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Steel yourself for the long haul

With the West raising tariffs to stop steel imports from China, do the Chinese have an economic lesson for the West?

When asked what he thought the effect on China of the French Revolution (1789) the Chinese premier Chou en Lai, is said to have replied, "Its too soon to tell". Although there is debate about whether he misunderstood the questioner asking about the French protests in 1968, there can be no doubt that China takes a longer view than countries in the West.

China’s attitude to its currency had American leaders frothing at the mouth calling from it to be allowed to float to a level that reflected the (then) strength of the Chinese economy. The Americans wanted halt the flow of goods from China to Wal-Mart. The Chinese took their time, they allowed the markets for their goods to mature, and even turn, before they started releasing controls on their currency.

The West has been trying to persuade the Chinese to convert their economy from on which has thrived on investment in industry, exports, housing and infrastructure to one based on consumption.

"We are dong it, we are doing it", claimed the Chinese but it is not fast enough for the West. And in this case perhaps not fast enough for the Chinese whose growth in consumption has not surged fast enough to compensate for the fall in other areas of growth.

The West is a dump

The throwing up of protectionist tariffs against Chinese steel imports, as a result of the fatal impact low Chinese steel prices are having to Western steel output capacity and employment, is the latest Western attempt to deal with what is seen as a Chinese threat.

The West say Chinese steel prices constitute "dumping".

According to the US government, "Foreign manufacturers engage in the practice of "dumping" when they export products to the U.S. at prices below the established domestic market price or when they ship excessive quantities of products that cannot be explained by normal market competition."

But what is "normal market competition"?

Quarterly yearnings

Western corporations report quarterly. They are accountable to their shareholders. They are (mostly) not dependent on governments but have to rely on the banking system for credit. They amortise capital over fixed periods. The West says these are the rules of the market and everyone should adhere to them. They are the rules that make capitalism successful.

The Chinese with state funding, no shareholders and guaranteed employment, don’t choose to embrace fixed costs over a relatively short period. Any if anyone says it is not a successful system the Chinese can point to their growth rates having substantially outstripped those of Western countries for years.

The Chinese could claim their longer-term out look is simply the sort of disruptive strategies for which Western companies like Uber are feted - as Chou en-Lai would say, only time will tell.

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