A Wall Street Journal headline writer likely sensed something amiss with calls by U.S. steel producers for more protectionism. The August 12, 2015 WSJ print edition article by John W. Miller was titled: “Steelmakers Lodge New Trade Gripe.” The online version, dated August 11, drops the “Gripe” for a less skeptical headline: “U.S. Steelmakers Again Ask for Tariffs on Imports” (as usual Google full title to find article ungated).
The article notes this was the third trade complaint of summer 2015 by U.S. steel producers, claiming foreign firms were “dumping” steel below costs:
The request targeted imports of hot-rolled coil—used in making cars—from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. China wasn’t named in the petition because the U.S. already has tariffs on imports of that kind of steel from China. The petition was filed with the U.S. Commerce Department and the U.S. International Trade Commission.
This Wall Street Journal article doesn’t mention “dumping” by name, but a July 15, 2015 Duluth News Tribune article does: “Trade commission agrees foreign steel was ‘dumped’ in U.S.“
The U.S. International Trade Commission on Friday announced a preliminary determination that imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan injured the U.S. steel industry.
And:
The companies claim that the increased below-cost imports of steel have reduced demand, in some cases forcing mill closures that have led to layoffs at Minnesota operations. …
“We are pleased the ITC has confirmed that the flood of unfairly traded imports of corrosion-resistant sheet steel has materially impacted our shipments, pricing and profitability,” said Mark D. Millett, chief executive office of Steel Dynamics. “SDI believes in fair trade, but the U.S. has become a dumping ground for world excess steel capacity.”
However, the WSJ mentions the actual price of the hot-rolled coil steel used by U.S. carmakers and other manufacturers is actually higher than in Europe and Asia:
The problem for U.S. steelmakers is sluggish prices, which are held down by inexpensive imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen more than 20% this year to $468 per ton.
That is still about $100 higher than the price in Europe and $200 above that in Asia, according to steel buyers, making the U.S. a tempting market.
Wait… what? This hot-rolled coil steel–key for U.S. automakers–is 20% less expensive in Europe and 40% less expensive in Asia? Doesn’t that give a significant cost advantage to European and Asian automakers and other foreign manufacturers with access to significantly less-expensive steel?
If steelmakers in “Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K.” are dumping steel in the U.S., they must be ultra-dumping steel in Europe and Asia. Either that or shipping costs are extraordinary low to U.S. buyers.
Imports of hot-rolled steel have increased according to steel industry executives, with the implication that foreign firms are dumping excess capacity onto U.S. markets:
Imports of hot-rolled steel from the seven countries named in the latest petition increased by about 73% from 2012 to 2014, rising from 1.9 million tons to 3.3 million tons, AK Steel said.
Wow, 73% is a big increase! But also between 2012 and 2014 was a huge increase in U.S. demand, with booming rail and oil and gas infrastructure as well as auto manufacturing expanding, rising 19% in 2012, 7% in 2013, and 5.4% in 2014.
A May, 7, 2015 WSJ article, “U.S. Steel CEO Says Tariffs Could Be Needed On Chinese Imports” quotes Mr. Longhi, the new head of U.S. Steel, who has been cutting costs, laying off workers and boosting stock prices (and his pay). In addition to streamlining steel production, Mr. Longhi is trying to raise tariffs on imported steel, particularly steel from China:
Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”
In this article, steel tube is the focus, where demand has been hit hard and unexpectedly this year, after oil prices dropped by half last fall, and demand for steel pipe by shale drillers dropped soon after. The article blames imports:
Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries.
Consider though that for U.S. manufacturers and U.S. consumers, lower prices for steel is a good thing. Only for the U.S. steel industry is lower-cost imported steel a problem.
Students researching U.S. trade policy with China can research these ongoing debates over steel imports and tariffs.
Tim Worstall in Forbes puts the question of steel tariffs this way in a June 4, 2015 column:
There’s two ways that we can describe the attempt by the US steel industry to gain anti-dumping tariffs against China and other countries. The first is that it is an attempt by that US business sector to protect themselves from that foreign competition. The other is that it’s an insistence that all Americans should become poorer in order that those profits and those jobs should be protected. Both of these descriptions are true: and the second follows logically from the first.
U.S. steel producers have continued their call for higher tariffs on Chinese steel. “U.S. steel producers to file charges against Chinese competitors,” (Reuters, September 22, 2016) reports:
The U.S. Commerce Department last week set preliminary antidumping duties ranging from 63.86 percent to 76.64 percent on stainless steel sheet and strip imports from China after preliminary findings showed the imports were being dumped in the U.S. market at below fair value.
The petition alleges that Chinese producers diverted their steel shipments to Vietnam “immediately” after the duties were imposed.
According to the petition, Chinese steelmakers sent their shipments to Vietnam, where they were modified to make them corrosion-resistant, and then sent them to the United States by paying Vietnam’s U.S. tariff rate, which is lower than for China.
Economist Richard Ebeling posted on Facebook a quote from an 1830s economics textbook, to give people a sense of economic principles taught nearly two centuries ago:
Here is what economics books used to sound like, from Thomas Cooper’s “Lectures on the Elements of Political Economy” (1830), on the principles and policies of economic logic and understanding on the benefits of freedom of trade and enterprise:
“The true principles of Political Economy, teach us that a system of restrictions and prohibitions on commercial intercourse, cuts off the foreign market, diminishes the number of buyers, and the demand for our national produce; hence, the consumer is compelled to pay more to the home monopolist.
“Hence, the wealth of the nation is wasted; every consumer is abridged of comforts that he might otherwise procure, and his means of purchasing even home-commodities are diminished.
“They teach us also, that men should be permitted, without the interference of government, to produce whatever they find it their interest to produce; that they should not be prevented from producing some articles, or bribed to produce others.
“That they should be left unmolested to judge of and pursue their own interest; to exchange what they have produced when, where, with whom and in what manner they find most profitable and convenient; and not be compelled by theoretical statesmen to buy dear and sell cheap; or to give more, or get less, than they might do if left to themselves, without government interference or control.
“That no favored or privileged class should be fattened by monopolies or protections to which the rest of the community are forced to contribute.
“Such are the leading maxims by means of which Political Economy teaches how to obtain the greatest sum of useful commodities at the least expense of labor. These are indeed maxims directly opposed to the common practice of governments, who think they can never govern too much; and who seek to prey upon the vitals of the community.”
This remains wisdom for our own time.
Students debating U.S./China policy have an opportunity to learn the principles of international trade, and apply these principles to various reform proposals.