Chinese government imposes tariff on EU steel imports

Rob Davies and Heather Stewart in Washington

Friday 1 April 2016 18.29 BST

• A Chinese steelworker in Hebei province. Britain has been accused of blocking EU plans to cut down on
cheap Chinese steel. Photograph: Kim Kyung Hoon/Reuters

China has risked raising tensions over its role in the UK steel crisis by imposing a 46% import duty
on a type of high-tech steel made by Tata in Wales.

The Chinese government said it had slapped the tariff on “grain-oriented electrical steel” imported
from the European Union, South Korea and Japan. It justified the move by saying imports from
abroad were causing substantial damage to its domestic steel industry.

Tata Steel, whose subsidiary Cogent Power makes the hi-tech steel targeted by the levy in
Newport, south Wales, was unable to say on Friday whether any Cogent products are exported to
China.

News of the tariff emerged as David Cameron confronted the Chinese president, Xi Jinping, on the
sidelines of a summit dinner in Washington on Thursday night, urging him to use Beijing’s
presidency of the G20 group of leading countries to tackle the problem.

Asked if Cameron raised concerns about British job losses from Chinese steel dumping, a senior
government source said: “He highlighted his concerns, yes.” The source added: “He made clear
the concerns that we have on the impact this is having on the UK and other countries.”

British politicians have been accused of pandering to China by blocking new tariffs on Chinese
imports to the EU, a measure designed to prop up Europe’s struggling steel industry.

The tariff move by the People’s Republic is likely to anger steelworkers and unions, who blame
China for much of the industry’s recent troubles. Steel firms say one of the key reasons for the UK
industry’s woes is that state-subsidised firms in China are “dumping” their product on the European
market, due to flagging demand at home.
The UK business secretary, Sajid Javid, who visited Tata Steel’s struggling Port Talbot plant on
Friday, has been accused of blocking measures to crack down on Chinese imports. Javid voted
against EU plans to lift the “lesser duty” rule, which would have allowed for higher duties to be
levied on Chinese steel imports. The UK has also lobbied for China to be granted “market
economy status”, which would make it even harder to crack down on steel dumping.

“The fact is that the UK has been blocking this,” European Steel Association (Eurofer)
spokesperson Charles de Lusignan told BBC Radio 4’s Today programme. “They are not the only
member state but they are certainly the ring leader in blocking the lifting of the lesser duty rule. The
ability to lift this was part of a proposal that the European commission launched in 2013, and the
fact that the UK continues to block it means that when the government says it’s doing everything it
can to save the steel industry in the UK and also in Europe, it’s not. It’s not true.”
Commentary 3:

Free trade is said to take place between countries when there are no barriers to trade put in place
by government or international organizations. However it is necessary government carry the
protectionism which shielding a country’s domestic industries from foreign competition. The article
talks about Chinese government imposes tariff on EU steel imports, which means China add a tax
that is charged on import steels from UK. Chinese government think that imports from abroad were
causing substantial damage to their domestic steel industry. It may lead a high levels of structural
unemployment, so government attempt to protect the industries in order to avoid the
unemployment. According to the article, China imposed a 46% import duty on a type of high-tech
steel made by Tata in Wales. As the tariff placed upon the high tech steel, steel from UK become
more expensive to Chinese consumers, which led a decrease on imports. Since so, Chinese
producers increase production and domestic steel industry has been protected.

As the diagram shows above, before tariff take place, 0Q2 tons of steel were being consumed at
a price of Pw. China domestic production was 0Q1 and imports from UK were Q1Q2. After the tariff
is imposed, S (World) shifts up by the amount of the tariff to S (World)+tariff and the market price
rises to Pw+T. Due to law of demand, Total quantity demand of steel falls from 0Q2 to 0Q4, as the
price has risen. During this situation, China domestic producers increase production to 0Q3, they
are better off as they produce more and the revenue increases from g to g+a+b+c+h. Government
are also better off as they received the tariff revenue of d+e. However, it is worse off for Chinese
consumers, because they have less choice and must pay a higher price for the steel. While UK
producers supply the rest which is Q3Q4. They received Pw+T, but have to pay the tariff to
Chinese government. Thus their revenue falls from h+i+j+k to only i+j.
There are also arguments against protectionism. Impose tariffs protect China’s domestic steel
industry, but also bring some negative impact. Protectionism may raise prices to both consumers
and producers of the imports from abroad for example UK, and it would lead to less choice for
Chinese consumers. In addition, impose of tariff distorts comparative advantage, leading to the
inefficient use of the world’s resources. It may caused the specialization of China steel industry
reduce. On the other hand, with the reduction of exports to China, it may lead to structural
unemployment in the UK steel industry. So this action taken by China is likely to anger UK
steelworkers and union. At the same time, UK also blamed British job losses from Chinese steel
dumping. They thought the other key reason for the UK industry’s woes is that state-subsidised
firms in China are “dumping” their product on the European market. British producers think China
dumping their steel to the UK at a very low price which caused the unemployment and damage UK
domestic steel industry. This may lead to trade war between China and UK. It may be instigated
when one country think another country's trading practices to be unfair or threat its domestic
economy which make imported goods less attractive to consumers. However, it is very difficult to
prove whether or not a foreign industry has actually been guilty of dumping. In addition, a
government that subsidizes a domestic industry may actually support dumping. As mentioned in
the article, British politicians have been accused of pandering to China by blocking new tariffs on
Chinese imports to the EU. So it may be a negotiation between British government and Chinese
government. The blocking of tariff on Chinese imports may be for the friendly relations between
two countries. There is always a danger that protectionism will threaten relations and reduces the
benefits that can gained from trade.
So, in order to avoid those negative effects and refrain from trade war. It is better that carry out a
talk between governments, rather than any form of protectionism. While, it is necessary to WTO,
which aims to increase international trade by lowering trade barriers and and providing a forum for
negotiation, to make suitable rules and monitor national trade policies.