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EU Sends Obsolete Industries Mission to China

 

 

“Tough Negotiations”

The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”)  and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and desist.

The left-leaning Guardian writes – in a somewhat strident-sounding tone – that “Jean-Claude Juncker threatens China over steel dumping in Europe”.

“The president of the European commission has warned China must stop dumping cheap steel in Europe or it could fail to gain market economy status with the World Trade Organization, which Beijing is desperate to secure. Jean-Claude Juncker said that Beijing and the EU had agreed to establish a working group to discuss the crisis in the steel industry and monitor steel shipments from China.

“The EU will defend its steel industry. We are not defenceless, and we will use all the means at our disposal,” Juncker said in Beijing after talks with the Chinese government.

China’s economy czar & prime minister Li Keqiang, JC “not quite present & often befuddled” Juncker, and a perplexed looking Donald Tusk are shaking hands on a new trade deal in Beijing. Only one of them looks really happy, so it seems the Chinese got the better of the Europeans, and the two EC minions appear to be well aware of it. In fact, we have it on good authority that later that day, in the hotel bar, a slightly tipsy JC remarked (in French): “Donnie, they pulled a fast one on us. I know it!” Tusk is said to have replied: “Can you say that again in English please?” Photo credit: Yves Herman / Reuters

The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. - Click to enlarge

Steel rebar

(emphasis added)

We mention the strident tone mainly because steel workers are a kind of symbol/ hobby horse of the left – a nostalgic remnant, as the historic roots of socialism and unionism are often associated with smokestack industries. So they can’t help praising this apparently testosterone-laden version of Juncker, striding upon the international stage to fight for the rights of the steel worker! Yeah, baby! Time to play hardball with these yellow perils!  Friendship, comrade!

Readers may remember that one of the first actions of Mr. Hollande’s former crypto-communist industry minister Arnaud Mountebank was to try to force loss-making steel plants to keep operating (see “Curdled Sauce Hollandaise” for  details on this, by scrolling down to the section entitled Micro-Managing Industry).

Steel rebar prices over the past five years. Maybe JC Juncker should have looked at a chart before berating Li Keqiang over Chinese “dumping” of steel? Just saying – click to enlarge.

The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. - Click to enlarge

Impeccable Logic

Harkening back to what we have written in connection with the idiocy of US steel tariffs, we would like remind everyone of the impeccable logic of the EC’s approach to this issue. Just imagine: there are now countless industries, which probably represent economic output a 100 times greater than that of the steel industry, which are getting steel cheaper.

This means not only that profits, capital investment and employment at all these industries is likely to grow, it also means that consumers may get to buy their products cheaper. After all, it seems a very good bet that at least part of these savings will be passed on. Everybody will be richer!

Well, we can’t have that. It’s like with those cheap solar panels, it is simply too great for everybody involved, potentially way too much fun. So it is only natural that Juncker and Tusk should do everything in their power to protect the steel industry from competition!

As we said above, the logic is inescapable. Below we re-post a video in which the “obsolete industries” support group explains the problem to a few befuddled (Juncker-like befuddlement may be contagious) citizens in the streets of London. What triggered this were taxi industry lobbying efforts to get “Uber” banned, but the principle is of course exactly the same:

Dedicated young people campaign in favor of obsolete industries, the plight of which is evidently not quite understood by selfish and greedy consumers – as their decision to constantly “vote with their wallet” clearly illustrates.

The Tradition of Cronyism Masquerading as “Reform”

Why is there such an obsession with long-refuted mercantilist policies in Europe? Isn’t the EU supposed to be a pro free market organization? We partly have Jean-Baptiste Colbert to thank for it, the former comptroller-general of France, who introduced mercantilist policies in France in the 17th century. In the process he succeeded in slowing economic progress, restricting consumer choice and impoverishing the general population, while lining the pockets of favored cronies.

Wikipedia lists a few of Colbert’s interventionist measures, which are misnamed “market reforms” in the entry. Not unlike the Nazis, Colbert apparently tried to create an island of economic autarky:

“Colbert’s market reforms included the foundation of the Manufacture royale de glaces de miroirs in 1665 to supplant the importation of Venetian glass (forbidden in 1672, as soon as the French glass manufacturing industry was on sound footing) and to encourage the technical expertise of Flemish  cloth manufacturing in France. He also founded royal tapestry works at Gobelins and supported those at Beauvais. Colbert worked to develop the domestic economy by raising tariffs and by encouraging major public works projects.

Colbert also worked to ensure that the French East India Company had access to foreign markets, so that they could always obtain coffee,  cotton,  dyewoods,  fur,  pepper  and sugar. In addition, Colbert founded the French merchant marine.

Colbert issued more than 150 edicts to regulate the guilds. One such law had the intention of improving the quality of cloth. The edict declared that if the authorities found a merchant’s cloth unsatisfactory on three separate occasions, they were to tie him to a post with the cloth attached to him. He created the seigneurial system.”

It sure sounds like the description of the prototypical French bureaucrat tasked with mucking up the economy (150 edicts to “regulate the guilds” is of course fairly harmless compared to the licensing mania of modern regulatory governments). We find the approving undertone of the Wikipedia entry reproduced above slightly off-putting actually. Statolatry is almost literally dripping from it.

Further below we inter alia read that Colbert was “ruthless”, as he could not “respect individual interests” (favored cronies evidently excepted, considering the above list of “reforms”), and selectively defaulted on government debt so as to punish allegedly “fraudulent creditors” of the government – i.e., people foolish enough to lend the government money. His other main claim to fame? He “improved tax collection” and apparently raised taxes as well.

Obviously, no mention is made anywhere of the real reasons for such interventions, which ultimately drive the actions of Juncker & Co. as well – namely cronyism in some shape or form (admittedly paired with economic illiteracy). Why else would such an effort be made to favor a small minority’s interests over those of the vast majority of consumers and productive users of a commodity?

17th century chief mercantilist Jean-Baptiste Colbert – beloved by politically well-connected cronies all over France. Painting made after an engraving by Robert Nateuil

The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. - Click to enlarge

If China Wants to be a “Market Economy”, the Government Must Intervene More

Lastly, it is actually quite ironic that China’s status as a “market economy” was used as the bludgeon in these bizarre negotiations. As the FT reports:

“A jump in steel shipments from China had stiffened political and industry opposition to Brussels granting China market economy status under the terms of its accession to the World Trade Organisation, 15 years ago. Granting the status would make it harder for major economies to bring anti-dumping cases against Beijing.

Jean-Claude Juncker, European Commission president, said the agreement would allow the “verification and monitoring” of steel shipments from China, enabling confirmations of Chinese pledges to trim the excess capacity that is swamping world steel markets.

“Our Chinese friends and partners know there is a link between market economy status and the platform,” Mr Juncker said. “Although you could separate the two, the general mood in Europe is that they should be considered together.”

The EU commission will discuss MES status on July 20, he added. “I don’t want to over-dramatize this decision but it is a dramatic one and there is a clear link between steel and MES.”

(emphasis added)

So to summarize this: in order to be considered a “market economy”, the Chinese government is supposed to intervene in China’s steel market in order to trim excess capacity. Can it possibly get any more ridiculous?

WTO logo – why exactly are giant bureaucracies needed for the administration of “free” trade?

The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. - Click to enlarge

 

 

Conclusion

There is a lot of talk about “free trade” and the setback for the cause of free trade the “Brexit” allegedly represents. It should be obvious though that the arrangements negotiated between various governments by no means represent free trade. It would be much better to call them “managed trade” agreements.

In fact, none of this has much to do with free markets.  All that is happening here is that the EU once is again showing its true – protectionist – colors.

 

Chart by: BarChart

 

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Pater Tenebrarum
Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.
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