While the whole world is up in arms over Trump’s trade tariffs, virtually nobody wants or dares to, point out that Trump is actually spot on when slamming China’s trade practices. And for confirmation, look no further than China’s own behavior when caught in the act.
As a reminder, it all started in December 23, 2015 – which we said at the time was “the date the global trade wars officially began” because that’s when President Obama imposed a 266% tariff on Chinese cold-rolled steel imports which Beijing had been quietly dumping around the world, a consequence of China’s attempt to overstimulate its economy (capex, capex, capex) starting in 2014.
To be sure, with Chinese mills, smelters and refiners all producing far more than can be purchased domestically amid slowing domestic demand, as well as the government’s anti-pollution crackdown, China’s decision to ship the excess overseas, and the dump it at far below prevailing prices, was understandable.
As was the collective global response: it wasn’t just the US that slapped China with tariffs: so did the EU, which as we reported two days ago, just extended its Chinese steel pipe tariffs of 72% for another 5 years.
What China did in response was, well, lie.
Beijing government swore that it would cut production and slash capacity in response to the global trade war-esque retaliation. It did not, as we first reported one year ago in “Iron Ore Tumbles As China Steel-Producing Hub Found Lying About Production Cuts.” Some more details:
In 2016, China’s state council set out plans to eliminate 100 -150 million tonnes of steel capacity in a bid to restructure the economy from one driven by government-led infrastructure investment and exports to a more consumption and services-oriented model. Last January, the hub of China’s steel production – the northern province of Hebei – announced it would cut output to ease pollution and help curb oversupply. Hebei said it planned to reduce steel output by 8 million metric tons in 2016, its Governor Zhang told local lawmakers, while Iron ore production would be cut by 10 million tons.
More than one year later, it appears that Governor Zhang lied about Hebei’s intentions, and according to a provincial notice by the Chinese province, it has emerged that China’s compliance with its own mandatory production cuts has been “problematic.”
Subsequent reporting by Reuters found that the same Hebei province, China’s biggest steel-producing area, launched a probe into steel overproduction in the city of Tangshan “amid concerns that firms have continued to raise output despite mandatory capacity cuts.”
Tangshan is the heartland of Chinese steel production. The city is home to the headquarters of the state-owned Tangsteel Group, which in 2006 merged with other companies to form Hebei Steel Group, the second-largest steel producer in the world. Located around 100 miles east of the capital Beijing, Tangshan is on the frontline of the country’s “war on pollution”, and was seventh on the list of China’s ten smoggiest cities in the first two months of this year.
Having been exposed to the entire world for lying about its production cuts, China’s central government then “ordered” the investigation of firms in Tangshan that have “restricted but not cut production, restricted production but not actually cut emissions, and cut capacity but actually increased output. Investigate and punish, that is.
Or at least that was the not so sophisticated charade staged by Beijing, because despite having been caught lying once already, China continued the theater. It had no choice: for one thing it had to allocate its trillion dollar stimulus somewhere, even if it meant keeping its zombie steel mills alive, and more importantly, China had to avoid the middle-class revolt that would follow if millions of steelworkers were suddenly laid off.
What’s far worse: all of China’s trading partners knew all about it.
* * *
Fast forward to today when CNBC’s China reporter Eunice Yoon decided to check if Beijing had kept its promises that it was slashing steel production and excess capacity, by visiting a town that was reportedly “steel free.”
What happened next, as Yoon reports, is that just as soon as she discovered a steel plant in a town that was supposed to be “steel-free”, and that, drumroll, Beijing had lied once again, she was promptly escorted away by Chinese police as the local government had no interest in divulging to the world that as China was closing steel mills in one part of the country, it was quietly opening new plants in other parts of the country, or as she said: “Beijing may be reducing capacity here, but it’s moving it elsewhere.”
Yoon then adds: “the issue of closing steel mills is highly sensitive in China, and as evidence of this we were taken away by the police, we were harassed when we were reporting, and a lot of that is despite the fact that the authorities there were very proud of the fact that this was a “steel-free” town, they still took us to the police station, acknowledged that we were allowed to be there, and then escorted us all the way out of town.”
Meanwhile, by literally shifting around production, China was keeping the same total excess steel production, which in turn leads to more dumping, and more foreign steelworkers losing their jobs, just so China can pad its goalseeked GDP and keep its own steelworkers happy, preventing a worker uprising.