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5/3/2016  Trump and Obama Agree: Chinese Steel Is a Problem


Trump and Obama Agree: Chinese Steel Is a Problem
The Obama administration and Trump appear to have found common ground on proposed Chinese trade restrictions.
Stacked Steel Pipe Abstract
The Obama administration may have taken a page out of GOP front-runner Donald Trump's book this week after receiving criticism for months for not being tough enough on international trade standards.
The Commerce Department announced Tuesday a wide-ranging slew of tariff increases on certain imported steel products, notably slapping Chinese producers with a preliminary 266 percent tariff after they failed to cooperate in a trade investigation.
"In the China investigation, no company responded to Commerce's requests for information," the department said in a report Tuesday. "Accordingly, all producers/exporters in China received a preliminary dumping margin of 265.79 percent, based on adverse facts available."
"Dumping" is defined by the Commerce Department as an instance when "a foreign company sells a product in the United States at less than its fair value." Unfairly or unnaturally low prices on imported goods shake up market shares for domestic producers. Consumers and companies generally try to get the most bang for their buck when making purchases, so the more expensive domestic goods are more likely to be skipped over for the cheaper imports.
There's nothing to suggest Trump's success in recent Republican primaries is directly connected to the tariff hikes. Indeed, a handful of American steelmakers back in June filed a complaint with the Commerce Department and International Trade Commission alleging China, Italy, South Korea and Taiwan were selling metals in the U.S. at unfairly low prices.
Mexico at the end of 2015 launched its own investigation into certain Chinese-manufactured steel products, and a group of steel associations from the U.S., Mexico, Europe and Brazil in November issued a statement calling on the international community to look closer at Chinese trade practices before relaxing tariffs and treating the nation as a natural market-based economy.
"The global steel industry is currently suffering from a crisis of overcapacity, and the Chinese steel industry is the predominant global contributor to this problem," the statement read. "Given the continuing significant role of the Chinese government in many key aspects of the Chinese economy, and especially in its state-owned and controlled steel sector, there can be no question that China remains very much a non-market economy today."
But the timing of the Commerce Department's new trade policy is notable. Trump – who has repeatedly called for steeper tariffs, more selective trade deals and more proactive government support of U.S. exporters – currently enjoys a sizable lead over his rival Republican candidates and has built much of his campaign on tearing down what he perceives to be ineffective trade policies supported by the current administration.
"China is ripping us on trade. They're devaluing their currency, and they're killing our companies," Trump said during the sixth GOP presidential debate in January. "They can't believe how stupid the American leadership is."
That leadership this week, however, announced its intent to fight import dumping from China and a host of international trade partners. Certain Japanese steel imports were hit with a 71.35 percent duty, with Brazil (38.93 percent), the U.K. (28.03 percent), Russia (14.76 percent), India (6.78 percent) and South Korea (4.53 percent) also receiving tariff increases. And certain companies within these nations were hit with even larger duties if they were found to be in particular violation of U.S. standards.
Canada was actually the largest importer of steel mill products to the U.S. last year, according to a report released last month by the Commerce Department. Brazil and South Korea were second and third, respectively, while Mexico and Japan were fifth and sixth. Though China ultimately makes up a relatively small share of such trade activity, Chinese steel mill imports jumped 109.6 percent in December.
Chinese producers in November were estimated to be responsible for between 48 percent and 60 percent of the world's oversupply of steel – an overabundance that has lowered prices and profitability around the world as China's steel exports climbed to a record 112.4 million tons in 2015. The country went a step further in December by slashing export tariffs on domestic producers, effectively allowing Chinese companies that sell steel overseas to potentially bring in more profits.
So it's unsurprising that the U.S. is among a host of international bodies taking aim at what they perceive to be unfair Chinese trade practices. What this means going forward is hard to say. The Commerce Department in December recommended a preliminary tariff of 256 percent, which was increased Tuesday to 266 percent. The higher duties for China and the rest of the countries named in the Commerce Department's investigation are expected to kick in at some point in the next few days but must pass final approval later in the year.
The next few months of tariff deliberations with China, Brazil and others almost certainly won't involve Donald Trump. But for a brief and shining moment, the GOP front-runner and the Obama administration appear to be on the same page.