Is China the Big, Bad Wolf of the Steel Industry?

China is the big, bad wolf of the global steel industry.  That’s what you hear.  Statistics like this, reflecting China’s huge increase in steel exports and production, are used to make this point.  In this, the third of our videos on the steel industry and related tariffs, we’ll dive a bit deeper into Chinese steel to try to understand if there America’s tariffs can help solve a China steel problem.    


Productivity has surged, not imports

In our first video, we focused on the 600% increase in productivity in steel that seems to have had an enormous impact on steel industry employment.  In our second video, we pointed out that there hasn’t really been a flood of steel imports into the US, certainly not out of line with historical averages.  In this video, we put the spot light on China. 


China steel production soared, but has leveled off

We’ll start with the full graph of Chinese steel production, ten years through 2017.  First, note that Chinese steel production has leveled off.  The rapid rate of increase of the past decade is likely to never be seen again.  Now we redraw the graph, this time including consumption, which closely tracks production.  Clearly, most of China’s production is used at home, which makes sense, since China is a huge country, growing and urbanizing rapidly. 


Chinese exports soared, but have fallen off

Now we’ll add Chinese exports to the graph, this one as an index with 2007 as the base.  As you can see,  China’s exports have not only leveled off, but have fallen off, to the point where they are only 13% higher than 10 years ago, versus 70% for production.  Plus, and this is key, on a percentage basis, China doesn’t really export much steel.  These lines represent exports to production for four countries.  Note that Germany and Japan are both above 35%, while the US and China are around and China is actually less than US most recently.  China a huge country, so it exports a fair amount of steel. But on a proportional basis, China is far from being a steel export powerhouse. 


China’s exports to the US have followed a similar pattern, rising significantly, then falling again, to a level in 2017 that was 5% below 2010.  Plus, China’s exports to the US never exceeded 2.5% of America’s consumption and have fallen back to below 1%.  This is hardly an amount that would disrupt the US market. 


Not much Chinese steel comes to US via other countries

What about Chinese steel finding its way to the US via countries that buy from China and then sell to the US.  Looking at China’s top ten steel customers and America’s top ten steel suppliers, it turns out only two countries are on both lists—South Korea and Vietnam.  Together, those countries have never sold the US more than 7% of its steel, less than 4% last year.  Again, not exactly a huge number. 


Bottom-Line: Chinese steel has little direct impact in US

In short, yes, China’s production has increased significantly, but so has its consumption, it isn’t exporting a large share of its steel, and it doesn’t sell much to the US, directly or indirectly.  It is difficult to see how China is the big, bad wolf, blowing away the US steel industry. 


Some will say that, even if China doesn’t sell to the US, its huge overcapacity depresses prices and therefore harms the industry.  That will be the topic of our next blog.