FEATURE: Prospects for China's steel exports to the U.S.

Rising tariff tensions and global market reactions

During a February 4 interview as part of his 2024 campaign, Trump hinted at a sweeping new approach to trade tariffs. He proposed a baseline tariff on all U.S. imports, coupled with a targeted 60% tariff on Chinese imports specifically, to "level the playing field" in American manufacturing. This rhetoric has drawn renewed attention to the trade restrictions that characterized his previous term, when Sino-U.S. trade friction reshaped the market for industries ranging from technology to raw materials.

The prospect of a 60% tariff on Chinese goods has sent ripples through the market, renewing anxieties about the impact on Chinese exporters. Many recall the difficulties experienced during Trump's initial term, when the U.S. imposed substantial tariffs on Chinese steel and aluminum products under Section 232, citing national security concerns. These tariffs, which included a 25% duty on steel, were intended to protect domestic industries from what Trump described as unfairly subsidized imports.

After these tariffs were first implemented in 2018, China's steel exports to the U.S. faced significant obstacles. By 2020, Trump had extended these tariffs to include certain steel derivative products, broadening their impact across the industry.

Although the Biden-Harris administration chose not to remove these tariffs, instead conducting a four-year review to assess their impact, Trump's return to the White House could signal an intensification of these restrictions, with implications that extend well beyond the steel sector.

Impact of Trump's win on China's ferrous market

The immediate response in China to the prospect of Trump returning to the Oval Office has been one of caution within the domestic ferrous community. The day after Trump's victory was announced, sentiment in China's futures markets turned bearish, with the most-traded January rebar contract on the Shanghai Futures Exchange closing 1.11% lower on Wednesday from its settlement price on Tuesday.

Industry analysts attribute this downturn to the renewed uncertainty over tariffs, particularly given the impact that past tariffs had on the profitability of Chinese steel exports.

A Chinese steel trader expressed concerns about the broader implications of U.S. tariffs, particularly the likelihood that other nations might adopt similar restrictions on Chinese steel. "We are more concerned about other countries, like Canada, that might follow Washington's example and impose tariffs on Chinese steel," he said.

His concerns are not unfounded. When the U.S. first implemented a 25% tariff on Chinese steel in 2018, Canada quickly followed suit, raising its own tariffs on steel and aluminum imports from China. In fact, on October 1 this year, Canada announced an additional 25% surtax on Chinese steel, effective October 22, marking a continuation of this protectionist trend.

Similarly, the European Union recently raised tariffs on Chinese-made electric vehicles by 100% in response to concerns about subsidized exports. Although this particular measure did not include steel, it indicates an increasing willingness among U.S. allies to adopt tariffs on Chinese goods in response to perceived unfair trade practices.

Trade probes on Chinese steel products from the U.S. in 2024:

Limited impact of U.S. tariffs on Chinese steel export volume

Despite these heightened trade tensions, the direct impact of U.S. tariffs on Chinese steel exports may be limited due to the relatively small share the U.S. has in China's total steel export volume. According to data from the General Administration of China's Customs (GACC), the U.S. accounted for only 0.6-2.82% of China's steel exports between January 2016 and September 2024, down from a range of 1.23-8.21% between 2012 and 2015. This shift highlights a reduced reliance on the U.S. market among Chinese steel producers, who have turned to other markets in response to persistent trade restrictions.

U.S. Department of Commerce (DoC) data for the first nine months of 2024 further shows that Chinese steel comprised only 1.4% of total U.S. steel imports, amounting to approximately 350,453 tonnes. This relatively small figure underscores the limited impact that U.S. tariffs might have on China's steel sector, as much of China's production is absorbed by other countries or its own huge domestic market.

The price paradox: Higher cost of Chinese steel imports

Interestingly, despite Trump's assertions that low-cost imports from China and other countries are harming the U.S. steel industry, data shows that Chinese steel exports to the U.S. command a premium. As Mysteel Global has reported, DoC data shows that in September this year, the average price of U.S. steel imports from China was $2,001.8/tonne, compared to $1,207.5/tonne for all U.S. steel imports. This price discrepancy is largely due to the types of steel China now exports to the U.S., which are often high-value processed goods like galvanized steel, rather than basic materials like rebar or hot-rolled coil.

A steel trader confirmed that the imposition of the duties has significantly curbed exports of basic steel products to the U.S. market, while demand for value-added products remains relatively resilient. This distinction between basic and processed steel further mitigates the impact of U.S. tariffs on China's steel sector, as the bulk of China's steel exports are unaffected. This is because Chinese shippers have generally abandoned trying to place low value-added steel items in the U.S. market – Trump having punished these during his first term – and are now exporting higher-grade, higher-processed steel products instead, Mysteel Global notes.

Trump's infrastructure plans: Mixed implications for global steel demand

Another key aspect of Trump's trade and economic policy is his infrastructure agenda. According to the "2024 Voter Guide," Trump has proposed a $200 billion infrastructure investment plan to modernize the nation's transportation network, with a particular focus on rural projects. Trump's election success immediately triggered a surge in U.S. steel stocks, with Cleveland-Cliffs and Nucor shares climbing by 16% and 13%, respectively, the day after the election.

While Trump's infrastructure plan could boost U.S. steel demand and provide a windfall for American producers, Chinese exporters are unlikely to benefit directly. Given Trump's protectionist stance, analysts expect little relief for Chinese steelmakers from increased U.S. demand. Nonetheless, Trump's ambitious infrastructure agenda promises to stimulate U.S. demand, potentially lifting global steel prices in the process, which could offer some indirect benefits to the global steel market, analysts note.

Written by Adele Pan, panqinjie@mysteel.com 

Edited by Russ McCulloch, russ.mcculloch@mysteel.com