The Trade Numerologist: Behind new US tariffs on steel

27 Dec 2017 John Miller

In early December, the US imposed fresh tariffs of up to 266% on imports of Vietnamese steel, one of the first salvos in the Trump administration's efforts to protect American heavy industry. Other duties on steel imports are expected. Steel companies are well practiced at lobbying the Commerce Dept. for tariffs, so it's no surprise they managed a quick win.

Vietnam isn't exactly famous for its steel industry, so what gives?

One of the toughest challenges US and European trade officials face in containing the might of China's export machine is transshipment. Like water finding cracks in the roof, steel, aluminum and dozens of other goods made in China are transshipped via third countries into the US and Europe in order to avoid existing tariffs on Chinese imports.

And Vietnam, with its long coastline and potential for abundant growth in port capacity, is a key transshipment hub of everything from shrimp to shoes.

Sometimes transshipped goods are minimally transformed and slapped with a new origin label, and sometimes they spend a short holiday in port storage and then are moved along to their final destination.

When this happens, industry leaders and trade officials have to make their case for tariffs all over again.

That's what happened in this case. After the US imposed tariffs on imports of Chinese steel in 2015 and 2016, imports of steel from Vietnam shot up.

China, it appeared, was shipping coils of raw steel to Vietnam, where it was being coated with zinc and other products, then moved to the US.

A group of steel companies with mills in the US, including ArcelorMittal, Nucor, AK Steel and U.S. Steel filed a complaint in September, pointing out that steel began arriving from Vietnam almost immediately after the duties were imposed.

As in most transshipment cases, the key to making the case lay in the trade data, which can be fleshed out here thanks to IHS Markit's Global Trade Atlas. Exports of Chinese steel to Vietnam rose along with shipments of steel from Vietnam to the US.

Vietnam steel exports to US, Jan.-Oct., 2013-2017

201313.3 million kg
201426.9 million kg
201545.3 million kg
2016630.3 million kg
2017516.4 million kg

Chinese steel exports to Vietnam, Jan.-Oct., 2013-2017

20133.2 billion kg
20144.9 billion kg
20158 billion kg
20169.8 billion kg
20176.7 billion kg

Lawyers to the US-based steelmakers showed how the metal kept on coming in, via Vietnam, despite the new tariffs. Commerce agreed with the steelmakers, and applied the same tariffs on Vietnamese steel that it had been putting on Chinese metal.

The ruling "represents a critical step to shutting down one of the many paths used to flood the US with dumped and subsidized steel," U.S. Steel said in a statement. "This decision presents an encouraging sign for the steel industry and should put other countries and companies on notice that their cheating will no longer be tolerated." A definitive decision is due in early February.

Next the Commerce Dept. is set to determine whether steel imports could be a threat to national security, and firmer restrictions to steel imports should be imposed. The study has reportedly been finished, but its release is being withheld until after new tax legislation is wrapped up. The US remains one of the world's biggest importers of steel.

Top importers of steel, Jan.-Sept. 2017

Turkey27.7 billion kg (+0.7%)Mexico9.7 billion kg (+11.6%)
US22.4 billion kg (+10.2%)Indonesia7.5 billion kg (-7.5%)
China20.8 billion kg (-10.2%)Japan6 billion kg (+7.2%)
Thailand15.1 billion kg (-4.8%)UK5.4 billion kg (4.5%)
India11.9 billion kg (-12.5%)

Even with the transshipped Chinese steel, Vietnam is still only the US's 11th biggest source of steel.

China, currently, is the 13th biggest exports of steel to the US Its evolution as a supplier also points to how much tariffs actually do the job of restriction imports. US shipments of Chinese steel fell to 461.9 million kg during the first 10 months of 2017, from 1.8 billion kg during the first 10 months of 2015.

Top exporters of steel to the US, Jan. -Oct. 2017

Canada4.1 billion kgSouth Korea1.3 billion kg
Brazil3.8 billion kgJapan1.2 billion kg
Russia2.6 billion kgGermany851 million kg
Mexico2.1 billion kgTaiwan807 million kg
Turkey1.7 billion kgSouth Africa710 million kg

The reordering of this table will depend largely on whether the Trump administration is able to scuttle the North American Free Trade Agreement. If that happens, expect Brazil, with its abundant reserves of iron ore and strong export capacity, to become the biggest supplier of foreign steel in the US by 2020.

What topic would you like the Trade Numerologist to cover? Emailtradenumerologist@gmail.comwith comments and questions.

The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.

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