Hey [Steel] Pot, Are You Calling the Kettle Black?

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Ferrous Metals, Global Trade

Happy Monday. I’m sorry to do this to you but I must go off on a slight rant. I saw an article in ThomasNet (they also have a blog) that came out last week with the headline Chinese Subsidies Hobble US Steel Industry and thought, hmmm….this is going to be interesting. The article discusses a new study published by the AAM (the Alliance for American Manufacturing). That group was founded by a mix of large manufacturing (actually, mostly metals) companies including US Steel and its labor union according to this International Herald Tribune article. Established in the spring of 2007, one of AAM’s first tasks is to, “address how U.S. factory owners and workers have been hurt by what the group says is the Chinese government’s improper currency manipulation and industry subsidies.” Not being that familiar with the AAM I visited their website and learned that despite their non-partisanship mantra, they are completely one-sided in their views. By one sided, I mean that they are there to push what I call “US Big Steel” agenda items.

According to the key findings of the study, “The Chinese government has boosted its steel output over the last three years through massive, trade-distorting energy subsidies.” The ThomasNet article goes on to cite a 2007 study by the Economic Policy Institute (EPI), that more than 1.8 million US jobs have disappeared since China joined the World Trade Organization in 2001. But the best quote from the article came from Scott Paul, AAM’s executive director, “They’re [subsidies] typical of China’s brazen subsidization as well as illegal practices like currency manipulation…Washington needs to take strong action to correct this one-sided approach to trade…”

Now to be fair, I did take a look at what some of these subsidies have entailed and the list is not pretty. According to an article written by Alan H. Price back in April of 2006 for the US-China Economic and Security Review Commission, China has engaged in: providing tax benefits based on export performance, currency manipulation, debt for equity swaps (this is a way for banks to make loans below market and then convert debt), cash grants etc. and the list goes on and on.

And also to be fair, there is probably not much doubt that China has violated terms of the World Trade Organization. One China blog suggests that that the US may have made a good case on this one.

So at a minimum, nobody is suggesting that the study released by the AAM is flawed, per se.

It’s just that, well, um, hasn’t the US steel industry cried quite a bit in the last 7-8 years? To borrow an excellent English term, Big Steel has been great at “whinging” and convincing certain media (e.g. Lou Dobbs) that somehow China has taken US jobs because they can’t sell steel for as high a price as they would like. I love the ole “loss of jobs” argument. And that my friends is the political hot potato claim.

But all I can say is give me a break! The jobs that are lost are undoubtedly steel consumers (read manufacturing). In other words, the customers of Big Steel are the ones that lose out…they have to price their products higher because they are at a disadvantage not being able to access global (lower) cost supplies.

To even out this article, I thought I would take a look back at the “best of” Big Steel’s market distortion techniques (all of these are available on the AIIS (American Institute for International Steel Inc) website. In the name of full disclosure, the AIIS is a 60+ year old organization dedicated to free trade comprised of steel consumers, importers, distributors, exporters, and logistics firms. These are the issues that they have examined over the years:

  • Trade/dumping policy – and from their website Big Steel has engaged in the following: quota protection (1960s), price controls (1970s), and absolute quotas (1980s to early 1990s), and 20 months of Section 201 tariffs in 2002-2003. On top of this, under the Byrd Amendment” funds be distributed to the US companies that file pricing complaints. In short, this meant that non-US firms which sell below cost in the US can be fined, and the money given to the US companies who made the complaint in the first place. The act has since been repealed.” Steel producer Timken apparently filed almost $1B in claims.
  • Big Steel can claim that material was ‘dumped’ and seek redress (see above)
  • Subsidies – the US steel industry has received subsidies for years and years through federal, state and local governments
  • Shush…this is my favorite – The U.S. domestic steel industry does not like to publicize that their imports of semi-finished, hot rolled and other forms of steel account for one third or more of total U.S. steel imports
  • There are a range of other WTO rules that the US steel industry has used to its benefit. It is too lengthy to go into here but if you are interested in taking a look, visit the AIIS website.

So what do these public relations efforts mean for steal buyers? Only one thing – higher prices!

And that my friends is what I call, the Pot Calling the Kettle Black!

Lisa Reisman

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