In a series of articles, we will be looking at globalization and the growing reaction against many of the consequences that free trade has brought, epitomized most recently by the election of Donald Trump as U.S. president on an anti-globalization ticket.
One of several admittedly poorly detailed pledges Trump made was to save the U.S. steel industry by raising barriers against Chinese competition, perceived as unfair, state-supported dumping of excess production in the U.S. market.
Popular as Trump’s message was with many voters, his sentiments are not singular to the U.S. In Europe, steelmakers face sluggish growth and have struggled with overcapacity for years creating an environment in which even the most efficient have struggled to make money.
Hampered or supported by a political social contract to protect workers rights and employment — depending on whether you are a producer or a worker — every job loss has been resisted and delays in restructuring have dragged out the pain for everyone. In such an environment, even the usually patient Europeans have finally snapped and, spurred by popular opposition to free trade, have started to ramp up action against imports seen as unfairly priced or which are believed to circumvent World Trade Organization rules.
Europe Circles in on Vietnam
A recent Reuters report covers the European Union’s anti-fraud office (OLAF) investigations into whether Chinese companies shipped steel through other countries, known as transshipment to avoid anti-dumping duties.
Apparently, OLAF is looking into several cases where Chinese steel firms shipped the metal to another country, disguised its origin, and then shipped it on to Europe to avoid duties or quota limits from the original producing country. As with the recent China Zhongwang case in the U.S., the transshipment country is again Vietnam. OLAF is investigating 190 shipments of Chinese coated steel coils that arrived in Portugal, Spain and Poland from Vietnam in 2013-2014, the news wire says.
OLAF estimates the shipments via Vietnam were worth about $19 million and that the steel was given Vietnamese certificates of origin, the Vietnamese trade ministry said on its website, and it should be said Vietnamese authorities are cooperating with the E.U. in investigating these allegations.
If confirmed, OLAF would apply retroactive duties of 58% on the shipments and the Vietnamese fear it could impact bona fide shipments from the country, if not with automatic duties then with greater scrutiny and control.
Action taken against countries that break WTO or trade rules is a long way from anti-globalization. The most free-market orientated countries would be foolish to not ensure their trade partners adhere to the rules.
Steel is the second-largest industry in the world after oil and gas, with an estimated global turnover of $900 billion. As Reuters points out, steelmakers face sluggish demand growth, chronic overcapacity and poor profitability, problems that a flood of Chinese steel allegedly sold at a loss has made far worse than it should be.
Yet, in spite of repeated claims the country intends to close capacity — even though it has closed 150 million tons this year — China’s steel output rose for a seventh straight month in September and its exports are on track to beat last year’s record of 112 million metric tons.
The country has not, until now, seen its exports as a problem, but as it gradually gets shut out of overseas markets it may finally dawn on China that they cannot allow their steelmakers to simply export their excess capacity, whether it is being done profitably or dumped at below cost, their trade partners are rapidly losing patience.