OECD urges ‘dialogue’ on steel overcapacity to avoid a trade war

  • Western countries have been hit by a collapse in steel prices.
  • According to the OECD, the way to fix this overcapacity problem is by following international trade rules.
  • The OECD revised upwards its economic forecasts for global growth for both 2018 and 2010 to about 4 percent of gross domestic product (GDP).

Governments should work together to fix overcapacity in the steel markets and avoid a trade war, the Organization for Economic Co-operation and Development (OECD) said Tuesday.

Tensions between the United States and its international trading partners, including the European Union and Japan, have intensified over the last couple of weeks over proposed tariffs on metals. President Donald Trump has decided to put a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum, arguing that these imports posed a threat to national security.

Western countries have been hit by a collapse in steel prices. Lower demand for the product and, until recently, rising production in China, have led to job losses in the industry and lower prices.

According to the OECD, the way to fix this overcapacity problem is by following international trade rules, namely those established under the World Trade Organization (WTO).

"Governments should avoid escalation and rely on global solutions to resolve excess capacity in the global steel industry," the organization said in its March economic outlook on Tuesday.

"Trade protectionism remains a key risk that would negatively affect confidence, investment and jobs," the OECD also pointed out in the report.

Speaking to CNBC Tuesday morning, Alvaro Pereira, the acting chief economist at the OECD, said that trade right now was very positive, but added that there was a risk of increasing protectionism.

"I think it is important to reiterate that since 2008 we had 1,200 measures of increased protectionism all across the G-20 economies and we believe the latest news on this front shows what matters right now is to avoid an escalation, it's very important to engage in dialogue … If you look at the past, what could happen if you have an escalation, I think what matters right now is to intensify the dialogue to avoid an escalation in trade tensions," he said.

Higher growth

The OECD, a group based in Paris that represents 35 major advanced economies, revised upwards its economic forecasts for global growth for both 2018 and 2010 to about 4 percent of gross domestic product (GDP). It said that stronger investments, a rebound in global trade and higher employment supported the upward revision.

"New tax reductions and spending increases in the United States and additional fiscal stimulus in Germany" are also behind the projected performance for the global economy.

Nonetheless, the high levels of public debt in many countries and planned to changes monetary policy could bring forward financial problems, it added.