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The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports

Tyler Durden's picture




 

Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.

 

Howdid this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in "Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities." 

As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.  That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

 

Logically, the less domestic demand for steel, and the greater China's steel exports, the lower the price continues to tumble, now at a 10 year low.

That’s
because mills, smelters and refiners are producing more than they need
amid slowing domestic demand, and shipping the excess overseas. 

The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.

According to Macquarie's Colin Hamilton, head of commodities research, it is about to get even worse: the price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13 percent next year. The nation’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter.

A worker walks on stacks of steel pipes at a storage yard in Shanghai.

China's metals industry is facing the same problem that OPEC has had to deal with over the past year: a huge supply glut faced with declining global demand, only unlike OPEC there is no "efficient, rational" producer cartel that can (or in the case of OPEC could) implement production limits.

While falling steel prices are partly driven by the collapse in raw materials and lower output costs, “it’s just more to do with the fact the industry was built for demand growth that hasn’t come through,” Hamilton said last week. “We’re past peak steel demand. I think provided there is overcapacity in the Chinese system and given where demand is, it’s going to be like this for some time.”

Well, maybe not: there is one thing that could dramatically slow down China's metal exports - tariffs, anti-dumping duties and other forms of protectionism.

“What may slow down the exports is anti-dumping and protectionist measures that several countries have taken against cheap imports,” said Ernst & Young’s Agrawal. “We’re going to see an impact. More and more countries are raising their objections.”

In other words, a trade war.

To be sure India has already done just that:

India plans to step up its protection for debt-laden domestic steelmakers by imposing a minimum price on steel imports among other measures, Steel Secretary Aruna Sundararajan said in an interview this week. The import curbs are necessary to ensure a “level-playing field” for Indian companies after restrictions imposed in September failed to stop a decline in prices, she said.

And now it's America's turn.

According to a report released Tuesday by the US Department Of Commerce, corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent.

The measure is clearly aimed exclusively at China's dumping of steel on the US market, and its relentess exports of deflation.

According to Bloomberg, imports from India, South Korea and Italy will be taxed at lower rates. Imports from Taiwan and Italy’s Marcegaglia SpA will not face anti-dumping tariffs. The government found dumping margins of 3.25 percent for most South Korean steel imports, with Hyundai Steel Co.’s shipments subject to duties of 3.5 percent. Imports from Italian companies excluding Marcegaglia will be taxed at 3.1 percent. Indian imports are subject to duties from 6.6 percent to 6.9 percent.

Which means that the biggest "beneficiary" of this dramatic import price surge will be none other than Beijing.

“We’re concerned that the dumping that’s occurring is at higher levels than these determinations reflect,” Tim Brightbill, a partner at Wiley Rein LLP, a law firm representing U.S. steelmaker Nucor Corp., said Tuesday in an interview. “We have serious concerns that these preliminary duties are not enough at a time when unfairly priced imports continue to surge into the U.S. market at unprecedented rates.”

According to some the US foray into trade wars was long overdue:

U.S. producers including Nucor, U.S. Steel Corp. and Steel Dynamics Inc. filed cases in June alleging that some products from China, India, Italy, South Korea and Taiwan had been dumped in the U.S., harming domestic companies. In November, the government found that all those countries, except Taiwan, subsidized their domestic production by as much as 236 percent of its price.

The tarfiff hike comes on the heels of a previous announcement from November 3, which saw countervailing duties as high as 236%. Together these create a barrier to imports of these steel products from China, said Caitlin Webber, an analyst at Bloomberg Intelligence in Washington.

“A 500 percent duty is obviously prohibitive,” Webber said in an interview. “The lower ones are much less prohibitive and would probably have a lower impact on imports.

This means that suddenly China's steel exporters will have to scramble to find a comparably large market  in which to sell their wares as now exporting to the US is prohibitively expensive and would result in massive losses to domestic producers.

According to Bloomberg calls to the spokesman’s office at China’s Ministry of Commerce in Beijing weren’t answered. An official who answered a call to the China Iron & Steel Association couldn’t immediately comment. Not like they would have much to say.

The problem for China is that as we have explained previously, unless local commodity producers can keep generating some cash flow, even if it is negligible, China will be swept in a default wave that will sweep away all the overlevered producers of steel and other commodities, leading to social unrest or worse.  We already know that at current prices more than half of China's commodity producers can't even make one coupon payment. What happens now when the rush to the bottom enters the final laps and the bottom falls out of prices?

Which also means that now that the US has fired the first trade war shot, it will be up to China to retaliate. It will do so either by further devaluing its currency or by reciprocating with its own protectionist measures against the US, or perhaps by accelerating the selling of US Treasurys. To be sure, it has several choices, clearly none of which are optimal from a game theory perspective, but now that the US has openly "defected" from the "prisoner's dilemma" game, all bets are off.

 

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Wed, 12/23/2015 - 11:45 | 6956324 Barnaby
Barnaby's picture

Too many microbeads in it to be profitably used anyway. :(

Wed, 12/23/2015 - 11:46 | 6956331 Ms No
Ms No's picture

They probably have been shipping it back to us.  They melt down our old steel cars and make sheet metal.  In some of the lowest quality stuff you can occasionally see things like ball bearings that weren't completely melted.   The rubble is probably where the toxic drywall and the funny stuff in the dumplings came from...lol

Wed, 12/23/2015 - 11:51 | 6956348 Barnaby
Barnaby's picture

You Alibaba a dirtbike from Lannmarker Corp. and one of the handlebars is a femur. Fucking great.

Wed, 12/23/2015 - 11:36 | 6956295 brooklinite8
brooklinite8's picture

De Globlalization as I call it ..

Wed, 12/23/2015 - 12:17 | 6956426 geno-econ
geno-econ's picture

Too much debt on a global scale. No where to go but deflation or more debt followed by collapse of currencies and trade wars. Winners will be regional powers with balanced economies best able to survive financial credit freeze.  

Wed, 12/23/2015 - 11:41 | 6956310 Ms No
Ms No's picture

Can't wait to see how long our boom infrastructure lasts.  It is rather ironic that we are surviving off our grandparents and great grandparents well built infrastructure while throwing down a bunch of misallocated overly expensive construction that wont make it 30 years. Talk about devolution.

I worked with a guy once who was inspecting high pressure pipe whose last two jobs consisted of Subway and Radioshack.  It used to be that you couldn't inspect shit without ten years experience with critical piping.  You combine that with Chinese materials, the big greedy hurry hurry and we are screwed.  I don't even want to know what's going on with bridge inspection right now.

"North Dakota, the No. 2 oil producing state behind Texas, recorded nearly 300 oil pipeline spills in less than two years, state documents show. None of them were reported to the public, officials said."

http://www.usatoday.com/story/news/nation/2013/10/25/north-dakota-oil-spill/3189101/

 

Wed, 12/23/2015 - 11:50 | 6956344 headhunt
headhunt's picture

With the exception of one large spill, these are all minor in size and easily cleaned up.

The ocean has millions of gallons of oil naturally leaking into it each year. these 'spills' are of no consequence except to a green loon.

Wed, 12/23/2015 - 12:12 | 6956413 Ms No
Ms No's picture

I am pretty sure if you pull Subway boy off of pipe inspections, fire that new welder that worked previously as an artist wire welding horseshoes together and took your time doing things right these spills could be avoided.  This would take time and cost extra money.  This is new pipe, it is just beginning, wait until it actually gets a chance to age a tad. 

Now compare that to the ancient sewer systems we are using.

 

Wed, 12/23/2015 - 11:44 | 6956311 Hubbs
Hubbs's picture

The issues of unfair trade/dumping not withstanding, it would be interesting to see, as a sidelight,  who paid and got paid for instituting this tariff. I am sure it was someone in the domestic steel industry like Nucor, U.S. Steel Corp. and Steel Dynamics Inc., and understandably the US steel industry would be concerned about Chinese dumping, but I would like to know if any money was passed through a member of Congress to enact this tarriff.

 

Yeah, I am that cynical.

Wed, 12/23/2015 - 11:55 | 6956366 Ms No
Ms No's picture

That and also the fact that China (Russia as well) was in the middle of federal reserve economic "transition" but failed to please their new masters in some way or didn't hand over their government controlled economy fast enough.  So now they pull the carrot and get out the stick, if we were to benefit off of this it surely it would just be luck. 

Wed, 12/23/2015 - 11:58 | 6956375 rejected
rejected's picture

"but I would like to know if any money was passed through a member of Congress to enact this tarriff."

How dare you thinking a US CONgressional statesperson would be dishonest and have diabolical motives. Turn in your guns and report to your nearest .gov re-education center. 

Wed, 12/23/2015 - 11:48 | 6956336 TRM
TRM's picture

China could ban all USA corn, soy and any other genetically engineered food and claim "health issues" so that would be one retaliation that could get back at the USA and quickly.

Wed, 12/23/2015 - 12:42 | 6956519 Anopheles
Anopheles's picture

Much of Europe has already done that.  Most countries banned GMO imports based on one incredibly flawed "study" (study was withdrawn it was so bad). 

It was actually trade restrictions rather than GMO, but was disguised as a GMO ban. 

Wed, 12/23/2015 - 11:49 | 6956342 Catullus
Catullus's picture

Have we hit the 120 year mark of protecting the US steel industry yet? What a joke.

Thu, 12/24/2015 - 08:04 | 6959644 DirkDiggler11
DirkDiggler11's picture

I would tend to disagree on this point. I believe almost everyone on ZH would agree that we would probably want the federal government to pave the damn roads and provide for National Defense, and that's about it.

If you are providing defense for the country you must protect a few key areas of manufacturing to ensure that if you do end up in another Word War for whatever the reason, you have enough key infrastructure to be able to keep a military on the battlefield. Yes, steel would be one of those vital industries where you can't afford to let 100% of production move overseas.

Wed, 12/23/2015 - 11:51 | 6956349 SgtShaftoe
SgtShaftoe's picture

Currency wars -->  Trade wars -->   Hot Wars

                   (You are here ^)

Wed, 12/23/2015 - 11:52 | 6956357 rejected
rejected's picture

The world is gonna cheap / save its way out of business. The only words spoken in America,,, cheap, cheaper and cheapest whether it's business or buyer. The company I am employed with is "saving" for management bonuses while the sheet rock walls in their buildings are crumbling into large deposits on the floors which don't get cleaned because,,,,,,, they're saving money.

China's imported cheap stuff has been allowed to put many Americans out of business and even more out of work. Cheap is good is all we hear (WalMart, K-Mart, Sears) ... so what's the problem with steel? Most of the steel production (and any other production) in the USA has been exported to China, Now, all of a sudden they want to save it? Maybe that TPP shit? Who knows anymore...

Wed, 12/23/2015 - 12:10 | 6956407 conraddobler
conraddobler's picture

dupe

Wed, 12/23/2015 - 13:37 | 6956826 rejected
rejected's picture

You honestly think all the American (Now International) Corporations got this big by saving money? They spent their asses off. Sourcing, Infrastructure, outlets, Advertising, and the endangered species of today,,, the competent loyal  reasonably paid employee... something these poor bastards we call our beloved children will never experience.

Wed, 12/23/2015 - 12:09 | 6956408 conraddobler
conraddobler's picture

They have to save it or there won't be a here, here.

It's amazing it took this long. 

The rest of the world is such crap we could with any intelligence at all return to glory in no time it's just knowing what needs doing and doing it.

In times like this given the enormity of how bad a situation China is in with this stuff it's the only thing you could do or by the time this is over nothing would be left here at all of our steel industry.

News flash as a country it's a BAD idea to depend on foreign steel if you ever have to go to war.

There is no such thing as free trade it's a myth because the lowest cost producer will always be in some pit hole that has no regulations and will shit all over the planet in the process.

Wed, 12/23/2015 - 12:12 | 6956414 conraddobler
conraddobler's picture

Karl Marx said exactly this.

I'm no marxist or anything at all but his point about what's wrong with capitalism is sadly exactly correct.

Everything including people become a commodity.

Now he was a tard who knew fuck all what to do about it but he had the problem diagnosed to a T.

Wed, 12/23/2015 - 13:28 | 6956754 Ward no. 6
Thu, 12/24/2015 - 00:33 | 6959231 NoWayJose
NoWayJose's picture

Nothing like letting environmentalists and liberal governors shut down mines and pipelines - then decide that unemployed miners really are a problem too!

Wed, 12/23/2015 - 11:54 | 6956362 Bankster Kibble
Bankster Kibble's picture

I guess China will have to put all that steel into ships and jets and bombs.  Time to upgrade the military . . .

Wed, 12/23/2015 - 12:00 | 6956376 conraddobler
conraddobler's picture

http://www.theguardian.com/business/2015/aug/12/chinas-currency-devaluat...

It's a Tsunami of stupid.

You have central planners in China who have inadvertently created their own caged tiger that eats WAY more then the food production can support.

Soon they'll be throwing everything into that woodchipper and nothing they do will work.

Their boom was orders of maginitudes larger than our boom was when we had the depression 1.0 version 2.0 is going to go down as NEW IMPROVED and MUCH MORE DOOMISH!

The levels of captial missalocation due to market manipulation is so HUGE as to dwarf anything mankind has ever done before.

When this is done I have no idea who or what will still be standing, probably only Taco Bell.

Yeah our FED decides now is the time to tighten thus DWARFING the idocy of the FED the last great depression.  Bravo you people are special but special is not always better.

OR 

THIS CONCLUDES OUR PRE-DEPRESSION FESTIVITIES.

LET THE GAMES BEGIN!

Wed, 12/23/2015 - 12:01 | 6956388 sschu
sschu's picture

Debt deflation on display.  These guys are in survival mode.  

Too much debt, lack of demand, too many competitors, too much supply.  Sell at any price to service the debt and live for another day.  Just hope to survive.

This is their mind set, be the last man standing.

But Von Mises already wrote the last act of this play, so good luck.

sschu 

 

Wed, 12/23/2015 - 13:44 | 6956864 tarabel
tarabel's picture

 

 

Yes. Buying time with cash flow from whatever source possible.

The news from everywhere is bad, yet an appearance of normality continues.

When this goes, it will happen in a sudden rush that will catch everyone with their pants around their ankles. We all know it is coming down. It is what we do to shield ourselves from le deluge that matters.

Wed, 12/23/2015 - 13:49 | 6956895 sschu
sschu's picture

We are living Von Mises.  Either take the medicine (deflationary depression) or blow up the currency.

The PTB will lead us to war before they allow either to occur.  But the laws of economics are like gravity, just with a longer time constant.

Ugh.

 

sschu

 

Wed, 12/23/2015 - 12:03 | 6956391 buzzsaw99
buzzsaw99's picture

the fucking maggots won't let me buy cheap fence posts. farking bastidges artificially set the price of everything too god damn high. capitalism my ass. i am going to fucking boycott EVERYTHING in 2016.

Wed, 12/23/2015 - 13:24 | 6956722 rejected
rejected's picture

Capitalism doesn't necessarily equate to low prices. Trust me,,, your getting plenty of cheap products.

Thu, 12/24/2015 - 00:55 | 6959272 bunnyswanson
bunnyswanson's picture

Unsustainable.  Circus will leave and the cheap-priced, designed to break prizes used to lure in the consumer will end.

Wed, 12/23/2015 - 12:10 | 6956411 Bopper09
Bopper09's picture

...and China dumps ALL of it's U.S. treasuries

Wed, 12/23/2015 - 13:15 | 6956676 Winston Smith 2009
Winston Smith 2009's picture

And they'd then be seriously shooting themselves in the foot.

They dont' have us by the balls, we have them by the balls. Suckers! Taking paper for actual manufactured goods...

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. Paul Getty

 

 

Wed, 12/23/2015 - 12:14 | 6956419 juggalo1
juggalo1's picture

Dumping or price discovery?  If your domestic market is artificially manipulated, and you are selling the excess abroad, that is the definition of dumping.  The state has been riding the tiger for a long time, and the tiger keeps getting fiercer.  When it runs into a wall, the tiger will turn on its "master".

Wed, 12/23/2015 - 12:20 | 6956438 HoserF16
HoserF16's picture

Thats brilliant. Give them all the steel from the Cash for Clunkers program and turn around and tarrif the shit out of the products they send back. I love it!

 

Wed, 12/23/2015 - 12:41 | 6956516 Fuku Ben
Fuku Ben's picture

There's nothing like killing that allegedly recovering, stimulated and growing free market global economy than implementing a protectionist tariff. I'll expect to hear Celente yelling about them driving us towards a world war with stupid moves like this. Unfortunately he's right and I don't consent to any of these or future actions in the globalist criminals plans for moving us towards their alleged one world order utopia.

U.S. Department of Commerce | International Trade Administration

Steel Industry Executive Summary: December 2015 Highlights

• From September to October 2015, U.S. imports of steel mill products increased 7.3% to 2.8 million metric tons.
• Steel mill imports from China decreased 51.5% in October 2015 to 63.5 thousand metric tons from 131 thousand metric tons in August.
• In October 2015, the steel trade deficit widened to -2 million metric tons from -1.8 million metric tons in September, an 11% increase.
• U.S. steel production increased by 1% to 6.74 million metric tons in October 2015 from 6.68 million metric tons in September.

Wed, 12/23/2015 - 12:43 | 6956526 Phoenix901210
Phoenix901210's picture

Whenever they interfer like this there are unintended consequences.

Wed, 12/23/2015 - 12:53 | 6956571 VWAndy
VWAndy's picture

Do we still have even one steel smelting plant runing in the states?

Wed, 12/23/2015 - 13:08 | 6956634 NoWayJose
NoWayJose's picture

China didn't sign the TPP - I guess now they have to ship their steel to a TPP country first - then dump it in the U.S.

Wed, 12/23/2015 - 13:39 | 6956841 Ward no. 6
Ward no. 6's picture

for a view on what is going on in Mn concerning the steel industry watch this...

just posted yesterday

http://www.northlandsnewscenter.com/news/iron-range/RAW-VIDEO-US-State-l...

Wed, 12/23/2015 - 14:02 | 6956952 Herdee
Herdee's picture

The U.S. Government is hard up for tax money and rising interest rates won't make it any easier.The defence and jail systems will bankrupt the NeoCon Empire.Not even the opium,heroin and cocaine that sponsors the CIA is enough to pay for the flood of baby boomers hitting Washington.

Wed, 12/23/2015 - 14:06 | 6956968 MoHillbilly
MoHillbilly's picture

Not to worry , think of all the money we have saved over the years  by buying the cheap stuff. We just take all that money we have saved up and live on it for a while.

OldTimers saying: You can't starve a profit into a cow

Wed, 12/23/2015 - 14:50 | 6957183 KuriousKat
KuriousKat's picture

 

Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.

Wed, 12/23/2015 - 15:04 | 6957260 vincenze
vincenze's picture

I recommend the Chinese to give more money to Greenpeace. Greenpeace will help to close steel plants and other polluting factories as it has done in California.

 

Wed, 12/23/2015 - 15:30 | 6957355 Herdee
Herdee's picture

And the NeoCons running Washington sure won't put tariffs on Saudi Aramco.No,you wouldn't want to offend Obama's bum buddies - The Head Choppers.What you want to do is keep them rolling in American Dollars in order to finance terrorism.

Wed, 12/23/2015 - 21:04 | 6958605 NoWayJose
NoWayJose's picture

256%, 257% - whatever it takes!

Wed, 12/23/2015 - 21:08 | 6958616 Nanur
Nanur's picture

And THAT my friend is how you fight a currency war

Wed, 12/23/2015 - 21:56 | 6958778 joego1
joego1's picture

And Yellen is Yellen "Damn it we will have inflation by God!"

Wed, 12/23/2015 - 22:20 | 6958864 Publicus_Reanimated
Publicus_Reanimated's picture

You better think real hard before you demand that China eat its excess finished commodity production.  If forced to eat it, there is no more economical thing for the Commies to do than use that excess factory capacity to turn it into machines of war.  Be very afraid, Arthur Dent.

Wed, 12/23/2015 - 23:50 | 6959140 truthalwayswinsout
truthalwayswinsout's picture

They are not Communists, they are National Socialists.

Germany was caught up in the same kind of planning under Hitler, and the War would have been over by at least 2 years earlier had Albert Speer not taken over and ran the economy.

The Chinese have no Albert Speer and their "Communist Party" will be replaced; that is what you need to be scared about. Will Capitalists or National Socialists take control?

If Capitalists take control thinks will be ok, if not look for the next World War.

Thu, 12/24/2015 - 00:20 | 6959203 hedgiex
hedgiex's picture

Keep going protecting a vested interest group at the expense of ALL. Unwinding free trade with definite retaliations lead to more screw*d markets. Collapsing price discoveries given its booster. All these reverberatiing thru the global suppy chains and markets in a race as who will implode first. My bet is on the EMs and the best proxies are their currencies (vanities). 

Thu, 12/24/2015 - 00:30 | 6959221 falga
falga's picture

Watch for serious retaliatory measure probably aimed at US Agriculture. The issue of excess capacity is currently forcing all businesses to look overseas for markets as local consumption continues to disappoint and exports is a quick way of solving the issue of over-capacity. Clearly this is not sustainable.

Thu, 12/24/2015 - 01:52 | 6959349 Vendetta
Vendetta's picture

the trade policy ponzi scheme has its limitations..... the level of corruption of the globalists in the federal government have no limits.

Thu, 12/24/2015 - 03:22 | 6959459 Dr. Bonzo
Dr. Bonzo's picture

AND suddenly ICE announces they're going to start deporting illegals. LMFAO. 2 items from Trump's campaign platform done. The establishment already trying to knock the wind out of Trump's sails or what?

Useless cunts......

Thu, 12/24/2015 - 05:48 | 6959558 Bazza McKenzie
Bazza McKenzie's picture

Their problem of course is that most people know whether they, their families and friends have decent jobs or not; and they know whether they see a lot of people around who can't speak English.  A few token moves may impress WaPo and NYT and the people who still read them but won't change the views and votes of most of the country.

Thu, 12/24/2015 - 05:45 | 6959555 Bazza McKenzie
Bazza McKenzie's picture

China's problem is that it is now in the situation of the US at the start of the Great Depression, i.e. the world's leading manufacturer and exporter of manufactured goods.

Once a tit-for-tat trade war starts the country that loses most is the country that exported most.

This will not work out well for China.

Thu, 12/24/2015 - 06:56 | 6959595 Niall Of The Ni...
Niall Of The Nine Hostages's picture

What does "a day late and a dollar short" mean to the Department of Commerce?

If they've finally started doing their jobs, may I suggest a tariff on imported oil to counter Saudi oil dumping below cost? 

Fuck "free trade" with the Third World. Nobody who has to work for a living was allowed vote on it; no such people would have agreed to it. The only people who benefit from it are people who don't have to work for a living---namely the banksters and the Free Shit Army.

Few things in this world have been more costly for the civilized world than cheap Third World labor and cheap Muslim oil. 

Fri, 12/25/2015 - 08:49 | 6962685 honestann
honestann's picture

Can't let prices fall... the peons might survive.  /sarcasm

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