Global Economic Growth and Steel Excess Capacity

Global prices on many steel products have tumbled sharply in 2014-2015.  A number of countries provide unfair advantages to their domestic steel industry, but China, which accounts for 50 percent of global production, remains the main source of excess capacity in steel, and a number of other sectors. The precipitous drop in the global price of steel was largely a result of the unfair subsidization of production by several countries, particularly China.

China has publicly recognized that excess capacity in the steel and aluminum sectors is a problem. Yet, China continues to assert that lackluster global economic growth is the cause of excess capacity in the global market, but this does not stand up to scrutiny because neither Chinese capacity nor production have fallen in line with global demand or China’s domestic demand. Between 2000 and 2015, Chinese steel capacity increased roughly seven-fold, from 150 million metric tons a year to roughly 1.2 billion. China’s steel production continued to rise in the first half of this year, reaching new records in the spring despite falling global demand. And continued flows of credit to loss-making state-owned enterprises in sectors with overcapacity like steel may expose China’s financial system to additional risks.

Unfair practices in global steel production are hurting our domestic industry – as companies shut down and steel workers end up out of work – and further increasing the unsustainable levels of credit growth in China. The human fallout has also been real and severe. Over the last decade, American steel manufacturers have seen market capitalizations drop while industry debt levels rise. In the United States, as many as 42 steel facilities from 17 separate companies have been idled or closed. This resulted in over 5,000 lost jobs in 2015 alone, not including employees who have been furloughed as a result of idled plants.

In response to the impact of global excess capacity, the Obama Administration is deploying a two part strategy:

1. Aggressively enforce our domestic trade laws in order to penalize those attempting to ship illegally subsidized steel into the United States
2. Build an international coalition to put pressure on countries to end unfair practices.

The Commerce Department’s decision yesterday on stainless steel sheet and strip imports from China is an example of the U.S. Government’s approach to aggressively enforce our domestic trade laws, and represents just one of the 163 current AD/CVD cases that the U.S. Government is pursuing against companies attempting to ship impermissibly subsidized steel into the United States. We are committed to aggressively enforcing our domestic trade laws and holding trading partners accountable for unfair practices, with the goal of leveling the playing field for American workers and firms. The U.S. Government has continued its vigorous enforcement of U.S. anti-dumping and countervailing duty laws, as well as its monitoring of steel import levels as they enter our market. And we have worked with U.S. industry to identify new legislative proposals to better combat duty evasion in steel and other sectors.

As part of our effort to build an international coalition, last week the President convinced other G-20 Leaders to establish a Global Forum to address steel excess capacity, which will bring collective pressure that is intended to press countries to implement measures that will allow the markets, not anticompetitive government policies, to set the global price of steel. The Global Forum will provide a venue for identifying market-distorting policies, develop best practices, and press for countries to implement measures that will realign industrial production with market trends. Technical experts already met last week to start the development of an ambitious work plan. We plan to actively consult stakeholders on how the Global Forum can best help to address steel excess capacity.

Over the past year, with the support of industry, stakeholders, and members of Congress, we have sharpened the tools and put in place mechanisms to address the scourge of overcapacity, and will continue to press forward on our effort to implement a global solution.

Adewale Adeyemo is the Deputy National Security Advisor for Economic Affairs.