The problem of industrial overcapacity has been troubling manufacturers across the world for years. Of late their complaints, particularly against China and especially concerning steel, have become more acute. Episodes like the proposed sale of the lossmaking Tata steel plant in Port Talbot in south Wales have brought into sharp relief falling prices and global gluts of production.
Overcapacity is without doubt a serious worldwide phenomenon and it is hard to argue against heavily subsidised Chinese producers being a major cause. But with responsibility so dispersed even within China, it is almost impossible to imagine any kind of negotiated agreement that will significantly bring down global capacity. So, unless governments elsewhere want to engage in expensive and open-ended — and, especially in the EU, probably illegal — state ownership of troubled steel companies, the best option is a judicious and limited use of trade remedies against subsidised imports.
This week, China hit back at persistent complaints from the US that it had recklessly expanded industrial capacity and was dumping steel at knockdown prices into the US market. Lou Jiwei, the Chinese finance minister, made the somewhat reasonable point that some of the expansion in production was a result of China’s encouragement of investment to boost growth during the global financial crisis. He also contended that, while Beijing has promised to close excess capacity, it was harder than it appeared: much of the decision-making, including the provision of subsidised lending, was in the hands of local governments.