China Does Not Deserve Market Economy Status, Manufacturers Tell Congressional Staff

By Elizabeth Brotherton-Bunch
Jul 12 2016 |
Granting China market economy status — a designation it does not deserve — would increase steel imports by $13.3 billion, according to the Manufacturers for Trade Enforcement coalition.

Steel, aluminum and fiber representatives all agree that China is not a market economy.

Representatives from several industries are on Capitol Hill this week to brief Congressional staff on why China should not be granted market economy status at the end of 2016.

Aluminum Association President Heidi Brock briefs Senate staff on why China should not be named a market economy.

The Manufacturers for Trade Enforcement coalition — of which the Alliance for American Manufacturing is a member — held a hearing for Senate staff on Monday and are scheduled to meet with House staff on Tuesday to discuss China’s market status. It’s an under-the-radar issue that has major implications for the manufacturing community.

As coalition representatives explained to Senate staff, when China joined the World Trade Organization back in 2001, it did so as a “non-market economy,” since everyone involved recognized that China’s government controls its economy. China was given 15 years to implement a series of reforms to create an open market.

The 15-year anniversary of the agreement is in December, and China desperately wants to be named a market economy. If it is granted that status, it would be a lot harder for the United States and other nations to enforce antidumping laws and issue appropriate tariffs to level the playing field for companies and workers that are burdened by unfair competition from companies based in China.

China is clearly not a market economy, as coalition members explained. State control remains over critical aspects of the country's economy, including major industries like steel. There are significant restrictions on foreign investment; the Chinese financial system is dominated by state-owned banks; the stock and bond markets are dominated by state owned enterprises; and the Chinese currency remains controlled by the government, which has often manipulated the yuan to boost exports.

As the Washington Post bluntly puts it: “China is not, in fact, a market economy.”

Nine of the top 10 steel producers in China are state-owned, for example. As we’ve discussed numerous times here on the blog, China’s massive steel overcapacity is fueling a global crisis that has led to nearly 15,000 layoffs and several plant closures in the United States.

In response, the Commerce Department has issued tariffs on several imported steel products from China, which have been upheld by the International Trade Commission. The polyester fiber industry and aluminum industry also have used U.S. trade laws to seek relief.

But if China is granted market economy status, enforcing these laws would be all the more difficult, coalition members said. And the economic impacts would be huge — the U.S. GDP could decline by as much as $47 billion, according to the coalition. Labor demand could decrease by as much as $30 billion, and up to 600,000 jobs could be lost.

It’s not just industry officials who think China should remain a non-market economy, by the way. The Washington Post is among those who say the issue is “a fight worth having,” considering the present circumstances. As the Post bluntly puts it: “China is not, in fact, a market economy.”

It will be up to the Commerce Department to determine whether the United States recognizes China as a market economy, and coalition representatives urged Hill staff to encourage the agency to stay the course.

Meanwhile, European Union leaders are in Beijing this week to talk trade with China — and the issue of market status is “the elephant in the room.” There’s some indication that European leaders might agree to grant China market status with some conditions.

Doing so would be a mistake. China is not a market economy, and it should not be rewarded with a status it does not deserve.