If steel industry is to survive, U.S. must act to reduce global overcapacity, authors say
American companies that play by the rules can't win at rigged game, they say
Editor’s Note: Thomas J. Gibson is president and CEO of the American Iron and Steel Institute. Chuck Schmitt is president of SSAB Americas and chairman of the American Iron and Steel Institute’s board of directors. The views expressed are their own.
As the backbone of American manufacturing, the steel industry is essential to the world’s water and food supply, energy generation and national security. The U.S. military uses steel extensively, ranging from aircraft carriers and nuclear submarines to missiles, armor plate for tanks and every major military aircraft in production. There are a lot of reasons to take pride in American steel.
But today, our steel industry is being hurt by an unprecedented surge in unfairly traded imports, with record amounts of foreign-produced steel flooding into the United States. Cheap, subsidized foreign imports are taking steel jobs away.
In 2015, almost one in three tons of steel sold in the United States was produced outside the country. The import crisis is now beginning to get the national attention it deserves. The crisis has become the topic of presidential debates, candidate interviews and stump speeches. And it’s about time.
Steel supports hundreds of thousands of American jobs. But because of these unfairly traded imports, many American steel producers have had to make difficult decisions affecting steelmaking communities. Steel companies have closed down major facilities, or reduced production at those plants, resulting in devastating layoffs and job losses for many families who have made steel for generations. More than 12,000 steel jobs have been lost in the past year, as imports took a record 29% of the U.S. market.
At the same time, U.S. steel production has continued to decline. Domestic shipments for 2015 stood at nearly 87 million tons, a nearly 12% decrease over what American steel mills shipped in 2014.
Many presidential candidates are realizing that global overcapacity of steel – in part due to massive subsidization by foreign governments – is a huge problem and a chief contributor to the crisis the American steel industry faces. The Organization for Economic Co-operation and Development estimates that there are about 700 million metric tons of excess steel capacity globally today.
China’s government-owned and -supported steel industry represents almost half of the world’s steelmaking and more than half of the world’s overcapacity. Between 2000 and 2014, Chinese steel production increased a whopping 540%, while U.S. production declined 13%. As has been said by one steel company CEO in testimony before the U.S.-China Economic and Security Review Commission, the Chinese government is a company disguised as a country.
The Chinese government recently set a goal to cut steel excess capacity by between about 100 million metric tons and 150 million metric tons over a five-year period, but it failed to specify how it proposes to achieve these reductions. Meanwhile, a representative of the Chinese steel industry recently conceded that China must reduce its government-owned steel overcapacity by around 400 million metric tons if it is to address the problems caused by past Chinese government industrial policies, according to Reuters. And it must make these reforms now, before further damage is caused, both in China and around the world.
China is not the only source of the surge in steel imports into the United States. Other major offshore suppliers of steel have seen substantial increases in their volumes of exports to the U.S. market in recent years, including South Korea and Turkey. With the rising tide of cheap imports entering the U.S. market from these and other countries, capacity utilization at domestic mills dropped to as low as 60% in early January, an unsustainable level for a capital-intensive steel producer.
If America’s steel industry is to survive, the United States must take action to reduce global overcapacity by working to remove subsidized production from the world supply so basic market forces can once again determine outcomes. We must begin this effort by ensuring that our trade laws are aggressively enforced.
Congress recently passed legislation to improve enforcement at our borders to try to catch those who evade tariffs by deliberately mislabeling where the steel comes from, in addition to other clever tricks that are undermining the American steel industry. Worse still, some of our trading partners manipulate their currency to make their exports to the United States even cheaper. American companies that play by the rules can’t win at this rigged game.
Domestic steel producers are already seeking some relief by filing trade cases with the Commerce Department and the International Trade Commission on all the major flat-rolled steel products, including corrosion-resistant steel, hot-rolled steel and cold-rolled steel. Congress gave the Commerce Department new tools last summer when it enacted legislation that made improvements to the trade remedy laws, and now it is critical that the department aggressively use them.
It is also critical that the Obama administration resist China’s demand to be designated a market economy by the end of 2016 – which would severely weaken the effectiveness of existing trade laws – until China fully reforms its government-controlled economy.
Just last week, the steel and aluminum industries joined together with other manufacturers from the textile, fabric, fiber and resin industries to form the Manufacturers for Trade Enforcement coalition to raise awareness on the concerns about China’s market economy status.
Ultimately, this is a critical time for the American steel industry. For 150 years, the steel industry has played a central and indispensable role in building this nation. It now needs and deserves the support of Congress and the administration, including the next president of the United States, to survive and thrive for our country’s future.