Tag / United States

by Frank Maduri

China Floods International Steel Market

I was running at the gym yesterday morning and watching Fox Business channel where I saw that the Chinese are flooding the international market with surplus levels of steel because of the downturn in demand in their country. China produces more steel than the rest of the world combined which is an astonishing figure, and the influx of Chinese steel at a lower price has had a dramatic effect on the Western economies.

 

The production of steel in China has caused the amount of steel imported into the United States to increase by 34% in February 2015. This massive influx has triggered layoffs at U.S. Steel and Nucor, among others in American steel marketplace. Overall, the U.S. steel industry has seen 22 companies declare Chapter 11 bankruptcy protection.

 

The cumulative effect of the market flooding by China has led to the discussion both in Europe and the United States of whether a tariff should be instituted on steel. This is due to the fact that Chinese steel is made far cheaper than the rest of the world primarily because of the dramatically lower labor costs.

 

I disagree with the editorial in Forbes on this subject, while some of the information in the article there is sound, the author is against the implementation of a tariff on Chinese steel. The main rationale for that position being that he maintains that with the escalating costs for companies to manufacture products in the United States they should be entitled to access to materials such as steel at a cheaper cost to them.

 

I disagree with this position for two reasons: the impact it has on the American middle class worker, and I believe it is unfair for any country to dump excess products into the market and essentially undercut a particular industry, in this case the steel industry. This maneuver by China to flood the marketplace with surplus steel has hurt the American steel industry at a time when our country needs to keep as many manufacturing jobs as we possibly can. It has caused the layoff of the average American laborer which will have a profound effect on the already shrinking middle class in this country and will impact entire families as well.

 

The implementation of a tariff would be at least a prohibitive measure to safeguard the marketplace against this type of surplus flooding. It would allow American companies to level the playing field in their competition with emerging Asian economies.

 

In Our Defense

 

In all the commentaries and reports on this topic I have not seen anyone else mention an important aspect of this situation which is the fact that the U.S. government does not allow parts from China to be used in a Defense Department contract. The cheaper steel from China would not be able to be used in any of the products procured for the defense purposes of our country. Therefore, the American steel companies will have to produce to serve those contracts with a decreased labor force due to the market conditions changed by China’s actions within the marketplace over a period of years.

 

The lack of a duty or tariff on steel also means that the Defense Department could be paying more for domestic steel which is an issue that effects all taxpayers since we are footing the bill. Other Western nations are feeling the same effects to their respective domestic economies due to the activity of the Chinese companies handling of the supply dumping of steel.

 

The reports that I have read regarding the analysis and testing done on the quality of Chinese steel is that it is substandard when compared to other steel sources in the market and that is part of the rationale behind why certain companies and the Federal government will not use it for the defense contracts.

 

In India, also an emerging world economy, their steel production companies are asking the Indian government to impose a tariff to offset the impact of the influx of Chinese steel imported into their marketplace.

 

In the end, the tariff should be adopted in order to preserve fair market competition regarding the commodity of steel so that the Chinese companies will be forced to think twice before dumping excess product and disrupting the market conditions in the future.

 

(Some background information courtesy of Fox Business News, Forbes, WSJ.com, and Economic Times.com)

 

by Frank Maduri

China – New Claims of Sovereignty

China, Japan, and the U.S. in the South China Sea

 

The most recent actions by China in their attempt to assert their claims to territory in and around the South China Sea has heightened tensions in the region in an unnecessary manner. The latest attempt of the new Chinese prerogative of territorial expansion deals with a small island chain that has large potential regional security consequences.

 

Here at “Frank’s Forum” I have stayed away from posting content on foreign policy in the past because it is not one of the areas my blog was set up to cover. However, this issue is one of high importance and the ramifications for the United States regarding their relationship with both China and Japan are so far reaching that I had to include this commentary.

 

If nothing else, I hope to raise awareness on a very important topic effecting a huge area of interest for the United States in Southeast Asia.

 

The Chinese government announced an “air defense zone” for the airspace surrounding the islands they call Diaoyo about 200 miles off their coast in the South China Sea. This announcement included a provision that any planes travelling within it would have to notify the Chinese government.

 

The United States made headlines by flying two B-52 bombers through that airspace without any notification to Beijing. This was seen by many as an indication by the United States that they will not accept China’s new attempts at expanding their sovereignty into that part of the Western Pacific.

 

The more troubling issue here is that China is trying to stake a new territorial claim on islands that Japan believes are within their sovereign holdings. The United States is essentially trapped in the middle because they are bound by treaty to come to the defense of Japan in the event of a threat on Japanese territory or interests.

 

Regional Shakeup

 

The Japanese have long claimed those same islands, which sit 200 miles from Okinawa, and refer to them as Senkaku or “pinnacle points”. Japan also claims the airspace around the islands, and will not back down from the Chinese and their aggressiveness regarding this claim.

 

Japan is in a difficult position because they view the islands as their territory and if they escalate the situation with China it could result in potentially volatile military or political repercussions. However, if Japan decides to back away from these islands, it will only serve to embolden China in their desire to extend their sovereignty to the rest of the South China Sea. That will result in the potential for instability throughout the entire region.

 

Furthermore, the foreign policy officials from the U.S. State Department are concerned that this air defense zone creates conditions for an accidental incident such as Chinese jets shooting down a Japanese or U.S. plane in that air space. That would initiate a cascade of military activity that would be a serious problem for stability between these very powerful countries.

 

At the center of this entire tug-of-war for territory is the high yield potential of oil and gas reserves contained in the waters surrounding the Senkaku islands. China is dealing with a vastly growing population, which carries with it an increasingly high demand for more energy.

 

Conversely, Japan is trying to rebound their economy from a terrible recession, and they need to make use of any resources potentially available to them to grow their industrial capacity and economic output.

 

Caught in the Middle

 

The United States finds itself caught in the middle of two very important international partners in China and Japan. The experts on this subject feel that this latest incident with the B-52 bombers, and China sending their lone aircraft carrier to that area of the South China Sea for the first time, will not result in military action by any party involved.

 

Vice President Joseph Biden is in the region on a very timely official trip to Japan, China, and Southeast Asia. The Vice President will attempt to ease the tension caused by China in their unilateral declaration of this protected air space surrounding that chain of islands.

 

Mr. Biden was in Japan first, where he met with Prime Minister Shinzo Abe regarding this matter and several other foreign policy items. The threat of the air defense zone by China is expected to be a key issue. Many foreign policy experts believe that this expansionary exercise by China is being carried out in order to test the new Japanese leader.

 

However, Mr. Abe has shown a willingness to stand up to China and their territorial assertion regarding these islands. Then, at the same time, the prime minister is looking for the United States to be more demonstrative in their support of Japan in the case of this sovereignty claim for the Senkaku Islands.

 

Washington seems to have developed a position that takes the high ground in this circumstance. The United States does not want to get involved in a territory dispute between China and Japan for obvious reasons, and the White House has maintained that they recognize the claim of those islands by Japan but that the two countries need to work out a resolution.

 

Vice President Biden met with Chinese President Xi Jinping for over five hours yesterday, according to the Associated Press, and the Chinese made no concessions on the air defense zone. At this point no consensus was reached in a pathway forward to help ease tensions in this volatile region. Beijing feels that the U.S. has sided with Japan on this matter and has ignored the aggressive tactics of Tokyo towards Chinese territory recently.  Washington is trying to ride the middle ground here between two regional allies in Japan and China respectively, and trying to deescalate the tension which exists between the two nations.

 

The United States may be forced into a situation where that stance may become untenable, and the White House may have to change their strategy here to lead these two nations to explore a diplomatic solution to this issue.  The State Department may have to intercede to avoid a further escalation in the region because the United States is bound by treaty to defend Japan. A policy of indecision could result in an act of aggression by China against Japan, which is not a military situation that anyone wants to be involved in at this point.

 

The Sino-Japanese relationship has been fraught with problems for many years dating back to the two wars between them and then the brutal Japanese occupation of China during World War II. The Chinese government has requested on several occasions, including recently, for a formal Japanese apology for this brutality and Tokyo has refused to comply.

 

 

In the interests of all sides involved in this matter, we have to hope that the United States is successful, or else this situation may get heightened further, and has the potential to go beyond just saber rattling.

 

However, China is looking to expand their sovereign reach, and this is probably just the first step in that new functional imperative. It is critically important for the stability of the region that the U.S., Japan, and other nations determine a strategy for how they will address these expansionary efforts by China in the future. The consequences of ignoring these attempts could be detrimental on many levels.