I’ve been hearing a lot about “dumping” steel. It is never explained but from context it is clear this is seen as a bad thing. I fail to understand why. Isn’t the Chinese government subsidising every consumer of steel? (everyone) Forcing non-subsidised producers to specialize away from a commodity and becoming more competitive.
I get that it is a strategy to weaken other countries steel industry but that seems a fools game, Steel mills are quite an investment, nobody is tearing them down if they don’t turn a profit for a couple of years. Even if the strategy succeeds and the companies go bankrupt, the infrastructure will still be there after decades. Ready to be bought for pennies on the dollar the moment steel prices are rising again. And no; no self-respecting country in the world is going to allow a Chinese company to own such strategic resources.
I can see only upsides for everyone not living close to the Chinese steel mills.
Is all the bluster some sort of reverse psychology?
These assumptions are unsupported, and appear to be contradicted by history. Infrastructure that is not constantly maintained and upgraded quickly becomes useless and/or obsolete.
And why invest in a steel plant if you’re concerned that the Chinese can undercut you anytime they want and make you unprofitable again?
This, plus steel-making is a skill. Even if for some reason you want to re-open a steel mill after decades, you’ll find no one to staff it at high levels who isn’t already past retirement age.
All you have to do is to ask yourself if the government subsidizing the dumping is doing it as a charity or for economic and political reasons. I think the answer to that tells you all you need to know.
I am sure they are doing it for reasons they think are very well thought out.
But at the end of the day they are just giving stuff away, hoping their competition will go away.
And I think we can hire some Chinese dudes to operate the plants (I’m sure the layout will be quite familiar).
I’m unclear about your position. I think you’re supporting Trump’s tariffs, with the idea of helping steel plants in America. Presumably the idea is to make jobs for Americans. But then you speak of importing “Chinese dudes” (H1b visas?).
Government subsidizes one of those companies so it can sell its product at a price below the competition
Competitors go bankrupt, leaving the subsidized company as a monopoly
Monopoly company controls manufacturing, distribution, and pricing
And don’t forget the last part
Monopoly now uses its advantage in size and distribution to eliminate future competitors.
“Giving stuff away hoping the competition will go away” works incredibly well for companies if they can outlast their competitors. That’s why having their government subsidize one over another is so problematic.
That’s not what he’s saying. He says tariffs are a bad idea (for the US) because right now we benefit from cheap imported steel. This is worth more than some tiny number of local jobs. The risk is that as soon as the competition is dead, China will crank up the prices. But even that’s not much of a risk since it’s relatively easy to restart domestic production. Loss of local talent also isn’t a problem if we can just hire Chinese at high American wages. And anyway, the local industry is already almost dead.
Put another way: is there strong evidence that dumping actually works out for the dumping countries? That is, is the short-term cost driving out the competition actually paid for by the long-term benefits in establishing a permanent monopoly? Or does the industry end up having to be subsidized forever, which only ends up benefiting everyone else (in the form of cheap products)?
Right. I wonder this as well. In addition, if you think about it, the Chinese government can only subsidize so many money-losers. At a certain point they are going to either run out of money to do this with or they need very profitable businesses in other sectors they can tax heavily.
And yeah, the proper response to dumping seems to me to enjoy the cheap goods while they last. Then, if prices rise a little after the competition is reduced, well, keep enjoying the cheap goods. If prices skyrocket to significantly above domestic cost, only then should you even think about subsidizing domestic production.
The thing about China is I don’t see how most of these cheap prices they offer, which they have been offering for 15+ years, are “fake/subsidized”. It just wouldn’t be sustainable that long. For certain products, China has a competitive advantage and we should just buy from them.
This is pretty clearly the right answer with oil, as has been demonstrated with OPEC’s various shenanigans. They cut prices; US wells close and we enjoy cheap oil. They raise prices; US wells reopen and put a cap on prices.
Granted, this is a bit of a best-case scenario–oil wells are relatively easy to mothball and then reopen. They might degrade a little over time but the main value is in the oil itself, which remains no matter how long you wait.
Still, I suspect that most commodities are going to be pretty similar. Steel foundries just aren’t that difficult. We aren’t talking about semiconductor fabs or space launch providers here. Maybe there’s a short delay when prices rise above the domestic production threshold but it seems unlikely to outweigh the previous years of benefit. There has to be a lot of inertia in the system for dumping to make sense.
China is something like 7th on the list of American iron import suppliers. Canada, Mexico, and Brazil are at the top of the list, none of whom are actually dumping, which explicitly requires intentionally selling below cost in order to kill the competition.
WTF. So yeah, this is a failure. If Canada can make steel cheaper than the USA, maybe the USA should just focus on the things the Canadians suck at.
This is a failure of basic competence. I would do more research than apparently the Trump administration did to decide what TV to buy, much less decide trade policy for a nation.
You are assuming there is such a thing as a Trump administration capable of making policy. According to the Votemaster, Trump tweeted this new policy about ten minutes after a commercial appeared on Fox recommending it. Yes it is mostly Canadian steel in question and both countries both import and export steel to/from the other, depending on regional availability. Even the same batch might cross the border more than once, after some processing. With aluminum the situation is that, on account of cheap hydro power, it is simply much more efficient to refine it in Quebec than just about anywhere else. That’s why trade can be such a win/win proposition.
True but like other commodities it’s a global market. Price pressure in the industry recently comes mainly from overcapacity in China’s enormous steel industry which represents almost half of world output. It’s similar to saying it wouldn’t matter to oil prices in the US if someone blew up all the oil facilities in Saudi Arabia since we don’t import that much oil from them anymore. But sure it would, and the Saudi’s are a moderate size player in oil globally compared to the Chinese in steel.
The US steel industry contrary to one post above really isn’t ‘almost dead’. Counting by country (rather than EU as one unit) the US is fourth in steel output which is more than half the US historical peak. It’s just a much smaller % of a bigger US economy now, and China’s steel output is far more than any other country’s has ever been.
This doesn’t change the problem with a general US steel tariff of annoying lots of other countries more friendly to the US than China. And again it’s true it’s not a direct punishment of China. Then again even tariffs directly against a particular country’s exports aren’t really ‘punishments’ of the exporting country as a whole or just that country. They harm some companies and their workers in the exporting country, some companies and their workers in the US (which use the imported product as input so become less competitive because of the tariffs), and US consumers. The problem is lack of a tariff design for a commodity like steel that won’t inflict net harm on the US economy, as these almost surely will even without foreign retaliation.
The theoretical way to do it with least collateral harm is subsidize the industry you want to protect, not impose tariffs. But that’s a practical political morass with lots of moral hazard, besides being something most voters just can’t get their heads around. Aren’t tariffs making foreigners pay, why should our tax money pay? But it would cost US society and economy less, forget foreigners, if properly implemented, albeit that’s a serious if.
In general, if you could somehow separate it from like/hate Trump, most voters are protectionists. ‘The bipartisan elite’ has keep relatively free trade going. It’s a case where the ‘common man’ is simply wrong and the ‘elites’ are right. A Bernie-ite Democratic president might also do this, just as a number of Democrats applaud Trump on this. Hillary was pretending she’d ‘seen the light’ and become a protectionist but probably wouldn’t have. Neither would a conventional GOP’er. Really ramp up protectionism that is. Reagan, Clinton, Bushes, Obama all did a little for show. That said, not absolutely clear Trump isn’t putting on a show, though protectionism has long seemed one of the only things in economics he truly believes in, interviews with him ranting about trade go back 30 yrs.