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High Tariffs Will Not Solve US, EU Structural Problems

Mar 14, 2018

On March 6, the European Commission decided to increase the existing anti-dumping duties from 48.3% to 71.9%, and to extend the Chinese seamless pipe and stainless steel pipe for another five years.

A day later, the EC raised its pitch, saying it was ready to retaliate by "proportional and full compliance with World Trade Organization rules" against US president Donald Trump for a 25% tariff, steel imports and 10% of aluminum imports, excluding Canada and Mexico.

Before the US decided to impose tariffs to "protect" the U.S. economy, the European Union had urged it to remove the European group from its target list because both sides were allies and security partners. In response to the US, steel-producing economies such as the European Union and China are threatening to impose import tariffs on U.S. exports. In addition, China may consider taking action against the EC's decision to extend tariffs on seamless and stainless steel pipes in China.

If the United States is also targeting China, the cost of retaliation will be high.

The rising threat of a trade war reminds China of a saying: Do not do what you don't want others to do to you. The European Union and the United States have taken excessive remedial measures but do not recognise China's success in reducing steel production capacity. The European Union and the United States are the largest and most advanced economies in the world and should therefore shoulder the global responsibility to maintain global economic stability.

Instead, they appear to be threatening global governance, particularly in the economic sphere. This is the tenth year of the global financial crisis that originated in the United States, followed by the EU sovereign debt crisis.

The financial crisis prompted G20 leaders to agree that they would not resort to protectionist measures and, if necessary, implement the stimulus package. China has injected some foreign exchange reserves and other resources into the world economy and has contributed to stabilizing it.

It has also implemented economic stimulus measures to contribute more than 30% per cent of global economic growth and boost global confidence. More than 1 million of Chinese workers left the region in recent years to meet the needs of the global deal, as steel production capacity has fallen due to overcapacity. For years, China has been making efforts to rebalance the economy by taking measures to increase imports and domestic consumption, from export and investment-led growth to quality and innovation-oriented growth. Rebalancing efforts will bring huge benefits to exporters such as the European Union and the US.

In fact, China's imports from all major trading partners have grown much faster than their exports. Therefore, the progress made by China should be welcomed and encouraged by the rest of the world, especially the United States and the European Union. Now that the world economy seems to be back to normal, the United States and the European Union should do more to sustain it than damage it.

The best way to solve the problem in the EU and the United States is to discuss them in multilateral and bilateral forums.

In the past decade, the world's top economies have been meeting to find solutions to global and domestic problems and have decided to renounce protectionism and take punitive measures. When the global economy is in a difficult situation, the top economies readily agree to achieve and implement mutually beneficial agreements. It should be easier to respect these mutually beneficial agreements at a time when the global economy is beginning to recover.

The result of collective wisdom in coping with the crisis should not be forgotten. So it is time for the European Union and the United States to stop taking protectionist measures to impose higher tariffs on Chinese products and instead focus on structural reforms to improve their competitiveness in the global marketplace.

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