The FDI angle:

• China's steel exports rose year-on-year by 36.2% in 2023, while average steel export prices fell by 36.2%.
• China is accused of helping to fuel a global steel excess capacity crisis.
• Chinese steel producers also face criticism for shifting production capacity into other countries to avoid tariffs.
• Why does this matter? Rising trade restrictions on steel will impact global industrial and infrastructure development.

Spats over Chinese steel are back. President Joe Biden asked US trade officials earlier this month to treble certain tariffs on imported Chinese steel and aluminium products to 22.5%  from an average of 7.5%. Biden also aims to prevent tariff evasion through imports of steel via Mexico and other countries.

“China’s overcapacity and non-market investments in the steel and aluminium industries mean high-quality US products have to compete with artificially low-priced alternatives produced with higher carbon emissions,” read a White House statement on April 17. Data supports this narrative.

Chinese steelmaking capacity and output has grown massively since 2000 to meet soaring demand during a two-decade period of rapid economic growth. Today, China has operating plants able to produce over 967,000 tonnes of steel per year, according to Global Energy Monitor – over double the operating steel capacity found in the US, EU and India combined.

A sharp contraction in Chinese domestic demand and prices for steel, mainly due to a slowing property sector, has now led Chinese steelmakers to sell excess steel cheaply into overseas markets. Steel exports from China rose year-on-year by 36.2% to 90.3 million tonnes in 2023, while average export prices fell by 32.7% to $936.80 per tonne, according to official statistics.

China, which produces more than half of the world’s steel, is accused of helping to fuel a global steel excess capacity crisis. In January, the OECD warned that global excess capacity widened to 610 million metric tonnes last year and is expected to “become even more acute” in the future.

“China disrupts world markets both by subsidising the production of steel and other products and by dumping those products in the US and other markets,” says Kevin Dempsey, CEO of the American Iron and Steel Institute (AISI). 

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Late last year, India imposed duties against Chinese steel imports to avoid so-called dumping, where companies export steel at prices lower than those charged in home markets. Mexico recently imposed a 80% tariff on Chinese steel imports, while Brazil has launched its own anti-dumping investigations.

“The current situation mirrors that of 2015 when China’s steel sector grappled with significant oversupply,” says Xinyi Shen, China lead at the Centre for Research on Energy and Clean Air, a think tank. In 2015, Chinese steel exports reached a record high of 112 million tonnes and sparked intense trade disputes with the EU, US and other economies. 

By far the largest export market for Chinese steel by value in 2023 was South Korea with $6.30bn, followed by Vietnam ($6.08bn) and the EU ($4.14bn), according to China customs data. Despite facing significant US political wrath, Chinese exports of steel to the US fell to 815,000 tons last year, down from 1.2 million metric tons in 2018, when Donald Trump had passed tariffs.

Biden’s call to increase tariffs, which includes an investigation into China’s practices in steel-hungry sectors like shipbuilding and logistics, is typical of a US presidential election year. Biden’s predecessor Trump sparred over steel in 2016 with then Democratic candidate Hillary Clinton. Since China joined the World Trade Organization in 2001, more than 30 anti-dumping measures against China have been brought by the US Commerce Department.

Analysts say the Chinese government is trying to reduce its domestic steel overcapacity and discourage steel exports through measures such as an increase of tariffs on iron. In April 2024, the Chinese government published new regulations aimed at increasing control over steel production capacity.

Xiaoyong Dai, an associate professor at Xi’an Jiaotong University, a state-funded institution in Shaanxi, underlines China’s commitment to reduce its steel overcapacity, arguing it will help “to mitigate trade disputes with other major steel producers elsewhere in the world”. 

However, Chinese steel producers also face criticism for shifting production capacity into Belt and Road Initiative (BRI) countries. Among them is steelmaker Yongjin Metal Technology, which is building new production facilities in Thailand, Indonesia and Vietnam.

“It is clear that the BRI is about far more than roads,” says Mr Dempsey of AISI. “It is a thinly veiled effort to grow China’s economic and political power — at the expense of market-driven steel markets like ours in the US.” 

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