China Furious After US Launches Trade War "Nuke" With 522% Duty

Tyler Durden's picture

Now that China's brief infatuation with "rationalizing" excess capacity in its massively glutted (and insolvent) steel sector is over after lasting all of 2-3 months, China is back to doing what it did in late 2015 (and what it has always done) when as we reported, a surge in Chinese exports led to the first salvos in the trade war between China - the world's biggest exporter of various steel products and is responsible for half the entire world's steel output - and countries who are importing dumped Chinese products at the expense of their own steel and mining industries.

Nowhere has this trade tension been more obvious than in the UK, where in recent months angry, protesting steel workers have been demanding rising protectionist steps against a country they, rightfully, see as unleashing a global commodity deflation driven by out of control, and unprofitable by highly subsidized, production by Chinese steel mills.

The US was not left unscathed: we reported in December that "The Trade Wars Begin: U.S. Imposes 256% Tariff On Chinese Steel Imports" and since then things have progressively turned worse, finally culminating overnight with an outburst of anger from Chinese officials who, after attempting to flood not just the US but also the entire world with their commodity in general and steel in particular, exports...

 

... Pushing prices even lower...

 

....  have criticized U.S. anti-dumping penalties imposed on Chinese steel amid mounting complaints Beijing is exporting at improperly low prices to clear a backlog at home.

The numbers, however, do not lie and confirm that China is engaging in massive global commodity dumping.

Chinese exports hit a record 112 million tonnes last year, with rivals claiming that Chinese steelmakers have been undercutting them in their home markets. According to Reuters, in the four months to April, China's steel exports have risen nearly 7.6% to 36.9 million tonnes.

In some regard, China has reason to be angry: the US unleashed what is nothing short of a nuclear bomb in its rapidly escalating trade war with China, and recently imposed duties of 522% on cold-rolled steel used in automobiles and other manufacturing,  In doing so it has rendered Chinese exports to the US unsustainable and will force even more excess Chinese production to remain landlocked within China's borders, making the domestic glut, and price collapse, that much worse.


An employee talks on his mobile phone near stacks of rebar at

Shanxi Zhongsheng Iron and Steel in Fenyang, Shanxi Province

On the other hand, the only reason the US is forced to unveil such unprecedented protectionist measures (we wonder how the "impartial" WTO will argue that US trade practices are fair) is because of China's own capital misallocation which, however, unlike in the US where the capital markets are a perpetual store of newly printed money, in China those $30 trillion in deposits ultimately end up allocated toward fixed investment. The result is the current historic plunge in Chinese commodity prices (now that the recent bubble has burst) and the unleashing of even more exported, quite literally, deflation.

Sure enough, as AP reports, Beijing faces mounting criticism from the United States and Europe over a flood of low-cost steel that Western governments complain hurts their producers and threatens thousands of jobs.

The Chinese government is trying to shrink bloated industries including steel, coal, cement, aluminum and solar panel manufacturing in which supplies exceed demand. That has led to price-cutting wars that are driving producers into bankruptcy. It is also leading to mass layoffs, and is why in recent months the government decided to, far less publicly, stop shrinking its bloated industries and revert to the old and broken model, one which lead to the export surge in the first place.

The result has been immediate: the latest U.S. duties include 266% for anti-dumping and 256% to offset what investigators concluded were improper subsidies, for a grand total of over 500%!

As noted previously, China is furious. The Commerce Ministry complained regulators engaged in "unfair practices" and improperly hampered the ability of Chinese companies to defend themselves but gave no details.

"There's too much trade friction and it's not good for the market," Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the World Trade Organization. While a flood of cheap Chinese steel has been blamed for putting some overseas producers out of business, China has denied its mills have been dumping their products  on foreign markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts.

"High taxes are unfair .... China doesn't have a large market share in the United States," Zhang Dianbo, deputy general manager at Baosteel Group, said recently during a Singapore conference. Mr. Dianbo may be interested to know that creating $1 trillion in new loans in the first quarter as China did, is also to some, "unfair" as all that money goes to subsidize insolvent industries, and results in the export glut that is the heart of the problem.

To be sure, China at least tangentially acknowledged that it was the cause of the problem: a surge in Chinese steel prices helped restart once-shut mills, and might slow Beijing's bid to address excess capacity, said Baosteel's Zhang. "The price rebound is not beneficial to the overcapacity situation.... It will delay the shutdown of (inefficient) capacity," he said.

Steel prices have come off around a quarter since their April peaks and could weaken further in the second half of the year, but Zhang said they were unlikely to return to recent lows.

We disagree, and so do US steel producers who are relying on Washington to do everything in its power to prevent a price collapse.

Washington was responding to a 2015 complaint by five steel producers that said they have been forced to lay off thousands of employees due to unfair foreign competition. One of the producers, United States Steel Corp., filed a separate complaint last month accusing the biggest Chinese steel producers of conspiring to fix prices, stealing trade secrets and skirting duties on imports in the U.S. with false labeling.

Life for China's exporters is only going to get more difficult: the European Union launched its own investigation of Chinese steel exports last week following protests by steelworkers. In Britain, Tata Steel cited low-cost Chinese competition when it announced plans last month to sell money-losing operations that employ 20,000 people.

And just to assure that this is nowhere near the end of the ongoing trade wars, China pushed back against its trading partners in April, announcing anti-dumping duties on steel from the European Union, Japan and South Korea.

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Bryan's picture

Are we *trying* to start a war, or am I mistaken?

nibiru's picture

The China is ready. The oil and gas from Russia, iron ore from Brazil, others from Africa - I would say they are pretty ready to brawl

HopefulCynical's picture

Fucking finally. Tired of watching the world ass-rape us in global trade.

Although knowing Obongo & Pals, this is all for show...

Theosebes Goodfellow's picture

Two questions come to mind. The first is whether the US still has a viable steel manufacturing base sufficiently robust to meet US demands and the second is that one cannot overlook the irony, (did I actually use that word?), of the US selling China all of its scrap steel and then refuse to buy it back. Not that's funny as hell, but it sure makes for some mighty ticked-off Chinamen.

SafelyGraze's picture

chinas can live without usd's, since they can print their own moneys.

however, americas cannot live without steel in the form of three cars in the garage.

hugs,
uber

 

Stuck on Zero's picture

The U.S. is blowing it, as usual. We should purchase any durable commodities the Chinese want to sell us at below cost. We would print up dollars to purchase it, take delivery of the steel and then stockpile it in warehouses.  That would increase dollar momentum, keep the price at a reasonable level, and eventually allow us to control that commodity price.

fockewulf190's picture

Your forgetting the unions.  If thousands of steel workers get thrown onto the street, the Dems will face the wrath, and the unions will scream bloody murder and will thusly back Trump.  The elections have EVERYTHING to do with this move on tariffs.

OrangeJews's picture
OrangeJews (not verified) fockewulf190 May 19, 2016 5:03 PM

Just think of what Hitler would have done with that many supplies!

Dormouse's picture

According to King Hussein, the world is a much safe place today than it was when the Shrub ran things. China is not the problem, the real issue lies in the bigotry of bathroom use. Stand up for a man's #RightToSit.

jcaz's picture

Sweet.  You can buy most of the old steel mills around Pittsburgh for about $100,  if you pay the back taxes- game on.

Donald J. Trump's picture

Was wondering, does the US even make steel anymore?  I know there are steel factories but does any US corporatioms own any?

Arnold's picture

(Reposted for green energy savings)

 

It's not that I hate the chinks.

They are just as corrupt as we are.

They have a greater tendency (a penchant) for fratricide than we do.

FL_Conservative's picture

Think of how much rebar we'd have for building Trump's wall with Mexico.

old naughty's picture

<--- To retaliate, China will dumpy UST ?

<--- China will back off on buying London gold vault ?

 

<--- China will trade their rebars for more Russian flattops, or intensify USDCNH currency war?

 

 

w, w, what, unlike KSA, China is not a "K", so no threat to UST? Duh.

 

kabuki.

Multi's picture

The Chinese State is willing to enslave their population (that's what subsidizing is) so I can buy cheap stuff (paying them with confetti btw). But for some reason I, the regular Joe, should complain about this? And I should cheer for import tariffs so my "master" won't lose his plantation? because God forbid I lose my job, given that I'm too stupid to find another thing to do.

But of course all this is for me, they are worried about my job. Not that they want to protect their business and the $$$ millions they'll make under a regulated market. No, no, no... it's for my job security.

Kayman's picture

old naughty

To retaliate China will de-peg the yuan from the dollar and show they can run with the big dogs.

I can dream can't I ?

ebworthen's picture

Fuck China! 

Did I miss something?

new game's picture

yea-rust never sleeps; good nite...

ebworthen's picture

Fuck China!  And the U.S.S.A.!

Go Russia!

autofixer's picture

If I am not mistaken you little handed douche, the U.S. makes more steel today than at the peak of Unionism in 1978 and with 10% of the employees.  Rosie the Robot thanks you.  

indygo55's picture

The Chinese steel quality is questionable. The rebar and plate need to pass the stringent testing that the US steel must pass. We have used chinese rebar in the recent past and it looks like a pitted included mess. Some of the stuff we have seen can't possibly pass shear and tensile testing. They are sweating carbon and we won't use it.

 

 

RichardParker's picture

California Department of Transportation in San Fran got more than they bargained for when they bought their "Bay Bridge" from the Chinese. 

http://www.dailykos.com/story/2014/6/10/1305808/-California-discovers-hi...

 

 

 

Lore's picture

From your link:

"Caltrans started out by hiring an inexperienced company labeled as "high risk" and given only a contingent pass by an expert to build parts of a major bridge in an earthquake-prone location. Then, when problems were found by Caltrans' own engineers, its managers said they weren't really problems and threw more money at the project, leading to cost and time overruns after having hired ZPMC because it would supposedly be cheap and fast. Caltrans is insisting that the bridge is safe despite what Piller describes as a "litany of problems" including "suspect foundation concrete, broken anchor rods and rust on the suspension span’s main cable." The problem is, it's not clear Bay Area commuters should believe that."

So blame apparently lies with the assholes state-side who made the deliberate decision to cut corners and costs! 

Mr.BlingBling's picture

That's not even the half of it. 

Because of CalTrans' incompetence "most of the 423 steel rods securing the span's tower base had been bathing in potentially corrosive water, and were therefore in danger of cracking. Now, as the Chronicle reports, it's been confirmed via an integrity test that some of the rods are probably already compromised.

The "mechanical pull test" was conducted Wednesday seeing if one of the rod's fasteners moved when tugged. It should not, but it did." 

http://sfist.com/2015/05/08/bay_bridge_news_gets_continually_wo.php

Overfed's picture

Affirmative Action and Diversity FTMFW!

Lore's picture

That boils down to specifications and quality control.  The Chinese have proven their ability to produce top-quality product. Furthermore, they use it to build out their nation's infrastructure: 

Now THAT'S a high-way! Spectacular aerial images show China's impressive mountain overpass built over a 1,630ft valley (Daily Mail, 17-May)

China High Speed Railway On Fast Track (YouTube)

We get enough simplistic smear propaganda without allowing it to pollute discourse on ZH.

Mr.BlingBling's picture

They seem to be on track to provide high-speed rail service to every city with population >500,000.  Very impressive. 

A Pimp&#039;s love is different's picture

I thought I saw a video here about a Chinese apartment building where the walls were filled with sand. So at least we do know that they're very good at pounding sand

Lore's picture

Of course, the sheeple laser in on a boondoggle like this, to the exclusion of millions of successful projects. That one is amusing, though. From Cracked:

"The building itself was OK -- in fact, considering how well it held together after it "collapsed," we'll go out on a limb and say that it was pretty great -- but problems were all around and, more specifically, beneath it. When workers began construction on an underground parking garage next to the structure, they piled all the dirt from that into a landfill beside a nearby creek. Then they all turned on their jackhammers when a bevy of other engineers came by and repeatedly ignored their warnings about how bad of an idea it is to dam up a river right next to a new construction project. To the surprise of, like, maybe one guy who never got to play in mud puddles as a kid, the creek's banks collapsed and flooded the area. So when it rained soon afterward, the building was basically toast. Its foundations gave way, narrowly missing the neighboring structures, and just barely avoiding kicking off the world's most terrifying domino display."

Google construction defects in America and you find 'a few' hits. Pot, meet kettle.  And of course, enter the litigators ("it's the American way"):

Construction Defect and Occurrence: Stll Crazy After All These Years

Construction Defects: What Often Goes Wrong And How the Contractor Can Avoid Defects Litigation

artichoke's picture

We don't have any new buildings falling over.  In fact we don't have many new buildings at all.

GoldSilverBitcoinBug's picture

All I see is peak civilization everywhere, the West used to be innovative like that in the past unfortunately all good things com to an end...

Remind Japan from after war till 1990, then after a slow aging and collapse will happen too.

Kayman's picture

Lore

"The Chinese have proven their ability to produce top-quality product." What the fuck are you talking about ?

It is a culture of cheating- each other, the gods, and you.  

It doesn't matter if they build railways and buildings from here to hell.  What matters is the structure safe and will it last.

Metallurgy is not their strong suit. You, sir, are full of shit. 

Lore's picture

When YOU can say that you have visited major cities in various parts of China and observed the modern crane-strewn skyline, attended meetings in state-of-the-art skyscrapers, and traversed some of the incredible new highways and bridges, with thousands of miles free of potholes and patches, with manicured lawns and hedges literally for those same thousands of miles, and no garbage whatsoever, and attended sporting events and ceremonies at any of the major new stadiums, and zoomed along at 400kph on the maglev, and toured state-of-the-art scientific research facilities, and worked with people whose English is superior to your own, and walked the clean streets at night with young families, feeling perfectly safe no matter where you are, and enjoyed five-star meals in penthouse apartments in the financial districts, then open your mouth. In the meantime, you are an ignorant lout and have no business opening your stupid, gaping, Ugly American yap on Zero Hedge.  FAIL. 

Crisis In America: A Crumbling Infrastructure

P.S. It may shock your narrow, provincial (hick) sensibility to learn that the American people as a whole are widely despised around the globe, not only for corrupt foreign policy that includes false flags and endless wars on other nations and peoples, but also for your lousy, rotten, stinking business ethic (of which war is an extension).  Your daring to point the finger at others is the height of pathological hubris.

poeg's picture

Heat numbers now required with every single piece of Chinese steel pipe coming into the American controlled mines in Canada. Been that way since worker safety was placed above gender and racial diversity in floating maintenance crews... about 4 years now.

Kayman's picture

poeg

Awfully quiet around Nexen with the pipe that blew out. Nexen, of course, owned by the Chinese. 

Kayman's picture

indygo55

Using Chinese steel is confirmation of insanity. China cheats on the quality of everything.

Read their National Warranty : If you're dumb enough to buy from us, and you have a problem, then go fuck yourself.

Escrava Isaura's picture

 

 

Astounding the level of misinformation and stupidity written by some.

autofixer: U.S. makes more steel today than at the peak of Unionism in 1978

autofixer, there’s this thing called the internet, where you can search key words and data.

https://en.wikipedia.org/wiki/Iron_and_steel_industry_in_the_United_States#History_of_US_iron-_and_steel-making

 

“China is a sleeping giant. Let her sleep, for when she wakes she will move the world.” ? Napoléon Bonaparte

Wonder what happen to the laissez-faire propagandists? Their comments about in keeping free-markets free.

 

 

Escrava Isaura's picture

 

 

Exactly. Wonder why it’s not allowed in the US?

Because the elites know that laissez-faire/free markets means that you’re in a race to the bottom.

 

Multi's picture

So the "elites" don't allow free markets because it's a race to the bottom.

And the "elites" are much worried about the "plebs", right?  Not that free markets hurt the "elites" because they are forced to compete (helping the "plebs" in the process). No, no..  it's not "elites" self preservation instinct. It's that they are worried about the "plebs" wellbeing.

Bernie, is that you?

Arnold's picture

Do you understand Corsican culture?

Evidently the frogs did,  pour la Revolution.

ebworthen's picture

Oh great!  FED Steel!  Long live the robots!

But who the fuck is going to pay the mortgage!?!?  The FED?  Goldman Sachs?

Buckaroo Banzai's picture

"If thousands of steel workers get thrown onto the street, the Dems will face the wrath, and the unions will scream bloody murder and will thusly back Trump."

"Thousands" of steel workers? Do we even have that many in the entire country? Do we even make steel anymore?

I agree, we should take all the steel they are willing to sell us at that price. Our trade problem with China has nothing to do with steel; it has everything to do with the manufacture of finished goods, and the offshoring of entire manufacturing value chains.

And, as a separate issue, Chinese steel sucks. Almost everything allegedly made of "stainless" steel that I've bought that's made from China in the last ten years has rusted to one degree or another.

willwork4food's picture

You get what you pay for. They know and we know it. Even the Chinese hold American products in high esteem.

No Zbig Deal's picture

Was waiting for it. I went to the HS on the hill. Mingo, Weirton, Martins Ferry et al have plenty of stellers