I saw yet another tidbit of news this week that will further erode the savings coming from China’s steel exports. This Interfax news article reports a 5% export tax increase (from 20-25%) for all steel billet and long products coming from China. Long product refers to rebar and wire. There are no changes to the export tax on flat products such as hot rolled coil or cold rolled coil. This likely does not come as a surprise to many American buyers of China steel products.
The cost of imports has been slowly increasing both with the VAT rebate changes as we reported several months ago in conjunction with MFG.com and an appreciating RMB. So where is it all going? Our call is nothing but up. In addition to the currency changes and VAT, there does not appear to be any slowdown in China demand for metals products. In fact, some metals face supply shortages. On the face of it, we don’t see what will stem the rising China price. Add on top of all of this are two key underlying trends in American politics today – curbing the trade deficit and protecting US jobs. One can see how the China price is not going to get any lower.
But what the politicians and mass media fail to talk about is that trade with China is not just about Chinese jobs vs. American jobs (or the steel pipe producer in the US vs. the one in China) but also American jobs vs. American jobs. There are two American jobs at stake in these transactions….the steel producers’ jobs (who happen to have a far more effective lobbying campaign going) and the jobs of those who buy steel products…all of the value add assemblers and parts suppliers within every industry in the US. And unfortunately, they do not have a very effective lobbying campaign. Who ever said a rising tide lifts all boats?