On April 17th, President Biden told steelworkers in Pittsburgh that “Chinese steel companies don’t have to worry about profits, they are not competing, they are cheating.” Biden called on the Office of the United States Trade Representative (USTR) to consider doubling the current tariff rates on Chinese steel and aluminum to 25% (currently the average tariff rate for steel and aluminum is 7.5%). At the same time, the United States will cooperate with Mexico to prevent China from exporting steel and aluminum products to the U.S. through Mexico to evade tariffs. Although China’s share of steel imports into the United States is small, a U.S. official said this is a proactive move to “get ahead of a surge in Chinese exports.”
Not only the United States but also countries like Brazil, Vietnam, India, the Philippines, and Turkey are conducting anti-dumping investigations on Chinese steel companies. In fact, in 2023 China accounted for over 20% of global steel trade, making it a focus of trade protection measures by other countries. According to incomplete statistics, in 2023 there were a total of 112 anti-dumping and countervailing announcements against Chinese steel products from foreign countries, an increase of about 20 compared to the previous year.
According to Chinese data, in 2023 China exported 90.264 million tons of steel, a 36.2% increase compared to the previous year, reaching a new high since 2017, ranking as the fourth highest in history.
The peak of China’s steel exports was from 2014 to 2016. At that time, due to severe overcapacity in China’s steel supply, steel companies faced serious losses in domestic sales, leading to increased exports overseas. At the 2016 G20 Summit, consensus was reached among participating countries to establish a Global Forum on Steel Excess Capacity, with countries such as China, the U.S., Japan, Europe, Brazil, India, and Russia joining and holding ministerial meetings for three sessions. However, due to strong opposition from the Chinese Communist Party, the forum was terminated after its expiration in 2019. International coordination to address excess steel capacity has not made decisive progress, leading to ongoing disputes.
The significant increase in steel tariffs on China by the U.S. can be seen as a failure of the Chinese Communist Party’s steel industry policies on the international front. This failure in the international arena can be directly traced back to the failure to control domestic steel production capacity.
In 1950, China’s steel output was 610,000 tons, while Western industrialized countries produced tens of millions of tons of steel, with the U.S. reaching as high as 700 million tons. The Chinese Communist Party, with great ambition, proposed to “surpass Britain and catch up with the U.S.” Starting from 1979, China’s steel output began to increase at a rate of around 3 million tons per year; in 1993, national steel output reached 89.56 million tons, surpassing the U.S. for the first time. In 1996, China’s steel output exceeded 100 million tons, maintaining its position as the world’s top producer ever since. Starting from 2001, a massive growth strategy exceeding tens of millions of tons per year was initiated, surpassing milestones of 2 billion, 3 billion, 4 billion, 5 billion, 6 billion, 7 billion, and 8 billion tons in 2003, 2005, 2006, 2008, 2010, 2012, and 2013, respectively.
In 2014, China’s steel output reached 823 million tons, highlighting the issue of excess capacity. In 2015, the entire industry fell into a state of losses, with the sales profit margin of the steel industry plummeting from an average of 0.44% between 2012 and 2014 to -2.23%. Steel production fell to 804 million tons, marking the first decline in 25 years.
In 2016, the Chinese Communist Party issued the “Opinions on Resolving Overcapacity in the Steel Industry and Achieving Transformation and Development,” calling for “capacity reduction, output control, and increased efficiency.” However, the result was that “the more control, the more growth.” Official capacity data was not formally released, but annual production observations were as follows: in 2017, the annual steel output reached 871 million tons, an increase of over 63 million tons from the previous year; in 2018, it exceeded 900 million tons, reaching 929 million tons; in 2019, 995 million tons; despite the outbreak of the pandemic in 2020, the annual steel output reached 1.065 billion tons, surpassing the milestone of 1 billion tons for the first time. From 2021 to 2023, China’s steel output slightly declined but remained above 1 billion tons, accounting for around 54% of the global production for those years, surpassing the total production of all other countries in the world combined. It’s worth noting that in 2022, India ranked second globally with a production of 125 million tons, accounting for 6.6%; Japan ranked third with 89.2 million tons, accounting for 4.7%. China holds a crushing advantage in terms of production volume.
What we see is that despite ten years of controlling steel production capacity and annual claims of “overcapacity,” the steel industry in China has fallen into a vicious cycle of “more projects, more output,” resulting in excess production capacity of over 10% beyond actual demand and significant social resource waste.
Recently, listed steel companies have successively released their 2023 annual reports, showing that the performance of most steel companies has declined, with some companies (such as Ansteel, Shandong Steel, Chongqing Steel, Baosteel, etc.) suffering serious losses. The China Iron and Steel Industry Association reported a 12.47% year-on-year decrease in total profits of member steel companies and an average sales profit margin of only 1.32%, representing a 0.17 percentage point decrease compared to the previous year.
Why did the Chinese Communist Party’s efforts to control steel production capacity fail? Regarding domestic factors, there are four main aspects: first, the protectionism of various local governments; second, self-preservation behaviors of steel production enterprises, which are capital-intensive and have low entry barriers but high exit barriers, leading to a situation where everyone is playing a game of chicken, gambling on others exiting while trying to survive themselves, resulting in no one being willing to exit; third, vicious disorderly competition in the industry; fourth, a precipitous drop in downstream demand, especially in the real estate sector which accounts for about half of total demand, but with the bursting of the real estate bubble in China in 2021, demand has continuously decreased with no signs of bottoming out, leading to a significant reduction in steel consumption.
Additionally, it should be noted that although the Chinese steel industry is a “giant” in terms of scale, the technological content is not high enough, and there are still many shortcomings, especially in some high-end steel products where it faces bottlenecks.
For example, in 2023, China imported 7.645 million tons of steel, with an average import price of $1658.5 per ton, a 2.6% increase compared to the previous year, reaching a new high in nearly a decade. In contrast, in 2023, China exported 90.264 million tons of steel, with an average export price of $936.8 per ton, a 32.7% decrease compared to the previous year; about 38% of the exported steel was priced above 6,000 yuan per ton, representing a decrease of approximately 30 percentage points from the previous year (the trend of low-price dumping is very evident).
In conclusion, the failure to control steel production capacity domestically, the need for improvement in the technological level of the steel industry, and the large-scale low-price dumping of steel internationally have triggered numerous trade conflicts. Therefore, it can be said that the Chinese Communist Party’s steel industry policy is fundamentally flawed.