A need for change

Features - Scrap Metals Supplement

The recovery of the American steel industry requires change in China.

January 2, 2020

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The U.S. iron and steel industry is a dynamic part of the nation’s economy, accounting for more than $520 billion in economic output and nearly 2 million jobs when considering the direct, indirect (supplier) and induced impacts. In 2017, U.S. iron and steel industry workers earned more than $130 billion in wages and benefits, and the industry generated $56 billion in federal, state and local taxes.

But these jobs are at risk if some dramatic changes aren’t made to the unfair global trade practices that have plagued the American steel industry. And it starts with needed change in China.

China’s capacity additions

China plans to commission five new steel mills in 2020 with a combined capacity of more than 100 million net tons, which is greater than the total annual steel production in the U.S. China’s plan is part of a long-term strategy. Although the Chinese government says this new capacity will replace defunct capacity, the reality is that the country’s overall steelmaking capacity rose again in 2019.

In 2018, China produced record levels of steel, topping 1 billion net tons—a 7 percent increase from the already-record 2017 levels. The country is on pace to break that record once again in 2019 as Chinese steel production for the first 10 months of the year surpassed its production during the first 10 months of 2018 by 7 percent.

China plans to commission five new steel mills in 2020 with a combined capacity of more than 100 million net tons.

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.

Immune to market forces

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 because of changes in demand. But this excess steel still must go somewhere. It too often ends up in the U.S.—transshipped through third-party countries, evading the duties meant to discipline China’s unfair trade practices.

Stemming the flood

Progress has been made to stem the flood of dumped imports into the U.S. from steel-producing economies like China. Thanks to successful trade cases pursued by the U.S. 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. They decreased another 17 percent through October 2019.

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.

Lax requirements

China’s lax environmental requirements for its steel plants also are a threat to America’s competitiveness. Chinese mills don’t have to adhere to the same standards as the U.S. does, which makes the playing field uneven.

Two peer-reviewed reports that AISI conducted demonstrate this. One report found that hot-dip galvanized steel coils that are produced in China for use 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 found that hot-rolled structural sections produced in China result in three-times-higher GHG emissions than sections produced in North America.

A burgeoning recovery

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 Section 232 tariffs’ implementation. But much remains to be done.

While domestic capacity utilization has reached its highest level since the Great Recession, it has not approached the sustainable levels seen before the recession. Without reforms to global steel trade, dumped and subsidized imports will continue to flood the U.S. market. The administration 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.

Thomas J. Gibson is the president and CEO of the American Iron and Steel Institute (AISI), Washington. More information on the AISI is available at www.steel.org.