Gibson: Recovery of the American steel industry requires changes in ChinaOctober 2, 2019
The economic impact of the iron and steel industry in Alabama is responsible for more than 76,000 jobs here, paying a total of nearly $5 billion in wages and salaries annually while generating nearly $22 billion in industry output and $2 billion in federal, state, and local taxes.
But these jobs are at risk if some dramatic changes aren’t made to the global unfair trade practices that have plagued the American steel industry. And it starts with needed change in China.
China’s plan is part of a long-term strategy. China plans to commission five new steel mills next year, with a combined capacity of more than 100 million net tons. This one-year addition is greater than the total steel production in the United States in 2018. Although the Chinese government considers this to be a replacement for defunct capacity, the reality is that China’s overall steelmaking capacity is on the rise again in 2019. Last year, China produced record levels of steel, topping one billion net tons — a seven percent increase from the already-record 2017 levels. It is on pace to break that record once again this year as Chinese steel production for the first seven months of 2019 surpassed the first seven months of 2018 by nine percent.
Despite repeated pledges to the contrary, the Chinese government has refused to meaningfully restructure or reduce its steelmaking capacity and, as a consequence, continues to be the biggest and most persistent obstacle to curbing the global steel overcapacity crisis. This new capacity comes not because the market demands it, but solely because China’s government mandates it — at the expense of global competition, U.S. national security and American steelmakers
Because China’s state-subsidized steel companies do not have to respond to market forces, they can continue to produce steel when private firms are forced to cut back due to changes in demand. But this excess steel must still go somewhere. It too often ends up here in the U.S. — transshipped through third countries, evading the duties meant to discipline China’s unfair trade practices.
Progress has been made in recent years to stem the flood of dumped imports into the U.S. from steel-producing economies like China. Thanks largely to successful trade cases pursued by the American steel industry and the Trump administration’s implementation of the Section 232 tariffs, finished steel imports in 2018 were down 13 percent from the previous year, and are down another 17 percent year-to-date through the first six months of 2019. However, while Chinese direct shipments to the U.S. are down, countries like Vietnam and South Korea continue to flood the U.S. market with transshipped Chinese steel or with steel that has been displaced in their own countries due to the abundance of subsidized steel imports from China in those markets. Those two countries alone have exported nearly two million net tons of finished steel to the United States through the first six months of the year – totaling more than 16 percent of all finished steel imports in the U.S. market.
In addition, China’s lax environmental requirements for its steel plants also are a threat to our competitiveness. Simply put, Chinese mills don’t have to adhere to the same standards as we do, which makes the playing field uneven. Two peer-reviewed reports that the American Iron and Steel Institute conducted demonstrate this. One report found that hot-dip galvanized (HDG) steel coils produced in China, used in the construction and auto sectors, result in nearly 50 percent higher greenhouse gas (GHG) emissions than those produced in North America. The second study documents that hot-rolled structural sections produced in China result in three times higher GHG emissions than sections produced in North America.
President Trump’s use of the Section 232 trade remedy has helped the domestic industry begin to rebound with imports declining and domestic shipments and production rising since the tariffs’ implementation, but there is still much to be done. While domestic capacity utilization has reached its highest level since the Great Recession, it has not approached the sustainable levels seen in the decade before the recession. The president needs to retain all of the tools necessary to achieve a level playing field for the steel industry.
Without meaningful reforms to the global steel trade, dumped and subsidized imports will continue to flood the U.S. market – undermining the health of the domestic steel industry, hurting workers and, as a result, our national security. As the Trump administration continues its negotiations for a trade agreement with China, it must continue to press the Chinese government to eliminate its steel overcapacity along with the subsidies and other market-distorting practices that perpetuate the global overcapacity crisis.
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