US trying to milk a bull with steel tariffs

It is irresponsible and groundless for some people in the United States to attribute the difficulty the US steel industry faces to China’s overcapacity and dumping. Indulging in turning China into a scapegoat without looking into problems intrinsic to the US steel industry is nothing but an ostrich policy. To impose punitive tariffs on China’s steel exports will be to no avail in revitalizing the steel industry in the US.

The decline of the US steel industry’s competitiveness is an undeniable fact. But it is because of the shrinking of domestic demand, the rise of production costs in the US and the slow technological and equipment upgrading.

That the steel industry is no longer a pillar industry is a result of the evolution of its economic structure.

Likewise, China’s steel output has risen fast since 2000, which should primarily be attributed to the huge demand stemming from China’s industrialization and urbanization, just as the US experienced after World War II.

China has a complete steel industrial system and strong competitive edge in production costs, technology, equipment and product development, which constitute the foundation for Chinese steel exports’ comparative advantages in the global market.

As the largest steel consumer, China is now paying more attention to improving the quality of its steel products and its production technology and efficiency, and reducing the industry’s emissions and pollution.

China does not encourage the exporting of large amounts of steel products. The government even levies additional export tariffs in some cases to control steel exports, which fell by 34.3 percent year-on-year in 2017. China exports 9 percent of the steel produces, while about 40 percent of steel output in some developed countries is exported. And China’s steel exports mainly find their way to Southeast Asia, East Asia, Middle East and South America, not the US. It is wrong, perhaps intentionally so, to blame China for the US steel industry’s business distress.

It is convenient for the US government to attribute the difficulties its steel industry faces to external factors ... The US should realize that protectionist measures will not change the status quo of its steel industry.

The three largest steel exporters to the US are Canada, Brazil and the Republic of Korea, which contributed 41.85 percent of the US steel imports in 2016, followed by Mexico and Turkey (both above 2 million tons), and Japan, Russia and Germany (all above 1 million tons), and China’s exports (789,100 tons) accounted for only 2.63 percent of the total steel imports of the US in 2016.

Although the US increased its steel output last year, its steel imports still increased by 15.4 percent, reaching 38.12 million tons. And China’s steel products are largely fended away from the US market because of the US government’s high tariff and protectionist actions. Last year, only 1.57 percent of China’s steel exports went to the US.

It is convenient for the US government to attribute the difficulties its steel industry faces to external factors, and to use anti-dumping policies to crack down on normal trade, which, as the case of China indicates, is more for political purposes than economic ones.

The US initiated a total of 20 anti-dumping and anti-subsidy investigations against Chinese products in 2016, among which four investigations were about steel products. The US should realize that protectionist measures will not change the status quo of its steel industry. Let alone the fact that these measures are imposed on a small exporter to it.

Also, imposing punitive tariffs on imported steel products has raised the production costs of all downstream industries, pushing up commodity prices. For instance, the heads of the auto industry and oil industry in the US have both aired their concerns about the effects the high tariffs will have on their products.

The US decision-makers are clearheaded that it is natural that the steel industry’s share in its national economy will become smaller as the service industry accounts for about 80 percent of the US economy.

Despite this, that does not hinder the US steel industry accelerating its industrial upgrading and technological innovation, so as to enhance its competitiveness in some subdivisions and differentiated market sectors.

It is more rational for the US to make better use of its rich human capital, financial capital and innovation resources to boost advanced manufacturing and innovative industries. To try and revitalize the steel industry through protectionist measures is like trying to milk a bull. The author is a research of economy with the Chinese Academy of Macroeconomic Research.