The burning question at the back end of this recession is: where are the trade wars? Where are the customs officials building tariff walls to keep out cheap Asian knickers and fluffy toys? The World Trade Organisation, which monitors brick-building on national borders, has spotted no great surge in protectionist activity.
One of the few offenders is Russia (not even a member of the WTO), which has slapped tariffs on imported cars. In a sop to the US labour movement, President Obama approved a protectionist duty on Chinese tyres, a measure not supported by American tyre manufacturers, which have Chinese factories. The main response from governments, however, has been admirable restraint. The noisiest trade row has been the never-ending squabble between Boeing and Airbus. Each complains that the other lives off big government subsidies — a pointless accusation, as if Silvio Berlusconi and Nicolas Sarkozy accused each other of vanity.
If there is no trade war brewing, we need to know why, because the elements that create potential conflict are there and rising in scale. Take steel, for example. China produced about 30 million tonnes of steel in the 1980s but in mid-recession last year it produced 568 million tonnes, 14 per cent more than the previous year. Steel analysts say China’s total capacity is close to 700 million, compared with European steel-making capacity of about 200 million tonnes.
Yet there has been little sign of Chinese dumping, in part because both America and Europe took legal action against China before the recession took hold. Since then, Chinese mills have been supplying steel to domestic buyers, fed by half a trillion dollars of Chinese government subsidy. The bungs for bridges and railways are keeping China’s steelmakers out of trouble, but what happens when the money runs out?
There is already an unwinding of the stimulus spring. The Chinese Government is aware there are too many mills, but shutting down inefficient plants is politically difficult, if not impossible. Within a year, the mills will be seeking export markets. Bruised by previous trade battles with America, the European Union’s relatively open market may be tempting.
China’s natural export market is not Europe but Asia. Export trade is increasing in Asia and anecdotal evidence from air cargo carriers, such as FedEx and Lufthansa, suggests that traffic on Asian routes is again brisk. New toys are staying on Asian shelves and there is a partial decoupling under way, say economists at HSBC. Import levels in Asia are at a new peak, 6 per cent higher than ever before, while the United States and the eurozone are still 12 and 15 per cent, respectively, below the previous peaks.
There is a partial decoupling because intra-Asian trade is linked, in part, to American demand. Asian supply chains are integrated with goods moving from Taiwan to mainland China before export to America. Growth in intra-Asian trade is now well overshooting the recovery in the US. The Chinese are finally buying stuff. Asia’s electronics exports are 4 per cent below their all-time high. The question is: is it enough and can be sustained as Beijing tightens the credit tap? Chinese demand for consumer electronics has doubled in four years, but it will take another five years for it to reach the scale of the US market.
For China to unleash its consumer markets requires more than just a revaluation of the yuan, the issue that dominates its trading relations with the US. It needs the State to withdraw from the heights of the economy and intervene more at the bottom. More health insurance, pensions and hairdressers, fewer steel mills and aluminium smelters. It means political change on a huge scale and that won’t happen soon.
carl.mortished@thetimes.co.uk
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