Two faces of global trade

The undeclared tariff war over steel has again underlined the perils of global trade. As steel workers in three continents are finding out, globalisation can open new markets just as easily as it can take them away. The recent experience of Chinese steel workers also shows how the same global connections that destroy jobs can usher in new ones.

The root cause of the trade war - a steel glut in China - originated in 2008, when Beijing introduced massive stimulus spending to stave off the global recession. China's installed capacity of steel production rose from 644 million tonnes that year to 1.14 billion tonnes in 2014.

Now with the world sliding into another economic down drift, China is sitting on half of the world's steel production. Its effort to unload its stockpiles has triggered competitive price- cutting, threatening all producers. As China champions subsidised production, the rest of the world's ire has naturally fallen on Beijing.

Earlier this year, the US imposed whopping 265 per cent duties on Chinese steelmakers. The European Commission followed suit, imposing 22 to 36 per cent duties on Chinese and Russian steel imports.

In late July, China retaliated with its own anti-dumping duties on steel imports from Japan, South Korea and the European Union. As New Zealand initiated an anti-dumping investigation, Beijing has threatened to cut dairy imports from the country, while Mexico is getting ready to impose anti-dumping duties on China and Taiwan. Now India has joined in by imposing duty on imports from China and five other countries.

Cut-price steel causing unemployment has emerged as a lightning rod for discontent about globalisation and was a factor in the British decision to exit the European Union. Some 11,000 jobs in the United Kingdom were in danger as Tata Steel, reeling from the effects of Chinese dumping, considered closure.

In the US, steel workers, who have already suffered due to Chinese inroads, now face massive layoffs. These disaffected blue-collar employees have formed the army of discontent propelling protectionist Republican presidential candidate Donald Trump's candidacy, and even forced Democratic presidential nominee Hillary Clinton to change her tune on trade.

Ironically, it is not just China's trade partners which are suffering from the downside of globalisation. The poster child of successful globalisation, China, too, faces serious threats of social instability resulting from its steel glut. If it gives in to international pressure and cuts back capacity, around one million workers would lose their jobs. China has, instead, chosen to use its deep pockets to keep many zombie steel producers alive, which has emerged as a long-term systemic threat to China.

The administration of President Xi Jinping, seeking to seize the initiative, has promised to shut down zombie factories, lay off redundant workers and set up a 100 billion yuan (S$20.2 billion) special fund to compensate, reallocate and retrain the newly unemployed. But it has not yet mustered the courage to take the momentous step, cutting only 30 per cent of the steel capacity that it had promised to trim this year.

Fortunately, China's deep engagement with the globalised world also offers solutions and not just problems. The country's cab-hailing start-up and an Uber rival, Didi Chuxing, managed to buy out Uber's mainland business as well as attract a US$1 billion (S$1.35 billion) investment from Apple Inc. This massive increase of capital and market share has not only brightened the company's prospects, but it has brought succour to the ailing steel mills.

It has added over half a million redundant steel workers and coal miners to its pool of 14 million drivers. The same workers, who might otherwise have joined the anti-globalisation camp, now have reason to feel more optimistic about their prospects in this connected world.

• The writer is consulting editor of Yale Global Online, published by the MacMillan Centre, Yale University.

A version of this article appeared in the print edition of The Straits Times on September 08, 2016, with the headline 'Two faces of global trade'. Print Edition | Subscribe