The Problem With Steel No One Is Talking About
It’s Necessary to Address Overcapacity and Overproduction
For all the talk of retaliation against President Donald Trump’s steel and aluminum import tariffs, the root cause of the problem the tariffs are supposedly trying to address is being ignored. That problem, according to an article in Forbes, is global steel overproduction.
Overproduction is spawned by overcapacity and overcapacity has been engendered by non-market factors like the existence of state-owned enterprises, SOEs that respond to government targets and not economic conditions, subsidies, and other market distorting policies and practices.
According to the article, the world needs about 400 million tons of steel capacity; it has 730 million tons, half of which is in China.
The growth of the Chinese economy has slowed in recent years, providing incentive to export the excess steel production. Chinese steel exports have doubled between 2008 and 2015, to 112 million tons, more than the total amount used in the US. China has tried to cut overcapacity in the last couple of years, and as a result production and exports are dropping.
Although China has only about a two percent of US steel imports, its impact on global markets is oversized, driving down prices.
In pursuing a remedy, therefore, “the focus should be on how to address those underlying core problems,” the article argues. “It’s possible Trump’s tariffs will have a negative impact on the US and world economies, “But viewing this strictly as an example of irresponsible and destructive protectionism on the part of the United States is to willfully ignore a big part of the picture.”
That’s why it’s necessary “to get serious about a multilateral solution to the global problem of overcapacity in steel, and the accompanying predatory trade practices.” Maybe, the article concludes, the current situation will provide the motivation to do just that.
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