US will become victim of its own steel protectionism

By Huang Zhilong Source:Global Times Published: 2016/6/14 0:18:01

Illustration: Peter C. Espina /GT

During the recently concluded eighth edition of the China-US Strategic and Economic Dialogue (S&ED) held on June 6 and 7 in Beijing, the main macroeconomic management disagreement between the two countries' officials was surprisingly not related to the yuan exchange rate, but rather related to how China's steel overcapacity could affect global steel industries. As the two sides failed to reach consensus, it is expected that China's excess capacity in industries including steel will remain a major bone of contention in the trade relationship between China, Europe, and the US.

The US government's focus on China's steel overcapacity can be analyzed in the context of recent changes in the global status of the steel industries in these three regions, where levels of steel production are unbalanced.

Since the 1990s, China's steel industry has grown by leaps and bounds. In 1990, China produced 67.24 million tons of crude steel, accounting for roughly 9 percent of the global volume of 730 million tons. In 2015, China produced roughly half of the 1.6 billion tons of crude steel produced globally.

In comparison, since 1990, US production of crude steel has largely remained within the range of 80 to 100 million tons, while Japan's has hovered around 110 million tons. Crude steel production in the EU has declined from 210 million tons in 2007 to 166 million tons in 2015.

Meanwhile, the US is facing a headwind in its plan to revitalize the manufacturing industry and in its attempts to raise the rate of capacity utilization.

The US decided to revitalize its manufacturing industry following the 2008 global financial crisis and released "A Framework for Revitalizing American Manufacturing" in December 2009. That document comprehensively analyzed the theoretical basis for the revival of US manufacturing and its advantages and challenges, in addition to laying out policy measures addressing seven aspects of manufacturing redevelopment.

In August 2010, US President Barack Obama signed the Manufacturing Enhancement Act, hoping to change the US industrial structure's overdependence on the services sector, including finance, to create new jobs with the aim of once again occupying the commanding heights of global manufacturing and maintaining US leadership in the world economy.

Statistics from the private sector in the US show that from 2010 to 2014, there were 816,000 new jobs added in the manufacturing industry, averaging 163,000 each year. But in 2015, US manufacturers only added 26,000 jobs.

After the 2008 financial crisis, the volume of US crude steel production bounced from 58 million tons in 2009 to a high point of 89 million tons in 2012. But in 2015, the production volume dropped rapidly to 79 million tons, the lowest since the crisis.

Such trends are hardly irrelevant to big increases in US steel imports. The country's steel imports in 2014 and 2015 totaled 83 million tons, exceeding its domestic annual production. Meanwhile, the capacity utilization rate in crude steel production sharply declined from 76.96 percent in 2014 to 70.86 percent in 2015, the second lowest rate in nearly 30 years, behind only the 2009 rate. It is therefore clear that the US steel industry also faces the problem of excess capacity.

The concurrent surge in anti-dumping cases in the US is mainly driven by trade investigations in the steel industry. Countries that US steel manufacturers have filed anti-dumping complaints against include China and other important steel producers, including South Korea, France, Japan and Australia. China, the world's largest steel producer, will no doubt suffer the most. Frequent US trade investigations into steel have indeed boosted its domestic steel production to a certain degree. US steel imports since 2015 have dropped sharply with the expansion of high trade tariffs; steel imports stood at 38.6 million tons in 2015, significantly lower than the 44.3 million tons imported in 2014. This has enabled domestic steel production in the country to stabilize and rise. It seems the US government expects to shore up its declining steel industry by imposing trade protections.

China, as the world's largest steel manufacturer, has become the biggest victim of the new round of trade protectionism in the US. In the short-term, such methods can be largely effective, but they will undoubtedly lead to a situation in which the prices of steel products produced by US manufacturers are higher than those produced by their international counterparts, which in the long term is not beneficial to the country's drive to upgrade its manufacturing sector.

The author is the director of the Center for Trade Finance at Suning Institute of Finance. bizopinion@globaltimes.com.cn



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