The United States and the European Union are negotiating an agreement to impose new tariffs aimed at excess steel production.
The new tariff measures would primarily target steel imports from China, according to a Sept. 6 Bloomberg report. They aim to restabilize global steel markets and supply chains disrupted by China’s overcapacity and dumping of steel on the global market.
The rise in the threshold of tariffs could hinder Beijing’s steel dumping, finance expert Paul Chiou says, while allowing Western countries to reshuffle their steel supply chain.
Mr. Chiou is a finance professor at Boston’s Northeastern University and a frequent commentator on financial market issues. He spoke with The Epoch Times on Sept. 12 about what he calls an increasingly “alert” attitude taken by the EU and the United States towards the Chinese Communist Party (CCP).
“Of course, rebuilding their steel supply chain would lead to higher prices, but from the perspective of national security, Western countries have realized the need to give up temporary economic benefits and accept ‘the temporary pain’ of reducing their dependence on China,” Mr. Chiou said.
Trump Tariffs Sought to Put the Brakes on China
In March 2018, the Trump Administration—fulfilling a campaign promise—imposed a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum, aiming to limit the impact of China’s excess capacity.President Trump based the measure on a Cold War-era law—Section 232 of the Trade Expansion Act—that gives the U.S. president broad power to curb imports considered a threat to national security.
Between 1998 and 2016, the report found, the U.S. steel industry saw a 35 percent reduction in steel industry employment, losing over 14,000 jobs in 2015 and 2016 alone.
Trade Dispute With EU
Trump’s move triggered a major trade dispute, as the EU retaliated with its own round of tariffs on a range of American goods.In October 2021 the two powerhouses reached a deal that would maintain U.S. “Section 232” tariffs while allowing a limited volume of EU-produced metals into the United States duty-free.
When they paused the trade dispute, the United States and the EU agreed to work together toward a global arrangement on sustainable steel and aluminum, giving themselves two years to negotiate the plan. They face an Oct. 31 deadline.
Global Impact of China’s Steel Oversupply
China is the world’s largest steel producer, with crude steel production amounting to 1,018 million tons in 2022—about 54 percent of the world’s total, according to data from the World Steel Association, headquartered in Belgium.By comparison, the combined crude steel production of the 27 European states was 136.7 million tons, while U.S. crude steel production was 80.5 million tons, less than one-seventh and one-twelfth of China’s output, respectively.
Overcapacity and export dumping of steel products have significantly impacted the global economy.
In a June 2015 joint statement, steel industry groups around the world accused China of “massive and increasing overcapacity in an era of slowing growth.” China’s overcapacity was causing all regions to suffer from a “dramatic increase in unfair imports,” it said.
The statement called on governments to take into account China’s steel policy when considering whether it should be recognized as a market economy by the World Trade Organization (WTO).
State Resources Subsidize Global Steel Takeover
China’s jaw-dropping growth in the steel industry can be traced directly to the CCP’s long-term incentive policies. For decades, “China’s steel mills were indistinguishable from the state,” noted the 2018 Wall Street Journal report.“For years, the arrangement was of little interest outside the country,” said the Journal report. However, when China joined the WTO in 2001, lower tariffs and government backing allowed China’s net exports to soar, raising concerns.
Most Chinese steel mills are state-owned enterprises, giving them access to free land, cheap energy, government funding, low-interest loans, and all kinds of state resources and banking funds.
The CCP’s raft of subsidies allowed Chinese steel makers to set prices 20–40 percent lower than in the United States.
In another instance, in August 2021, China’s Liaoning province transferred its 51 percent shares of Bengang Steel to state-owned Ansteel Group for free, making Bengang a subsidiary of Ansteel Group. The government-backed restructuring created the world’s third-largest steel producer from the two former rivals.
The move was in line with a wide range of consolidations by the CCP to bolster the iron and steel industry.
In September 2016, China’s State Council announced that Shanghai-based Baosteel Group and Hubei-based Wuhan Iron and Steel Corp. would merge, renaming themselves China Baowu Steel Group and becoming China’s biggest steelmaker.
This type of hyper-aggressive approach is incompatible with regular business competition, says Northeastern University’s Mr. Chiou.
Nonetheless, it is compatible with the CCP’s ultimate goal, which goes beyond business. That goal consists of “eliminating its competitors, not merely seeking profits,” he said.
While normal business practices are generally geared toward reducing costs and improving quality to reap profits, the CCP’s strategy in many industries is different, Mr. Chiou said.
The strategy is basic but effective: “exclude all possible entrants from the market by low-price dumping, then monopolize the industry.”