Steel Industry Issues Stern Warning Over China's Desire To Be A 'Market' Economy
By Richard A. McCormack
The United States government would commit a major economic blunder if it designates China as being a "market-based" economy, as China is now requesting as part of its accession into the World Trade Organization, according to the North American steel industry. China is considered to be a "non-market economy," since so much of its economic activity is dictated by government intervention. Changing its status to a market-based economy in December 2016 would render most of the U.S. trade remedy laws obsolete, allowing China to dump hundreds of billions of dollars of subsidized manufactured goods onto the U.S. market, driving thousands of companies out of business, and millions of American workers onto the streets.
Ceding to China's request that it be considered a market economy would lead to a massive decline of U.S. steel output, according to the American Iron and Steel Institute. "U.S. steel output would decline by approximately $21.1 billion and U.S. economic welfare would decline by $40.2 billion to $46.5 billion," says a study from the trade group. In the steel sector alone, labor demand would shrink by $29.6 billion, the equivalent of between 400,000 and 600,000 workers.
China does not allow natural market forces to dictate prices, production nor capacity additions, the U.S. steel industry argues. Even though there is massive global overcapacity of steel -- up to 700 million tons (U.S. production last year was 88.3 million tons) -- Chinese companies continue to add capacity. At 822 million metric tons of output, China's steel industry accounts for 50 percent of global production. It has 425 million tons of overcapacity and is dumping that excess steel into export markets, driving down prices, and putting tens of thousands of American steelworkers out of work.
"I struggle with the concept of why we are having a discussion about China becoming a market economy," says Nucor CEO John Ferriola. "When you look at the steel industry alone, 80 to 90 percent of the Chinese industry is owned or solely supported by the Chinese government. That is not a market economy. At the end of the day, when I look at China, I see a company disguised as a country, and they use that to wage economic war against the United States. It's more than just steel. It covers all of our industries, manufactured goods and aluminum."
The U.S. steel industry is trying to defend itself from record levels of imports. In June, it filed a trade case for corrosive resistant steel where prices have dropped by more than $200 per ton since May 2014 and foreign suppliers have doubled their U.S. market share since 2012. It filed another petition in August of this year for cold-rolled steel, where subject countries' imports have surged by more than 125 percent in two years, from nearly 800,000 tons to 1.75 million tons, before increasing by a further 44 percent between January and May 2015 -- doubling their market share from 2012 to 2014, while the U.S. share of the U.S. market declined. In September the industry filed trade cases for hot-rolled steel, "where imports have deluged our market, increasing 70 percent in two years, from 1.9 million tons to 3.3 million tons," says Mario Longhi, CEO of U.S. Steel. "These foreign imports continued to increase by a further 54 percent from January 2015 to May 2015" compared to the same period in 2014.
"We have seen import surges before, but what makes it worse this time is a massive level of overcapacity that has caused an unending supply of steel to flood our market with no end in sight unless the government helps stop it," says Longhi.
Ferriola of Nucor says the industry will file trade cases "one by one, but until we address the underlying cause of allowing governments to subsidize their steel industries and allowing them to build massive overcapacity they are then forced to export into the world, with the U.S. the most open market in the world, we will be challenged as an industry."
The industry is in a fight for its life, Ferriola adds. U.S. Steel output has grown by only 2 percent over the past six years, whereas imports have increased by 40 to 50 percent. "So the economy has been growing but we have become decoupled from that growth," he says. "The steel industry and manufacturing is threatened by not enforcing the trade laws."
"For us," adds Longhi, "it's more than a recession. When we have an industry that is operating at a little more than 60 percent and some operations are operating at 15 percent, and you are burdened by a massive reduction of about 40 percent in your prices, that is more than a recession."
The steel industry has been pleading with lawmakers and the U.S. government for a long time to take a stand in support of American production. Why hasn't the industry's case resonated with politicians and the American public, the CEOs are asked by MTN.
"That is a very good question that we have asked ourselves many, many times," Ferriola replies. The challenge is convincing the U.S. government and the American people "of the depth of the crisis," he says. "This is a crisis. It is very frustrating when you think that one out of every three tons of steel sold in the United States is produced overseas in countries that are less safe, less environmentally friendly and less efficient."
The 127-page report, "Assessment of the Probable Economic Effects on NAFTA of Granting Market Economy Status to China," is located at http://www.steel.org/~/media/Files/AISI/Press%20Releases/2015/Unified_NME_Study.pdf
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