CLOSING CASE

Is China Dumping Excess Steel Production?

In the 15 years up to 2015, China increased its steel production fivefold as it forged the steel
products demanded by its huge boom in construction and infrastructure spending. By 2015, the
country produced 800 million tons of steel a year, half of the world’s annual output. However, in
2015 the bottom fell out of the Chinese domestic market for steel. The economy slowed down, and
the government shifted its priorities away from massive infrastructure investments and toward
boosting consumer spending. By the end of 2015, Chinese steelmakers were estimated to be
producing 300 million more tons of steel a year than required for domestic consumption.

With prices for steel slumping, China’s largest 101 steel firms lost more than $12 billion in 2015,
roughly twice what they made in profits during 2014. Not surprisingly, the Chinese are seeking to
export this unwanted product, even if it is at a loss. China exported more than 100 million tons of
steel for the first time in 2015, making its steel exports alone larger than the production of any other
country in the world except for Japan. The prices for Chinese steel products appear to be at least 10
percent lower outside of China than within the country.

Those low-priced exports are having a devastating impact on steelmakers around the globe.
American producers have responded by clamoring for action from the U.S. Commerce Department
to stop what they perceive to be the illegal dumping of steel products below the costs of production.
Moreover, they have argued that cheap steel from China has also persuaded producers in India,
Italy, South Korea, and Taiwan to dump their excess production on the world market, further
harming U.S. producers. In November 2015, the Commerce Department ruled that all of these
countries except Taiwan were dumping steel and placed duties as high as 236 percent on some
imports of foreign steel. In late December, the Commerce Department ruled that China was also
selling corrosion-resistant steel at unfairly low prices and placed an additional 256 percent tariff on
such imports. This erected a huge barrier to certain Chinese steel imports into the United States.

The European Union also took similar steps. The United Kingdom has been particularly hard hit by
Chinese imports. Chinese imports now take 45 percent of the UK market for steel rebar, up from
nothing in 2010. Overall, steel imports from China doubled between 2014 and 2015. The United
Kingdom lost some 4,000 steelmaking jobs in the second half of 2015 as the Chinese grabbed market
share. Elsewhere in Europe, the Luxembourg-based steel giant ArcelorMittal blamed dumping by
Chinese firms for a $8 billion loss in 2015.

In response, in January 2016, the EU placed a 13 percent tariff on imports of Chinese steel. EU
steelmakers called this totally inadequate, particularly given the much large tariffs levied in the
United States. In mid-2016, the EU responded by placing tariffs as high as 22 percent on imports of
non–stainless steel products from China. For its part, the Chinese government remained unmoved.
In fact, it may have added fuel to the fire in December 2015 when it cut export taxes on several
types of steel, signaling perhaps that it was doubling down on a strategy to encourage domestic
producers to export their surplus production rather than close mills.

Sources: Sonja Elmquist, “U.S. Calls for 256% Tariff on Imports of Steel from China,” Bloomberg
News, December 22, 2015; “China’s Soaring Steel Exports May Presage a Trade War,” The
Economist, December 9, 2015; “Steel Imports from China Investigated by the European
Commission,” BBC News, February 12, 2016; Ivana Kottasova, “Europe Tries to Protect Steel Jobs
with Tariffs on Chinese Imports,” CNN Money, January 29, 2016; Jones Hayden, “China-Russia Steel
Hit with 5-Year Anti-Dumping Tariffs,” Bloomberg, August 4, 2016.
Case Discussion Questions
1. Does the evidence suggest to you that China is dumping excess steel production on world
markets?
2. Absent of any response from other nations, how long can China pursue this policy?
3. Who is harmed by this action? Who might benefit?
4. What alternative policy might China pursue? What are the costs and benefits of this
alternative policy to China?
5. Are the EU and the United States correct to impose significant antidumping duties on
imports of Chinese steel? What will the benefits of such policy be? Are there any drawbacks?
6. Can you think of any unintended consequences that might occur as the result of the
imposition of antidumping duties on Chinese steel imports by the United States and the EU?
7. What other steps could be taken in the long run to reduce the probability that producers in
China and elsewhere will dump their excess production at a loss on world markets?