In the 15 years up to 2015, China increased its steel production fivefold as it

Question

In the 15 years up to 2015, China increased its steel production fivefold as it forged the steel products demanded by its huge boom in construction and infrastructure spending. By 2015, the country produced 800 million tons of steel a year, half of the world’s annual output. However, in 2015 the bottom fell out of the Chinese domestic market for steel. The economy slowed down, and the government shifted its priorities away from massive infrastructure investments and toward boosting consumer spending. By the end of 2015, Chinese steelmakers were estimated to be producing 300 million more tons of steel a year than required for domestic consumption.

With prices for steel slumping, China’s largest 101 steel firms lost more than $12 billion in 2015, roughly twice what they made in profits during 2014. Not surprisingly, the Chinese are seeking to export this unwanted product, even if it is at a loss. China exported more than 100 million tons of steel for the first time in 2015, making its steel exports alone larger than the production of any other country in the world except for Japan. The prices for Chinese steel products appear to be at least 10 percent lower outside of China than within the country.

Those low-priced exports are having a devastating impact on steelmakers around the globe. American producers have responded by clamoring for action from the U.S. Commerce Department to stop what they perceive to be the illegal dumping of steel products below the costs of production. Moreover, they have argued that cheap steel from China has also persuaded producers in India, Italy, South Korea, and Taiwan to dump their excess production on the world market, further harming U.S. producers. In November 2015, the Commerce Department ruled that all of these countries except Taiwan were dumping steel and placed duties as high as 236 percent on some imports of foreign steel. In late December, the Commerce Department ruled that China was also selling corrosion-resistant steel at unfairly low prices and placed an additional 256 percent tariff on such imports. This erected a huge barrier to certain Chinese steel imports into the United States.

The European Union also took similar steps. The United Kingdom has been particularly hard hit by Chinese imports. Chinese imports now take 45 percent of the UK market for steel rebar, up from nothing in 2010. Overall, steel imports from China doubled between 2014 and 2015. The United Kingdom lost some 4,000 steelmaking jobs in the second half of 2015 as the Chinese grabbed market share. Elsewhere in Europe, the Luxembourg-based steel giant ArcelorMittal blamed dumping by Chinese firms for a $8 billion loss in 2015.

In response, in January 2016, the EU placed a 13 percent tariff on imports of Chinese steel. EU steelmakers called this totally inadequate, particularly given the much large tariffs levied in the United States. In mid-2016, the EU responded by placing tariffs as high as 22 percent on imports of non–stainless steel products from China. For its part, the Chinese government remained unmoved. In fact, it may have added fuel to the fire in December 2015 when it cut export taxes on several types of steel, signaling perhaps that it was doubling down on a strategy to encourage domestic producers to export their surplus production rather than close mills.

Case Discussion Questions

1. Does the evidence suggest to you that China is dumping excess steel production on world markets?

2.Absent of any response from other nations, how long can China pursue this policy?

3. Who is harmed by this action? Who might benefit?

4. What alternative policy might China pursue? What are the costs and benefits of this alternative policy to China?

5. Are the EU and the United States correct to impose significant anti-dumping duties on imports of Chinese steel? What will the benefits of such policy be? Are there any drawbacks?

6. Can you think of any unintended consequences that might occur as the result of the imposition of antidumping duties on Chinese steel imports by the United States and the EU?

7.What other steps could be taken in the long run to reduce the probability that producers in China and elsewhere will dump their excess production at a loss on world markets?

Explanation / Answer

Answering the first 5 questions:

1. After the economy slowdown, Chinese steelmakers were resorting to ways to dispose the 300 million tons of steel that they were manufacturing in excess. They were ready to dispose the extra steel even at losses. China started exporting around 100 tons of steel in the world market at around 10% lower price than the industry standards. This clearly reflects that China was trying to dump the excess steel in the world market.

2. American producers have already raised their opinion about the practice of dumping their excess steel in the world market. This practice followed by China is having adverse effect on steel industry in the world market. This concern raised by the American producers was followed by that of the EU and this can cause a roadblock in the path of Chinese producers to follow the practice.

3. Most of the steel producers across the world are getting adversely affected by this action of Chinese producers. Their sales get hampered as the prices offered by Chinese producers is quite low and customers opt for the lower prices.

The industries which require steel as their raw material are getting favored the most by this practice of Chinese producers of selling steel at quite low prices.

4. China could have limited the production of excess steel and instead could have opted for producing a product, which can be steel variant. This can be done by slightly changing the production process of steel.

The extra cost involved in this practice will not be much. However the producers will gain adequately by producing a steel variant, whose market demand remains unsatisfied.

5. Any country must consider the impact of its export policy on the world market. China was not thinking about the overall future of steel industry, which could have dwindled in the future. By putting restrictions on the import of Chinese steel, US and EU are trying to revive the overall steel industry. This step could have revived the business of steel producers across the world.

The only drawback in this case can be the counter tariffs placed by China on the export and import of various products coming in the Chinese market.

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