05 September 2012 13:15 [Source: ICIS news]
By John Richardson
PERTH (ICIS)--Trade wars never do anybody any good, as the 1930s illustrated. Waves of protectionism introduced during that era are widely blamed for making the Great Depression a great deal worse.
Thus, some of Republican Party nominee Mitt Romney’s rhetoric over China has raised concerns that, if elected as president, he could end up finding himself committed to policies that trigger a US-China trade war during another era of global economic weakness.
For example, Stephen Roach, senior fellow at Yale University and former head of Morgan Stanley Asia, has warned of the serious knock-on consequences of Romney’s pledge that, on day one of him taking office, he would declare China a currency manipulator.
Roach, writing in the 28 August issue of the Financial Times, looked ahead to 2013 and imagined a scenario of tit-for-tat import tariffs imposed first by the US, and then by China, as relationships deteriorated.
He said: “By the autumn of 2013 there was little doubt of the severity of renewed recession in the US. Trade sanctions on China had backfired. Beleaguered American workers paid the highest price of all, as the unemployment rate shot back up above 10%. A horrific policy blunder had confirmed that there was no bilateral fix for the multilateral trade imbalance of a savings-starved US economy.
“In China, growth had slipped below the dreaded 6% threshold and the new leadership was rolling out yet another investment stimulus for a still unbalanced and unstable Chinese economy.”
A strongly worded editorial in the 27 August issue of the China Daily, the government-run newspaper, suggests that Romney’s pre-election comments might have already affected relationships.
“By any standard, the US Republican presidential candidate Mitt Romney’s China policy, as outlined on his official campaign website, is an outdated manifestation of a Cold War mentality,” said the article.
“It endorses the ‘China threat’ theory and focuses on containing China’s rise in the Asia-Pacific through bolstering the robust US military presence in the region.”
The China-East Asia page of the Romney campaign website says that his administration would increase the US naval presence in the Pacific, and increase military assistance to regional allies “to discourage any aggressive or coercive behaviour by China against its neighbours.”
And the website adds: “Any serious US policy toward China must confront the fact that China’s regime continues to deny its people basic political freedoms and human rights. A nation that represses its own people cannot be a trusted partner in an international system based on economic and political freedom.”
So, is this all another big threat to global chemicals and polymer markets already struggling with depressed demand?
“I think comments from Romney are a little like a hunter making bird noises to get his prey into the open,” said Ed Sim, an expert in international trade law and partner with the Singapore practice of law firm, Appleton Luff.
“The noises being made are not firm indications of policy, but rather they are a way of getting China to the negotiating table.
“And similarly with the strongly worded editorial in the China Daily, the Chinese, like everybody else, have to sell newspapers and so this is also not about a firm indication of policy from Beijing.”
He added that Chinese politicians similarly felt compelled to make the right noises ahead of their own leadership transition: From October of this year, senior members of the politburo, including the country’s president and premier, are due to be replaced.
“This is why, I think, Beijing has made so much of an issue over disputes with Japan and the Philippines over islands in the South China Sea. Again, these noises don’t indicate anything firm on policy.”
But a trade dispute that amounts to more than just rhetoric is the one between Europe and China over solar-panel imports.
German Chancellor Angela Merkel, on her visit to China in late August, said she was seeking talks between the European Commission and Chinese authorities to prevent the opening of anti-dumping proceedings against Chinese solar-panel shipments to Europe.
Solarworld, Germany’s biggest solar-panel manufacturer, is leading efforts by around 25 European manufacturers for a commission investigation.
“Lawyers are preparing for an anti-dumping case to be filed, and so it will go ahead,” Sim added.
“Merkel’s comments will probably give the Chinese a bit of face by giving them more time to prepare for the case.
“China is very worried about the potential EU case because the US market is already closed off to them.”
The US Commerce Department, in May of this year, imposed preliminary anti-dumping duties of 31-250% on Chinese solar panels.
A final decision on the case is due to be made in October.
“If the EU market was also shut, then the two biggest markets in the world for solar panels would no longer be accessible,” said Sim.
“This would be a serious issue for China as the solar-panel is strategic. It is part of efforts, under the 12th Five-Year-Plan [2011-2015], to move up the manufacturing value chain.”
These are treacherous times in international trade relations.
However, when the world economy was last in the midst of a major crisis, in 2008-2009, a much-feared trade war involving the US, China and other countries, did not materialise.
Let’s hope history repeats itself.
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