban the export of five rare earths and restrict supplies of the remaining metals. Beijing strenuously denied that the document was an accurate reflection of its strategy, saying it had no desire to reduce trade in rare earths. But The Independent understands that the level of demand in China means that supplies of at least two crucial REEs – terbium and dysprosium – are likely to be curtailed by as early as next year.

    Dr Ian Higgins, general manager of Birkenhead-based Less Common Metals, which specialises in rare earth products, said: "There is a threat that in the next 12 to 18 months, there might be some quite severe shortages of these rare earths. That is certainly going to impact those hi-tech green industries outside China."

    Both Western countries and China are already dashing to secure new sources of rare earths. Last year, Australian regulators imposed restrictions on the purchase of one of the country's richest rare earth mines, causing a Chinese company to walk away from a £400m deal to buy its operator.

    European and North American companies are meanwhile racing to open or re-open mines in Canada, South Africa and Greenland amid calls in the US for government-backed loans to secure supplies of some REEs which are used in the guidance systems of missiles and laser-guided munitions. Toyota has effectively bought its own rare earth mine in Vietnam by signing an exclusive supply deal.

    The Department for Business, Industry and Skills acknowledged the growing
    concern in Western capitals. A spokesman said: "We are monitoring the situation, particularly with regard to World Trade Organisation rules. We
    are working with UK industry to assess the long-term demand for strategically important resources, including rare earth elements."

  6. Lethn


    This is why I lol when people claim that China is going to have a crash, America is the spoilt brat of the world in terms of country personalities. They get the best guns, technology and they have the most cash but when they still get beaten they cry and make as loud a noise as possible.

    China is clearly the one that's going to punch them in the face and make them appreciate what they have more.
  7. .

    March 9, 2010

    SouthAmerica: The main headline on the frontpage of todays' Financial Times (UK) reads: "Tax move by Brazil risks US trade war" - Tarrifs to be raised on American goods.

    The Lex column on todays' FT also mentioned "Brazil tarrif riff" said: "Many years ago a US trade delegate "negotiating" with his Australian counterpart allegedly leant across the table and said: "We eat countries like you for breakfast."


    I guess the US trade delegate is learning very fast that their breakfast in Brazil can result on indigestion, cause diarrhea and make you feel very sick.

    Better go back to Australia and eat the Australians for breakfast...

  8. .

    March 10, 2010

    SouthAmerica: You learn something new everyday, and after all these years I had to read an article on a major German newspaper to learn that we had cannibalistic indigenous peoples in Sao Paulo – and Sao Paulo is the place where I born, grew up, and went to school from kindergarten to high school.

    I had no idea that in the past we had cannibals in Sao Paulo that liked to eat German people – maybe the indigenous people became cannibals after they found out that the Germans tasted like liverwurst.

    The authors of this article are probably not aware that the Germans have had a major investment in Brazil for many decades – it is called Volkswagen.


    “Better Late than Never” - Germany Looks to Play Catch-Up in South America
    By Jens Glüsing and Ralf Neukirch

    While the rest of the world has been pursuing business opportunities in South America, Berlin has been sitting on its hands. Now, with Foreign Minister Guido Westerwelle looking for a signature issue, that may change.

    Trips to South America aren't always easy. One of the first Germans to travel to the continent barely escaped ending up in a soup pot. In 1550, Hans Staden, a mercenary from the Hessian town of Homberg, went to South America at the behest of Portuguese settlers. Not far from where Sao Paulo is today, he fell into the hands of cannibalistic indigenous peoples who wanted to turn him into their next meal. He saved himself by offering the natives his services as a shaman.

    This week, 460 years after Staden, a German is visiting the continent once again. Foreign Minister Guido Westerwelle, hardly an expert on Latin America, is touring Argentina, Uruguay and Brazil this week -- in addition to a short stop in earthquake-shaken Chile -- together with a colorful entourage. He hopes to make the region a focus of his foreign policy.

    Westerwelle's approach stems from the insight that Brazil, in particular, is becoming more and more important on the international stage. But, like his predecessors, he is also searching for a foreign policy issue with which to make his mark.

    Former Foreign Minister Joschka Fischer focused on the Middle East, while his successor, Frank-Walter Steinmeier, specialized in the Caucasus region. Both men sought to gain stature on the foreign stage without interference from the Chancellery.

    Westerwelle is drawn to Brazil for the same reason. Chancellor Angela Merkel has monopolized Germany's relations with Russia, China, the United States and Israel. But she has never shown any real interest in South America's largest country.
    Merkel's Fleeting Visit

    "We have neglected Brazil," a former German diplomat admits. "Germany has given preference to its relations with China and India, while its status in Brazil has declined," says Roberto Abdenur, the Brazilian ambassador in Bonn and later Berlin from 1995 to 2002. Merkel has only traveled to the region once. On her way to the European Union summit with Latin America in Lima two years ago, she spent a day and a half rushing through a country almost 24 times the size of her own. President Luiz Inácio Lula da Silva would have liked to show her more, members of his staff complained after the fleeting visit.

    The personal touch is more important in Latin America than elsewhere, but the cool chancellor isn't one for hugs and pats on the back. Ironically, Lula could be a receptive partner for Merkel. A former labor leader, he has fond memories of Germany from his union days, and he has a warm relationship with former Chancellor Helmut Schmidt.

    Former Chancellors Helmut Kohl and Gerhard Schröder also maintained strong ties to Brazil. Under Schröder, Berlin and Brasilia agreed to a "strategic partnership" in 2002, but it remained little more than lip service.

    Berlin has taken five months to appoint a new ambassador to Brazil. And negotiations over a free trade agreement between the European Union and the South American economic alliance Mercosur have dragged on for more than a decade. Berlin and Brasilia have not even managed to renew the double taxation treaty between the two countries, which expired more than four years ago.

    Arrogance Partly to Blame

    Economically speaking, Germany has fallen behind in the region. When Brazil privatized telecommunications in the 1990s, Spanish, Portuguese and Italian companies entered the market, while the Germans were focused on their own problems with telecommunications giant Deutsche Telekom. They also missed out on the deregulation of the banking sector, allowing Spanish banks to move into the market. "Germany has only recently recognized Brazil's importance," says Brazilian Industry Minister Miguel Jorge.

    Arrogance is partly to blame. In the past, German politicians were quick to hand out advice to the Latinos when it came to budget management and economic policy. Now it turns out that some Latin American countries were better prepared for the financial crisis than member states of the European Union.

    Meanwhile, other economic powers are benefiting from the boom in Latin America. In many countries, China has emerged as the most important trading partner. Paris is wooing Bolivian President Evo Morales, hoping to gain access to his country's enormous deposits of lithium, a metal used in the batteries of new electric cars.

    Too Late Now

    In Brazil, in particular, French President Nicolas Sarkozy is stealing the show from the Germans. The Frenchman met with President Lula four times in 18 months, and now Sarkozy's dedication has paid off. The Howaldtswerke-Deutsche Werft shipyard was left with nothing when Brazil expanded its submarine fleet, while the French were quick to do business with the Brazilians. Lula also intends to order new military aircraft in Paris.

    "We cannot leave Brazil to our European neighbors," Karl-Theodor zu Guttenberg warned when he still Germany's economics minister. But it could be too late for that now. The Pacific nations of Chile and Peru are looking to Asia, Argentina is concerned with its own interests, Mexico is in the US's shadow, and Brazil is cultivating alliances with other emerging countries.

    So far, there is little in the way of a political concept behind Westerwelle's interest in South America. Plus, only the chancellor could initiate a true upgrading of relations. But Merkel has enough on her plate, as she tries to hold together her governing coalition. Leaving it to Westerwelle to make his mark in South America.,1518,682519,00.html#ref=rss


    The Hans Staden story happened in Ubatuba and not in Sao Paulo. They even made a movie about Hans Staden a few years ago and the movie it was shot in Ubatuba.

    Ubatuba is a resort town right between Rio de Janeiro and Sao Paulo.

    On his second voyage, he was captured by the Tupinambá people of Brazil.

    …Some scholars have challenged the book's reliability, arguing that Staden invented its sensational accounts of cannibalism.

  9. Yeah the US really does make alot of noise. I dont know how many of you travel, but it seems like whenever i see the news in other countries, there is the the president of the US giving some speech, or some other news thats happening in the US. Sometimes I actually see more news about the united states than news about the country I am in.

    When I was in Holland I made a comment in the Hotel bar about why do they put American news on their Television. He explained it to me like this....
    "Its like the kid in school that makes the most noise...he is the one that gets the most attention"
  10. .

    March 16, 2010

    SouthAmerica: The enclosed article said: “There's a febrile atmosphere round the world trade community. The drumbeat of global trade war is getting louder. Some observers are anxiously scanning the horizon for the equivalent of the assassination of Archduke Franz Ferdinand, which would spark a global conflagration.”

    I guess just like the Lehman Brothers case became the trigger to a global financial meltdown…

    Lehman Brothers overnight collapse; a trigger for a global financial meltdown – That would be just an intellectual exercise in wishful thinking, since these types of events don’t happen in real life in the 21st century.

    A new international trade war is already under way…that it is a silly concept to be even considered, since Americans have their economic and financial system completely under control.

    What kind of economic and financial system? I have no idea, but it is under control…

    Today, the US economic and financial system reminds me of an old joke.

    A Boeing 747 full to capacity suddenly the pilot announces to the passengers I have some good news and some bad news to give to you.

    First, the bad news: the entire electronic system of this jetliner has failed completely and there is nothing working on this airplane – we have no idea in each direction we are heading…

    Now the good news: even though we have no idea to where we are heading to, the airplane is moving at a very fast pace, and we will reach somewhere in very good time.


    “Skirmishes do not herald declaration of world trade war”
    By Alan Beattie in London
    Financial Times (UK)
    Published: March 15, 2010

    There's a febrile atmosphere round the world trade community. The drumbeat of global trade war is getting louder. Some observers are anxiously scanning the horizon for the equivalent of the assassination of Archduke Franz Ferdinand, which would spark a global conflagration.

    In truth, everyone should take a deep breath and calm down. While it would be silly to deny there is serious potential for conflict, particularly around the issue of currencies, what we have seen so far is a fairly routine management of trade tensions. True, Washington and Beijing are trading heated accusations over whether China's continued policy of holding down the renminbi is responsible for global imbalances. But for the moment, as Gary Horlick, Washington lawyer, says: "There seems to be an implicit deal between the US and China not to start a [legal] fight on currencies and to let the lawyers litigate everything else."

    The last point is crucial. Those who want to be alarmist can portray the big trading powers - and particularly the US - as embroiled in a tangle of litigation and discord. Just last week Brazil threatened again to impose trade sanctions authorised by the World Trade Organisation after it won a case against Washington over cotton subsidies - a ruling with which the US has yet to comply. Last year Mexico imposed similar sanctions over the US's failure to implement a North American Free Trade Agreement ruling that Mexican trucks could operate within the US. And there has been litigation between Washington and Beijing, with China blocking US exports of chicken and starting a WTO case over the decision of Barack Obama, US president, to slap emergency restrictions on imports of Chinese tires.

    This all might look terrifying, but in reality it is pretty much par for the course. The use of trade restrictions such as anti-dumping duties has been quite restrained. Last week's monitoring report by the WTO and other international agencies showed the rise in such measures actually slowed at the end of last year. And those who predicted that the Chinese tires decision would unleash a flood of similar actions have been proved wrong - either because it is hard for petitioners to reach the required standard of proof or because they believe the White House would block future actions for fear of more accusations of protectionism.

    It would be an exaggeration to say every problem in world trade can be improved by throwing lawyers at it. But it is increasingly true litigation is not a nuclear last resort but merely part of the toolkit of managing trade relations. China, which once reacted to every legal challenge as though it were a declaration of war, has got much savvier.

    And so to currencies. As yesterday's intervention from Wen Jiabao, the Chinese premier, underlined, this is undoubtedly the most serious flashpoint in global trade. But it is worth remembering just how hard it is for the US to do anything about it.

    One much discussed option is naming China a currency manipulator in the twice-yearly currency report, the next of which is due by mid-April. But even this would do nothing more than compel the US Treasury secretary to negotiate with the Chinese, which he is doing anyway. It resembles the old Robin Williams stand-up routine about an unarmed British policeman trying to apprehend a fleeing suspect: "Stop! Or . . . I'll shout stop again!"

    Taking a legal case over exchange rate misalignments to the WTO would probably fail, and take years in any case. The only real route left is to unilaterally slap tariffs on Chinese imports to compensate for alleged currency undervaluation. That would be a nuclear option that really could spark the destruction of the postwar world trading system, and it doesn't look like the US is quite desperate enough for that yet. A second dip in the US recession and a further sharp unemployment rise might do it, but it is not imminent.

    Perhaps worrying aloud about global trade has its uses, focusing enough attention on the dangers of protectionism to become a self-denying prophecy. But before justified concern turns into alarm and panic, it is worth remembering that so far we have seen little more than routine skirmishes. It's not time to break out the tin helmets just yet.

    #10     Mar 16, 2010