Asian Steel Industry Eats America’s Lunch
In the depth of the recession, some foreign countries made a simple calculation. They’d subsidize their steel industries even though that violates international trade rules. It paid off by keeping their citizens employed, paid and fed.
These countries banked on dumping their excess steel in the United States. That has cost good, family-supporting American jobs. It has wounded the American steel industry. And it has emboldened foreign countries to continue eating America’s lunch by violating international trade laws.
Last week, Mario Longhi, President and Chief Executive Officer of U.S. Steel, and I asked Congress to enforce the law. We’re not seeking special deals or subsidies or handouts. We’re asking Congress to implement American and international trade laws to level the field of competition. If the same rules apply to everyone, U.S. industry can compete and win. And American workers can retain their jobs and afford their daily bread.
A simple story explains how this works. Just as the economic crisis hit, China began dumping Oil Country Tubular Goods, the pipes used in oil and gas exploration, into the American market. Dumping occurs when foreign manufacturers export products at prices lower than they charge in their home country or at prices below the cost of production.
American steel companies would quickly go bankrupt if they set prices below the cost of production. Many foreign manufacturers can get away with it because part of their production cost is offset by government subsidies. In 2011, half of the world’s 46 top steel companies were state-owned. They don’t live by the same rules American companies do.
Government subsidies are fine if all of the beneficiary company’s products are sold in their home market. But international trade rules prohibit sale of subsidized goods to other countries because their artificially low prices would distort the market and destroy companies that aren’t propped up by their governments.
To keep their citizens employed and sustain vital industries like steel, lots of countries ignore the rules. That’s what China was doing in 2008 with Oil Country Tubular Goods. A half dozen steel companies and my union, the United Steelworkers (USW), won a dumping case against them in 2009. Tariffs were placed on China’s Oil Country Tubular Goods to offset the value of the illegal subsidies. After that, Chinese shipments of the pipe to the United States virtually stopped.
When enforcement of the rules leveled the field of competition, American companies and American workers won.
This is an important story because it involves pipe essential to natural gas drilling. Americans are reveling in the possibility that hydraulic fracturing will make them energy independent. But there’s no point in achieving energy independence if failure to enforce trade laws condemns America to steel dependency.
Here’s what Longhi told the Senate Finance Committee last week: “It is not enough to open new markets for American goods and services; I submit to you that the greater economic and national security, and, indeed, moral imperative is to ensure that the rules governing trade in our own market are respected.”
In the past 18 months, American steel producers and the USW have issued demands for that respect 40 times, filing 40 antidumping and countervailing duty petitions. That’s the largest number of steel cases since 2001.
Among them is yet another Oil Country Tubular Goods case, this one against South Korea and eight other nations. In February, the International Trade Administration announced preliminary duties against the eight: India, Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine and Vietnam. But it exempted South Korea.
The International Trade Administration’s final determination is expected in July. It should include South Korea, which exports 98 percent of the pipe it produces to the United States. Fearing the effect of sanctions, South Korea has stepped up exports. Last year, it shipped to the United States an average of 27,000 tons a month. In May, it sent eight times that amount -- 214,000 tons.
That subsidized steel takes bread off of American tables. Thousands of American steelworkers have been laid off. And untold additional Americans whose work depends on the steel industry have lost hours or jobs.
The cost is wide ranging. As steel production declines, so does coal, limestone and iron ore mining. Coke and iron ore pelletizing plant operations suffer. Truckers, railroad workers and barge hands who deliver supplies to mills all lose work. Scrap dealers who provide steel for recycling, as well as pump, industrial fan and valve manufacturers who supply mill replacement parts lose business. Profits shrink at restaurants, grocery stores and shops near mills. School districts, municipalities and states all lose tax revenue.
Considering all of that, it’s easy to understand why foreign countries would try to keep their steel furnaces operating, even if that meant violating international rules.
With all those mills running, there’s too much steel available. The global excess steel capacity now is more than twice what it was a decade ago. The European and U.S. steel industries responded to the excess by reducing production over the past 30 years. But Asian countries, including India and South Korea, ramped up. China, for example, forged 20 times more steel last year than it did in 1980.
When that steel is dumped on the American market, those foreign firms receive American dough in payment, further increasing the already dangerously high U.S. trade deficit. That’s another cost of the failure to enforce trade laws. It means trade law violators are taking bread out of the mouths of Americans twice.