Don’t let the politicians distract you. The steel industry’s real problem lies with China’s overcapacity.
President Trump spent the past weekend in Germany at a G20 summit. Reports suggest the president’s interactions with his counterparts were contentious.
Would the president fully commit to the defense of the NATO alliance? He did.
Would there be any healing in the split the United States has had with the global community over the Paris climate accord? There wouldn’t.
Would the Trump administration insist that, in the context of trade discussions, the crisis in the international steel market take center stage? It did indeed.
Steel was a big deal for the Trump administration in at the G20, and the U.S. Commerce Department’s Section 232 investigation into the national security implications of steel imports has raised eyebrows in foreign capitals. It’s still a topic of debate inside even the Trump administration; it appears there’s a split among the president’s aides and appointees over where this investigation should go.
The Europeans and traditional allies like Canada, Brazil, and Japan are concerned as well about how the investigation might impact their own economies. Still, the G20 communique specifically called out steel overcapacity and called for “the removal of market-distorting subsidies and other types of support by governments and related entities.” The White House called that language a win.
But the coverage of the steel issue has been notable, too … and not in a good way. Sometimes it’s framed as something this president simply dreamed up on his own.
For example, here’s a passage from from the July 9 edition of the Washington Post:
On trade, G-20 leaders agreed to try to address what the White House claims is a global steel glut. Trump officials have threatened to restrict steel imports, risking the start of a global trade war, after it has repeatedly alleged that China subsidizes the industry, which helps it lower prices and put U.S. steel jobs at risk.
Is that quote accurate? Yes. But its framing is disingenuous. There’s nothing “alleged” about it; the Chinese steel industry is responsible for the global overcapacity problem. It has depressed prices worldwide and, despite U.S. tariffs specifically targeting Chinese imports, has indirectly lead to thousands of American layoffs in recent years.
The Trump administration is far from alone in arguing that China is behind the global overcapacity of steel. In fact, it was a serious concern for the Obama administration as recently as 2016, and the Post reported it as such.
European and U.S. leaders have pressed China to accelerate capacity cuts, blaming its big exports on slumping prices and accusing it of dumping cheap metal into foreign markets.
So why is this issue now undecided?
The messenger himself warrants skepticism. President Trump has made some highly controversial moves, whether on immigration or his handling of the investigation into foreign meddling in our campaigns. And he tends to create his own controversies.
But China’s industrial overcapacity was causing problems long before Donald Trump became president. And if China doesn’t significantly curb its production, those problems could continue after Trump leaves office.
The data is clear. A 2016 Duke University report found the global steel market has grown to 2,300 million metric tons (MT) while only needing 1,500 MT to meet demand. And 75 percent of new steel stock since 2000 has come from China.
The Chinese government, for its part, has admitted its industry produces too much steel, and has repeatedly pledged to curb it. Whether by inability or design, though, it has repeatedly broken those promises; its steel production even increased in 2016.
Thousands of American steelworkers have faced layoffs and dozens of facilities have closed because of unfairly traded steel imports. On the aluminum front — the focus of another Section 232 investigation — there are just five aluminum smelters left in the United States, and only one that can produce high purity aluminum needed for fighter jets like the F-35.
There’s room for debate over the best way to tackle such imports into the United States, including what the eventual outcome of these Section 232 investigations should be.
But this is certain: China isn’t going to do anything about its overcapacity problem until it’s pressured to do so by the international community. The United States should take the lead on applying that pressure.
Trump may have identified steel and aluminum imports as a centerpiece of his trade agenda, and there are politics wrapped up in that. But it’s dishonest to frame the issue as just another thing drummed up by Trump to rile his base.
Nope. China is the cause of this crisis. And despite the current disagreements between Trump and nearly the entire international community, addressing overcapacity in China is the way to fix this mess.
Scott Paul is the president of the Alliance for American Manufacturing, a unique nonprofit partnership established in 2007 by some of America’s leading manufacturers and the United Steelworkers union. Follow him on Twitter at @ScottPaulAAM.