We have yet another instance of the Journal putting a happier face on the news than the Financial Times, this time on the slowly escalating US-China trade dispute.
By way of background, we reported earlier on the US’s imposition of punitive duties on Chinese, Indonesian, and South Korean coated paper because these countries were determined to have been providing illegal subsidies. Earlier this week, the US filed two cases in the World Trade Organization, one on intellectual property right protection (ie, contesting the bootlegging of movies and music), the other on market access for US movies and entertainment product.
Before we address the latest developments, we wanted to respond to a reader’s view that the duties imposed were forcing Americans to buy expensive and inferior domestic product. First, coated paper is a commodity, sold according to specifications (brightness, weight, fiber composition, etc.) Paper either meets grade standard or it isn’t purchased. There is no such thing as “inferior.”
Second, in very simple terms, it is illegal, even in the US, for a manufacturer to sell product below cost (note s retailer trying to get rid of unsold items is another matter). It’s called predatory pricing and it is considered to be an anti-trust violation. The reason is that the party who is selling goods for less than his cost is doing so to drive competitors out of business. Once he has eliminated or reduced competition, he can raise prices. So he isn’t really giving customers a good deal in the long term; they get a short-term bargain but in the long haul will pay much more (otherwise, it wouldn’t make sense for him to lose that money).
A similar concept applies in international trade. It is illegal to “dump” goods, or sell below cost. In the Chinese paper case, heavy government subsidies were producing the same effect as dumping (ie, the subsidies allowed Chinese paperemakers to price product well below their true costs).
But the coated paper sanction may prove ineffective. We have been advised that the CEO of NewPage, the company that filed the suit that led to the imposition of duties, is concerned that the Chinese will simply ship paper to Canada in the hopes that US magazines will choose to print there.
Back to the latest dispute. We again have a disparity in reporting between the Wall Street Journal and the Financial Times, this time on a news briefing by a Ministry of Commerce spokesman. The FT makes it sound as if the Chinese are very unhappy with the latest move (“China hits out as US launches trade cases“) while the Journal presented them as conciliatory (“China to Adjust Policies To Narrow Trade Surplus“).
Is this just a case of seeing the glass as half empty, versus half full, or yet another case of Journal indulging in not-entirely-founded optimism? The proof of which recounting is more accurate may lie in how Hank Paulson’s second “Strategic Economic Forum” session, scheduled for May, actually goes. The US is pushing for the Chinese to open its financial markets as a way to address trade imbalances. The Chinese seem interested in developing expertise in financial services (for example, they are trying to make China a major carbon trading center). The FT sees the latest dispute as boding ill for the May talks.
From the Financial Times:
China on Tuesday reacted harshly to a US decision to take it to the World Trade Organisation over piracy and copyright protection, saying it would “seriously damage” bilateral co-operation and harm business ties….
The response struck a significantly more combative tone than previous Chinese reactions to other trade disputes with the US, which appeared to accept that some tensions were part of the rough and tumble of being a global trading power.
Wang Xinpei, a commerce ministry spokesman, said the WTO action was “against the consensus reached between the two countries’ leaders on developing bilateral trade relations and properly handling trade problems”. He added: “China expresses great regret and strong dissatisfaction at the decision of the United States to file WTO cases against China over intellectual property rights and access to the Chinese publication market.”
The Chinese claim that the litigation violates a consensus between the two countries contrasts sharply with the Bush administration’s insistence that the actions are a sign of a maturing trade partnership. A US trade official said: “We have worked with China for many, many months to resolve our concerns about China’s compliance with its WTO obligations and we have acknowledged China’s progress in this area. Fortunately, we have the WTO to sort out tensions in a rational manner.”….
Now read the Journal. Recall that the headline was “China Adjusts Policies to Narrow Trade Surplus:”
The Ministry of Commerce said it is adjusting its policies in order to narrow China’s politically sensitive trade surplus and that disputes with trading partners are unavoidable during the process.
The comments came in a news briefing by ministry spokesman Wang Xinpei in Beijing yesterday, on the heels of a new U.S. challenge at the World Trade Organization to China’s handling of intellectual-property rights. Mr. Wang expressed China’s frustration with the U.S. move and argued that reductions in tax rebates for exports of some products at the end of last year are helping to slow growth in China’s exports, which have been fueling China’s huge trade surplus. Mr. Wang said Beijing’s measures have proved “extremely effective.”….
Mr. Wang said China is studying further policy changes aimed at shifting the composition of its trade and narrowing its trade surplus. The nation’s trade surplus for the first quarter nearly doubled from a year earlier to $46.44 billion, although the surplus for March was smaller than expected.
The Journal later recounts some of the Chinese complaints, sans the dramatic quotes. Framed this way, one indeed might think the Chinese were willing to bend a bit. But reading this after the FT’s report instead makes the Chinese speech seem all of one piece. The Chinese aren’t signalling a willingness to cooperate. They are asserting they have cooperated, and are annoyed that the US hasn’t acknowledged what they’ve done. Which means they have said they have gone far enough for now, thank you very much. Expect any further moves to be window-dressing.