A U.S. Steel Tariff Heats Up the Trade War With China

The U.S. International Trade Commission's decision favoring domestic steelmakers over Chinese exporters escalated a trade war that will likely extend into 2010. The ITC ruling upholds preliminary action that the Commerce Department took to impose compensatory trade penalties of 10.4% to 15.8% on Chinese-made steel tube exports, which totaled $2.7 billion in 2008. This action is similar to penalties the European Union's 27 member states imposed on China last July.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%In response, the Chinese Ministry of Commerce swiftly stated that it was "strongly dissatisfied with and resolutely opposed" to the vote. China contends that it's the global financial crisis and drop in demand for oil, not Chinese policies, that are primarily to blame. While the ministry made no mention of tit-for-tat actions against U.S. products, you can expect to hear something quickly in 2010.

U.S. companies and unions brought about a dozen trade cases against China in 2009, all alleging government subsidies and unfair pricing practices. On Dec. 18, the ITC made a preliminary determination that China has been dumping pre-stressed steel wire strand used in concrete. On. Dec. 29, it made a similar determination about Chinese-made steel grating.

Autos, Chicken and Shoes, Too

In September, President Obama angered China by instituting a 35% duty on about $1.85 billion of Chinese-made tires in response to a surge in imports that disrupted the market. In retaliation for that, China asked the World Trade Organization to begin a probe into whether U.S. autos were being dumped in China at unfairly low prices. China also immediately took moves to impose tariffs on American exports of automotive products and chicken meat in retaliation.

Steel products aren't the only things fueling the trade wars with China. On Dec. 22, the EU Council of Ministers voted to extend levying of anti-dumping duties on shoes from China and Vietnam for another 15 months. Yao Jian, spokesman of the Ministry of Commerce, said China expresses its "strong discontent at extension of levying of anti-dumping duty in any form and would appeal to the WTO's dispute-settlement mechanism and take measures to protect the legitimate rights and interests of Chinese enterprises."

These duties were originally imposed in October 2006. The European Commission decided to levy the tariffs on Chinese leather shoes for two years instead of the usual five. The EC will review the levy at the end of the two-year period.

Employment, Not Profit, Is the Key

At the crux of all these issues is China's need to fuel its growth and keep people working. Many Chinese steel companies are owned by the central or provincial governments, and they operate with cheap, if not free, capital. China's currency is also undervalued. In combination, these factors require China to sell its products as cheaply as possible to maintain demand for them -- and to keep its citizens employed.

Unlike the U.S. corporations' need to make a profit, for the Chinese it's more important to maintain and create jobs, even if it means no profits or taking a loss. With both the U.S. and the EU taking on China, the World Trade Organization will probably stay on the sidelines and let the three trade combatants work out a solution.

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