When China joined the World Trade Organization in 2001, it agreed to allow all WTO countries to automatically treat China as a “Non-Market Economy” for a 15-year period. This status allows the United States to set fair prices on Chinese exports, effectively leveling the playing field for American producers.
The 15-year period will end December 11th, and the Commerce Department must make a determination whether we will continue treating China as a Non-Market Economy.
As a free market advocate, I sincerely hope that China would play by the rules and enable a Market Economy designation. Free and fair trade between countries creates incentives for the efficient allocation of resources. Efficient allocation of resources leads to higher levels of production. Higher levels of production create more jobs and more wealth for both countries. This outcome is the beauty of the free market.
However, the tangible benefits of the free market can be adversely affected by improper government interference.
Unfortunately, China’s communist government has a proclivity for consistently distorting market forces through government subsidies, preferential loans, and currency manipulation. Because China has failed to fully implement free market reforms to its economy, the United States and other WTO nations should continue to treat China as what it is: a Non-Market Economy.
U.S. law defines “Non-Market Economy” as any foreign country which does not “operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.”
This result is precisely the case in China, particularly within the steel industry. In fact, 26 of the largest steel companies in the world are Chinese, many of them state-owned enterprises. Despite promises to reduce government intervention, the Chinese government continues to artificially prop up its steel industry for its own selfish economic and political purposes. These initiatives have led to overcapacity in the global steel market and have been detrimental to American steel producers.
In the fourth quarter of 2015, U.S. steelmakers posted net losses of $1.43 billion. Continuing in this disturbing trend, U.S. steelmakers lost $233 million in the first quarter of 2016. These losses on the bottom line have also led to the loss of American jobs.
Even with the U.S. International Trade Commission authorizing new tariffs on Chinese steel dumping in 2016, many prominent U.S. steelmakers have still been forced to cut production and lay off employees. Some economists have estimated as many as 19,000 U.S. steel and iron workers are now looking for a new job as a result of Chinese market manipulation.
Granting China Market Economy status would only exacerbate the problem by allowing their artificially cheap steel to flood the market. Why should we reward anti-competitive practices? Doing so would as well send a message of weakness and capitulation to our other trading partners who have also been proactively engaged in market exploitation.
Another, often overlooked, aspect of Chinese market interference is the potential risk to our national security. The steel and aluminum industries are essential to our national defense industrial base. If U.S. steel production is hollowed out by unfair Chinese competition, the U.S. could be placed in the vulnerable position of having to rely on foreign countries for critical commodities.
We already have major concerns regarding Chinese government attempts to purchase critical infrastructure to potentially disrupt the American military supply chain, which is why I am leading a bipartisan effort calling for a GAO review on potential reforms for the Committee on Foreign Investment in the United States.
A comprehensive look at China’s geopolitical interests clearly illustrates the need for close U.S. scrutiny of all communist Chinese government action.
Now is not the time to affirm bad practices through granting China Market Economy status.