Jesse Harris writes:
As a penalty for selling their products in the American market below fair value, the U.S. Department of Commerce (the “Department”) has imposed increased anti-dumping duty rates on cold-rolled steel imported from China and Japan. The duty rates imposed on China’s and Japan’s largest cold-rolled steel exporters are now 256.44% and 71.35% respectively.
The Department’s determination came in response to allegations made by some of the U.S.’s largest steel producers, including U.S. Steel and AK Steel, that an influx of subsidized imports of cold-rolled steel from these foreign producers has captured a large share of the U.S. steel market. This increased market share has harmed production, shipments, and most importantly, selling prices and margins of U.S. steel makers. Indeed, the price of Chinese steel tends to be 20% to 50% lower than the prices in any other country.
This begs the questions: Will the anti-dumping duties work? And what are the implications of these duties?
Cold-rolled steel is used to produce, among other things, auto parts, appliances, shipping containers, and construction materials. Analysts believe that the U.S. imposed duties will prop up steel prices, and for companies that are in the business of purchasing foreign cold-rolled steel, this will increase costs. Steel manufacturers, however, will benefit from a decrease in foreign competition because of the restoration of fair trade conditions in the U.S. They will more easily compete with foreign prices because the anti-dumping duties inherently make foreign steel more expensive than U.S. steel.
However, the market demand will likely not improve, especially in the oil and gas segment; and without an increase in market demand, the duties may not result in any sustained, long-term benefits. This is especially true given the likelihood that Chinese manufacturers will not cut steel production despite the increased duties because of potential political fall outs from resulting job losses.
The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel, yet these duties have done little to help the now sluggish U.S. steel industry. In 2015, the benchmark hot-rolled coil index fell 35% to under $400 per ton, contributing to a $1.5 billion loss at U.S. Steel, and over a $7 billion loss at ArcelorMittal, the world’s largest steelmaker. These companies have been forced to lay off U.S. workers as a result of the losses.
The anti-dumping duties not only affect the U.S., but will significantly impact other countries such as Brazil, India, Korea, Russia, and the U.K. These countries rely heavily on Chinese and Japanese steel. The estimated U.S. demand of steel is 110 million tons per year, which is far higher than the U.S.’s annual production of about 80 million tons. Given the U.S’s reliance on foreign steel, the increased duties are an attempt to strike a balance between fair competition and necessity.
Similar duties are being proposed for certain Chinese carbon and alloy steel products as well. It is possible that other countries will soon follow suit and implement similar anti-dumping duties.
Jesse Harris is a summer associate based in the firm’s Philadelphia office.