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Steel tariff war – will China able to keep its dominance?

China is the world’s largest steel exporter. In 2017, China exported 73.3 million metric tons of steel, a 31 percent decrease from 106.6 million metric tons in 2016. China’s exports represented about 23 percent of all steel exported globally in 2016, based on available data. The volume of China’s 2017 steel exports was nearly double that of the world’s second, third, and fourth-largest exporters, Japan, South Korea and Russia.

In value terms, steel represented just 2.4 percent of the total amount of goods China exported in 2016. China exports steel to more than 250 countries and territories. China’s exports of steel, receiving more than 900 thousand metric tons each and accounting for 72 percent of China’s steel exports in 2017.

Top ten destinations of China steel exports

Markets represented 53 percent of China’s steel export volume in 2017 at 38.7 million metric tons (mmt). South Korea received the largest share of China’s exports with 15 percent (11.3 mmt), followed by Vietnam at 10 percent (7.6 mmt) and the Philippines at 6 percent (4.1 mmt). Thailand, Indonesia and India each received 4 percent of China’s exports (3.1 mmt, 2.9 mmt, and 2.5 mmt, respectively) while Pakistan remained in the top ten with 3 percent (2.3 mmt). The United States ranked 26th as a destination for China’s steel exports, receiving just 1.1 percent of exports (0.8 mmt) in 2017 — compared to ranking 25th in 2016 with 0.8 percent of exports (0.8 mmt).

The recently, Trump’s steel tariff war to China is wrong. President Trump’s plan to impose high tariffs on foreign steel and aluminum may set off a global trade war. Trump has bitterly criticized China in his trade rhetoric, but the Chinese steel industry is already wrapped to US trade action.

President Trump announced plans to introduce 25 percent tariffs on imported steel and 10 percent tariffs on aluminum. The announcement shocked the markets. Steel stocks jumped on the news, while automakers retracted. The Standard & Poor’s 500 Index and Dow Jones Industrial Average remained down.

One market that won’t be moved much and it is Chinese steel. A number of Chinese steel mills, transporters, and traders have actually given up on the US market as an export destination. The US is the world’s largest steel importer, relying on shipments from more than one hundred countries and territories. For the Chinese steel manufacturers, the news was insignificant.

In spite of China the world’s largest steel exporter, it is only the 11th-largest source country to the US accounting for just 2 percent of total US imports last year. Considering the low base, it is a negative for the world steel industry as a whole. For China, it will not be any worse. It may be mentioned here that Obama administration hit Chinese steel hard in 2016. Prior to this announcement, the US had already implemented trade taxes on different types of imported steel from China.

In 2016, the Obama’s administration imposed duties on some Chinese steel imports by more than 500 percent, causing Chinese imports to the US to drop by almost two-thirds.

According to Yan Tong, Chief Business Development Officer at Shagang International, one of China’s largest steel mills, the US has been moving in this direction for years. “Trump’s action just accelerated it,” she said. “It doesn’t affect us that much because we don’t export to US anyway.”

Despite the fact that the timing was notable, even if coincidental, the news itself was less so in China. “It’s not very surprising at all. It’s in line with market expectations,” Lin said.

Chinese producers are more directly impacted by domestic supply and demand. With the US economy growing 6.9 percent in 2017, steel demand has been stronger than forecast. There was strong demand from machinery and heavy truck manufacturers.

 

The 220 export nations and territories welcoming Chinese steel, the US comes in 26th on the list by volume. The top five destinations for Chinese steel are South Korea, Vietnam, the Philippines, Thailand, and Indonesia.

Trump’s decision may lead to a larger trade war and the tariffs will likely retaliatory measures and legal battles at the World Trade Organization (WTO). China says that United States is disregarding the rules of the WTO, and China is dissatisfied with this. It will take proper measures to safeguard its legitimate rights and interests.

There is much more Chinese aluminum in US. China produces more than half of the world’s aluminum and in 2017, its exports increased 4.5 percent, year-over-year.

Last year, US imports hit an all-time high and China is the fourth-largest supplier, trailing only Canada, Russia, and the United Arab Emirates. Imports from China of aluminum foil, in particular, equalled $389 million in 2016, according to a report from the Department of Commerce in late February, when it announced new anti-dumping measures and duties on Chinese aluminum foil producers.

Chinese producers are encountering limited direct short-term impacts, and they never depend too much on Trump’s policy, on USA. If the domestic demand is really good, China would like to export less. The global steel market still very much depends on Chinese prices.

China will study and discuss the counter-measures to try to seek a fair position for Chinese companies without any violation of WTO (World Trade Organization) agreement. The Institute, which provides consultancy services to Chinese government policymakers and steel enterprises, was responding to recent efforts by US steel firms urging President Donald Trump to curb surging imports they say are undermining the US industry.

The Chinese think-tank said in its email that, “Trade protection will poison the healthy development of steel industry. Only open and cooperation can expand the common benefit. China was not among the top 10 sources of US steel imports in January-September 2017 based on US Commerce Department data.

Exports from China, the world’s top steel producer, to the US reached 1.18 million tons last year. It is a fraction of the 800 million tons it makes each year, equal to about half of global output. From a record high of 112.4 million tons in 2015, China’s total steel exports have fallen amid threats of a trade dispute and better demand at home. The exports dropped to 75.4 million tons last year. US President Donald Trump calls his country’s trade relationship with China, among others, unfair. So when the US government announced last week steep increases in steel and aluminum imports, a key part of Trump’s policy to protect American businesses, it seemed clear.

Trump was taking aim at Chinese imports of these raw materials. China was the world’s biggest steel producer in 2016. It was with nearly half the world’s total of 1.63 billion tons. China’s steel imports to the United States total about 0.01 percent of the Chinese GDP that’s worth well over $11 trillion, and aluminum shipments come to 0.03 percent of GDP, says Marie Diron, managing director of Moody’s Investors Service in Singapore.

China’s combined imports of both materials totaled less than 0.2 percent of all goods sent to the United States in 2011 as well as 2016, Credit Suisse says. French investment bank Natixis says steel-related products make up 2.88 percent of the $288 billion US trade deficit with China and that aluminum comes to 0.54 percent.

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