U.S. Says It Will Fight `Distortions' Caused by China's Economy

(Bloomberg) -- The U.S. said it will combat the “distortions” to the world economy created by China's economic system, especially in markets for steel and aluminum.

In a report to Congress, the U.S. Trade Representative's office said its primary goal is to defend the government's ability to impose duties on China for dumping goods at artificially low prices or unfairly subsidizing Chinese firms. China's economic system, which doesn't operate based on market principles, is hurting American workers and industries, USTR said a report on its enforcement priorities to the Senate Finance and House Ways and Means committees.

“The international steel and aluminum markets, for example, are currently experiencing significant oversupply due in large part to production from excessive and uneconomic capacity in China,” USTR said in the report, which was dated July 2017 and obtained by Bloomberg News. “This oversupply has caused severe market distortions, including the suppression of U.S. and global prices, and the displacement of U.S. exports in foreign markets.”

A USTR spokeswoman didn't immediately respond to a request for comment on the report.

The tough message on China follows a tense meeting in Washington between senior economic officials from the world's two biggest economies who failed to agree on trade issues. The Commerce Department has been investigating whether steel and aluminum imports represent a threat to national security, though President Donald Trump suggested last week a decision on steel isn't imminent.

Trade Risk

"The risk is that, after a period of unlikely calm in U.S.-China relations under Trump so far, a quick series of steps from both sides leads to an escalation and a rapid deterioration of relations," according to Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. "This risk is real, as Trump may end up venting out his frustration while China's government may feel the need to appear “strong” vis-à-vis the domestic audience."

The Chinese government disputes the U.S. position that China doesn't operate as a “market economy." Designating China a “non-market economy” enables the U.S. to impose higher duties in retaliation for dumping and unfair subsidies.

In its report, the USTR said it will continue to prioritize enforcement efforts in countries where intellectual-property protection “has deteriorated or remained at unacceptable levels.” The report accuses China of “widespread infringing activity, including trade secret theft, rampant online piracy and counterfeiting.” It notes that India and Indonesia are on the U.S. “priority watch list” for IP violations.

--With assistance from Miao Han and Malcolm Scott

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor at smcgregor5@bloomberg.net.