China Loses Steel Dumping Case, a Sign of Things to Come

Washington – A ruling Wednesday by the U.S. International Trade Commission in favor of domestic steelmakers and against Chinese exporters of tubular steel points to a likely trend in 2010 – more trade action against the export powerhouse.

“There’s steam on China, and it’s not just the United States,” said Michelle Applebaum, a steel expert who publishes the Steel Market Intelligence report.

In a unanimous decision, the three Democrats and three Republicans on the ITC determined that subsidized steel from China has damaged U.S. steelmakers. The Chinese steel, the panel determined, had been dumped – sold at artificially low prices to undercut fair competition.

That decision upholds a preliminary action last month by the Commerce Department, which slapped penalties of 10.4 percent to 15.8 percent on Chinese-made steel tube exports valued at $2.7 billion in 2008. China blasted the November action as a “discriminatory measure.”

Most of the steel involved in the dispute is used in oil drilling, and the ITC still must decide next year whether to leave the preliminary trade penalties in place or opt for higher or lower trade penalties.

Wednesday’s action is similar to penalties the European Union’s 27 member states imposed on Chinese steel pipe in July. The European action, however, was based on the threat of injury from Chinese products, while the ITC ruling determined that subsidized Chinese steel products already had injured U.S. companies.

“At a time when the nation is struggling with double-digit unemployment, full and strict enforcement of our laws against dumped and subsidized imports of steel and other manufactured products from China is essential to maintaining a viable U.S. manufacturing sector in the United States,” the American Iron & Steel Institute, the lobby for U.S. steelmakers, said in a statement.

Wednesday’s ruling – on a complaint brought by six U.S. steelmakers and a steelworker’s union – caps a busy month at the Commerce Department for trade actions against Chinese-made steel.

On Dec. 18, the agency made a preliminary determination that China has been dumping pre-stressed concrete steel wire strand. On Dec. 29, it made a similar determination about Chinese-made steel grating.

The decisions follow a controversial decision by the Obama administration in September to impose penalties on Chinese-made tires. At the time, China accused President Barack Obama of resorting to protectionism.

However, trade complaints are filed by industries, not by governments, and they generally ebb and flow with the states of the U.S. and global economies. In tough times, companies and trade associations bring trade complaints more frequently, and companies with excess product try to unload it wherever they can.

Experts such as Clyde Prestowitz, a former top-level U.S. trade negotiator, expect more complaints against China in 2010, especially Chinese steel. That sector is suffering from excess capacity, which means that China’s steelmakers can make far more steel than the country can use, so there’s a strong incentive to export the excess.

“Steel producers in China get cheap, if not free, capital. They have undervalued their currency, which is an effective subsidy for exports. And they’ve manipulated the tax system in various ways that have increased the subsidy,” said Prestowitz, the author of “Three Billion New Capitalists,” a book that examines the shift of global wealth to China and India.

Many Chinese steel companies are state-owned or owned by provincial governments. That prevents needed mergers that experts say China needs to create a smaller number of larger, more efficient companies.

For the Chinese government, however, which derives much of its legitimacy from the nation’s blistering economic growth, there’s enormous pressure to preserve jobs.

“They’re in a very ugly place,” said Applebaum, the steel expert, who said China recognizes that it must reduce the number of steelmakers, but appears unwilling to do so because of the unrest it could unleash, and already has unleashed.

On The Web:

Fact Sheet on Nov. 24 Commerce Department Ruling