Holding China Accountable for Illegal Steel Trade

Steel is one of the most important industrial commodities in the world — needed for everything from bottle tops to skyscrapers. The United States rose to worldwide prominence in the Industrial Era specifically because it could forge massive amounts of steel for railroads, buildings, and the “Arsenal of Democracy” that clinched World War II.

While steel remains a key input for automobiles, aircraft, bridges, and roads, the United States has been steadily losing market share in recent years, thanks to China’s active dumping of steel product on the world market. It’s a logical policy on China’s part, however, to dump excess steel capacity at below the cost of production. By continually running its steel output at full tilt, China is able to keep its industrial workers employed — even as the country’s economy slows down.

Allowing China’s steel industry to flout global trade laws and prey on American companies makes no sense in a rules-based trading system.

Notably, the ruling regime in Beijing remains in power only by virtue of its perennial quest to tamp down domestic discord. Labor strikes break out literally every day in China—and totaled 2,774 incidents in 2015 alone. Tellingly, these work strikes amounted to only 38 percent of all organized demonstrations across the country, revealing the depth of hostility toward a ruling party that strongly enforces an ongoing ban on independent trade unions.

China’s rise as a steel producer has been stunning, though. In 2005, the country remained a net importer of steel. But thanks to massive energy subsidies, and lax enforcement of weak environmental standards, China became the largest steel exporter in the world by volume in 2006. After joining the WTO in 2001, Beijing made an initial show of curbing steel subsidies that are actionable under world trade law. But China has long considered steel a key strategic commodity, and starting in 2004 it began to funnel billions of dollars in energy subsidies to its steel mills.

An additional boon to China’s steel sector has been Beijing’s ongoing manipulation of the nation’s currency, the yuan. By artificially suppressing the value of the yuan against the dollar on the world market, China is able to significantly deflate the cost of its exports. This currency manipulation, which is illegal under world trade law, and violates Beijing’s commitments to both the World Trade Organization (WTO) and the International Monetary Fund (IMF), has enabled China to sell steel exports at a particularly low cost in the U.S. market.

And so, thanks to massive subsidies and currency undervaluation, China is now the world’s largest steel producer, accounting for 50 percent of world steel output in 2015. And China continues to churn out massive quantities of steel that it doesn’t need, simply to keep its workers employed. Unfortunately, this glut of steel is now taking a serious toll on America’s steel industry.

Since January 2015, the U.S steel industry has lost 16,000 jobs. And not only are these good-paying, middle-class jobs, but such layoffs have also caused wider disruptions throughout the nation’s manufacturing supply chain.

Earlier this year, U.S. Steel Corporation filed a trade complaint with the International Trade Commission (ITC), alleging that China has illegally fixed steel prices while also circumventing trade duties. Compounding the issue is U.S. Steel’s belief that Chinese firms stole proprietary steel production technology — which they subsequently used to manufacture steel for export to the United States. The trade case asks that the U.S. government ban the import of certain types of Chinese steel and make clear that such predatory trade practices will not be permitted.

U.S. Steel has a clear case, based on the dumping of product that continues unabated. Domestic U.S. steel producers not only adhere to federal laws and regulations for production standards, workplace safety, and environmental controls, but they also adhere to the obligations of global trade. Allowing China’s steel industry to flout global trade laws and prey on American companies makes no sense in a rules-based trading system.

Because steel remains such an important industrial commodity, Washington must take a stand against Beijing’s mercantilism. The United States already has laws on the books that address violations of trade law. It’s time to enforce these laws and defend America’s steel industry. Doing so will not only save skilled, good-paying jobs, but will also help to ensure the self-sufficiency of a crucial manufacturing sector.

The author of this piece served as a media director for various organizations.