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Why China, the big wolf of global steel industry, gains from US tariffs

China has been accused of dumping cheap steel on global markets

Michael Schuman | Bloomberg 

OBOR, Xi Jinping, Belt and Road Forum, CPEC
Chinese Commerce Minister Zhong Shan. Photo: Reuters

If was aiming at with his lofty proposed tariffs on imported steel and aluminum, he’s a terrible marksman. Not only will Chinese leaders likely brush off the measures. They have good reason to embrace them.

is unquestionably the big, bad wolf of the global With roughly 10 times the steelmaking capacity of the US, it’s been widely accused of dumping cheap steel on global markets, pushing competitors in other countries to the wall. The Trump administration has previously prodded Chinese leaders to impose steep cuts on steel production to take pressure off US mills — to no avail.

The US president clearly believes tariffs are the inevitable next step. Yet, any pain feels from Mr Trump’s import restrictions will be minimal. A measly three per cent of total of steel products, by value, came from in 2017. As Bloomberg economist Tom Orlik points out, China’s total exports of steel and aluminum to all countries account for barely 0.5 per cent of its GDP, and the share going to the US is relatively small. Even losing access to the American market entirely would thus have a negligible impact on growth.

has already been slashing overcapacity in its steel sector — shutting down about 50 million tons in 2017 — for its own purposes, both environmental and economic. While that trend will likely continue, Mr Trump’s tariffs aren’t going to affect the decision one way or another. (By way of comparison, the US imported less than a million tons of steel from last year.)

The tariffs will hurt some countries, though — most prominently, America’s closest allies in Asia. South Korea accounted for almost 10 per cent of all US steel imports last year and Japan for nearly six per cent. Even Taiwan, with a four per cent share of those imports, could suffer more than

The same is true globally. Canada is the biggest supplier of steel to the US. The European Union worries that steel that might’ve gone to the US will now find its way to Europe, pressuring local steelmakers even further.

Even if that doesn’t happen, stands to gain. For one thing, unless the US hands out exemptions to all of its allies — which some, including Canada and Australia, are still hoping for — the tariffs will make any sort of cooperation with America much more difficult politically. The US, EU and Japan agreed in December to work together to combat not only alleged Chinese steel dumping but intellectual-property violations; a true joint effort could have seriously undercut China’s push to acquire companies and cutting-edge technologies overseas. Now, any resistance is likely to be scattered, uncoordinated and thus less effective.

In Asia specifically, Mr Trump is already seen as too soft on and too rough on his close friends. He’s withdrawn from the Trans-Pacific Partnership, a trade pact meant to solidify US alliances in the Pacific, and threatened to back out of a free-trade agreement with South Korea. Such steps have not only irked US allies, but also raised serious questions about America’s long-term commitment to the region.

has taken advantage of Mr Trump’s mistakes to become even more assertive in its foreign policy —harassing and threatening its neighbors over a range of security and territorial issues, further tightening its grip over the disputed South Sea and forwarding its own diplomatic and economic agenda for Asia, such as the sweeping infrastructure development program known as “Belt and Road.” The only way the US will be able to contest rising Chinese power — not to mention tighten the squeeze on North Korea and press Pyongyang into negotiations over its nuclear and missile weapons programs — is through tight coordination with allies such as Japan, South Korea, Australia and India. Any squabbling among them would suit China’s strategic interests just fine.

Maybe that’s why China’s reaction to Mr Trump’s announcement has thus far been relatively mild, simply urging all countries to avoid unilateral trade restrictions. If the White House really wanted to cause pain, it could have targeted a range of other industries, from electronics to shoes. Going after steel and aluminum isn’t the start of a trade war; it’s friendly fire.

First Published: Sat, March 03 2018. 21:44 IST