US tries to bend steel dispute its way
But China’s massive capacities will be difficult to erode without a costly trade war
hina’s vast steel industry is a major target of President Donald Trump. But a hulking shell of a mill here shows why China is likely to keep pumping out more and more steel, inflaming trade tensions between the two countries.
The Hangzhou steel mill, a vast labyrinth of blast furnaces, warehouses, chimneys and worker dormitories covering hundreds of acres, was one of Mao Zedong’s favourite projects. Built in just 13 months in the late 1950s, it once employed 25,000 workers. Pollution and the march of progress made the mill a liability.
But closing a mill eliminates well-paying jobs — a central reason China keeps factories churning out steel the world doesn’t need. When authorities do manage to shutter a plant, it is a costly ordeal, as the story of Hangzhou shows. With the help of a $34 million grant from government officials, the Hangzhou plant owner, Hangzhou Iron and Steel Group, offered the 12,000 remaining workers lavish severance benefits and pensions.
“I don’t have to wake up early,” said Tang Guomin, who had laboured at the blast furnaces since he was 18. He received nearly six years’ pay from the company as severance and when he turns 50 in a few months, he will be able to collect an inflation-adjusted pension from the government equal to 90 per cent of his previous pay for the rest of his life.
“I sleep till I wake and don’t have much to worry about,” he said. “I miss the factory, but that time won’t be back again.”
Invoking an obscure trade law, Trump signed an executive order for a 270-day review to determine whether steel imports were harming national security. If the Commerce Department does find harm, Trump will have up to 90 days to decide whether to impose broad import restrictions. China is an obvious target of the order, although the effect could ripple worldwide.
Blame game
While only about 2 per cent of US steel imports come directly from China, global steelmakers and industry experts blame China for shipping its surplus steel to other countries, which drives down prices and prompts those countries to further process the steel into high-value products for export to the US.
The Trump administration, which has made it clear that it will take a more aggressive stance on steel, has suggested it could bring trade actions against those countries as well. China denies that it sells excess steel to other markets below the cost of making it, a move called dumping. But China does concede that it has too many steel factories making too much steel.
The trick is trimming that excess capacity, which is proving to be neither easy nor cheap. Steel making represents a reliable source of high-wage jobs in a country where economic growth has slowed compared with previous years. Steel also remains a key material for China’s manufacturing sector, the world’s largest.
“Steel is the food for China’s industry,” said Wang Guoqing, research director at the Lange Steel Information Research Center, a Chinese industry group in Beijing. “It is in a key position for China’s development and infrastructure.”
The US steel industry employs about 140,000 people, or less than one-tenth of 1 per cent of the US workforce. China’s steelmakers, by contrast, employed 4.7 million workers in 2014, the last official figure released, or 0.6 per cent of China’s labour force then. Nearly 60 years after Mao’s drive to make China a steel giant contributed to a famine that killed millions of people, the country now makes as much steel as the rest of the world put together.
Today, China’s steel sector represents the sort of bloated, wasteful industry that people both inside and outside the country say is holding back economic development. China in early 2016 committed to closing steel mills representing 100 million to 150 million tonnes of capacity over five years, or roughly one-tenth of its capacity then.
China closed 65 million tonnes of capacity last year and plans to close another 50 million tonnes this year, according to a speech in early March by Premier Li Keqiang. Yet production remains stubbornly high, and new mills have continued to open. China’s steel mills produced a record quantity of steel in March.
China hasn’t released more recent data on total steel capacity. For now, China’s steel exports are shrinking, though it isn’t clear how long that will continue. China’s appetite for steel has improved in recent months as government lending and spending and a revival in its property industry lift the economy and encourage consumption. But the government has said it wants to rein in lending, concerned that the economy may be too reliant on ever-rising debt.
Trump’s advisers are using steel as part of a broader push against China’s excess factories. They are singling out steel while blaming Chinese industrial policies for overcapacity in other sectors, like aluminium and solar panels.
Objective
“To me the objective is to make it uneconomic, to make it expensive, to do something that has inefficiency in the market,” said Robert Lighthizer, Trump’s nominee to become US trade representative, at his Senate confirmation hearing. China calls that effort shortsighted, saying it has made itself an indispensable provider of high-quality steel to the world at a time when many US steel mills are ageing.
Advocates of a more confrontational US trade policy fail to understand this, said Li Xinchuang, dean of the China Metallurgical Industry Planning and Research Institute, a government agency. “I have explained this time and time again, but they won’t listen,” he said. “It’s like playing the lute to a cow.” Some of China’s steel plants are outdated and many of them are polluting. Revamping them isn’t cheap. In addition to the $34 million it received to close the Hangzhou plant, Hangzhou Iron and Steel in 2015 received nearly $106 million in subsidies and cheap government loans to help cover overall costs of upgrading its plants.
For many locals, closing the mill has meant cleaner air — the reason officials said the mill was shut down. State-run media said shortly before the Hangzhou mill closed that the ageing site had been releasing 7,000 tons a year of sulphur dioxide, an important cause of acid rain, and 3,000 tons a year of soot.
Xu Yuemei, another retired steelworker, said that when the factory was still operating, garments that she hung on a clothesline turned black or yellow before they dried. Tang remembers a pervasive haze. “There was dust in the air; I couldn’t see guys 100 metres away from me,” he recalled. “I could smell choking ammonia gas in the air until the factory shut down.”
“After it shut down,” he said, “everything is gone, including the pollution.”