US-China Trade War: Biden calls for tripling of tariffs on Chinese steel

President Joe Biden has proposed to triple tariffs on steel imported from China, citing unfair trade practices. Biden has said that Chinese steel companies produce a lot more steel than China needs, it ends up dumping extra steel on the global markets at unfairly low prices. And the prices are unfairly low because China’s steel companies don’t need to worry about making a profit because the Chinese government subsidises them so heavily.

Biden said that Chinese firms are “not competing, they’re cheating.”

China has condemned Biden’s remarks. Although this is nothing new. The United States and China, two of the world’s top economies, have been engaged in a trade war for years. Both countries have increased taxes on goods imported from each other and have blocked products from entering their markets. This conflict, characterised by tariffs and restrictions, spans various sectors from soybeans to high-tech products like chips.

Recently, the focus has shifted to steel, a crucial component of the industrial economy. But how did steel become a focal point in the US-China trade tensions?

The Rise of China’s Steel Exports

China, as the world’s largest steel manufacturer, has been exporting large quantities of steel, driven by weak domestic demand and subsidised production. In just the first quarter of 2024, China exported nearly 26 million tonnes of the metal, more than 28 percent of what it exported in the same period in 2023. For the full year, Chinese steel companies exported a whopping 90 million tonnes of steel. On the flip side, the country’s imports stood at 7.64 million tonnes.

This high rate of steel exports was due to two major reasons. First, weak domestic demand. China has been going through an economic downturn for the last few years, leading to a decline in demand for steel in industries. This, in turn, pushed producers to sell their surplus products abroad. The second reason is the low prices of Chinese steel.

In 2007, the country became a dominant force in the steel market, producing over 40 percent of global steel. This overproduction led to surplus for the Chinese firms, who then cut their prices sharply, making Chinese steel cheaper and more attractive. However, it also harmed steel producers in other countries, forcing them to cut prices and incur losses, impacting U.S. firms as well.

US imposes high tariffs on Chinese steel

As the US steel industry struggled, in 2018, then-President Donald Trump imposed a 25% import tax on steel coming from foreign countries, including China. The tax was imposed under Section 232 of the US Trade Expansion Act, which provides the US president powers to adjust import taxes if they consider foreign imports are threatening America’s national security.

Later, Joe Biden’s administration continued with the policy after coming into power. And now, Joe Biden has warned of raising import duties on Chinese steel even further, under a different rule. As of now, import of Chinese steel attracts 7.5 per cent taxes. However, Biden wants to hike the tax to around 22.5 per cent.

Why Biden invoked steel tariffs?

This escalation in the US-China tensions comes at a crucial time as the U.S. is gearing up for its presidential elections this year. Candidates need the backing of industries and businesses. In fact, President Biden invoked the issue in a key election state, Pennsylvania, a state that has increasingly become a swing state in presidential elections.

Steel is a key industry in Pennsylvania. At one time, it was the heartland of steel production in the country. The industry still provides thousands of jobs in the state. However, firms like Bethlehem Steel and the U.S. Steel are now facing challenges.

Not just Pennsylvania, the steel industry is very influential in other US states as well. It provides thousands of jobs in states like Indiana, North Carolina, Texas, and California. Earlier this year, Donald Trump also vowed to hike import duties on Chinese goods, stating that he would increase the taxes by 60 percent if he’s elected.

As the election season in the United States goes into full swing, it is expected that both Biden and Trump will make more of such remarks to appease the industry and gain more votes.

However, China’s steel overproduction isn’t painful just for the US Multiple countries have taken action against it. Last year, India imposed anti-dumping duties on some Chinese steel imports, while Thailand launched a probe into Chinese steel imports. Now, amid rising scrutiny across the globe and an increasing tussle with the US, will China’s steel sector lose its shine?