Impending US barriers on steel imports will impact Indian industry

India is exporting around 10% of its steel production while imports meet 9% of our steel use

Much to the concern of steel exporting countries, including India, the United States has once again begun the exercise to stop further haemorrhage of its long shrinking steel industry with protectionist band-aids. Washington has used Section 232 of the US Trade Expansion Act of 1962 to conduct an investigation as to whether imports of steel and aluminium risk national security. Confirming that risk exists, the investigation report has presented President Donald Trump with three trade action options to limit imports further. This has expectedly raised hackles of China and other steel exporting countries. 

An Indian steel industry official engaged in selling growing quantities of steel to the US says: “The disturbing thing is the US Department of Commerce investigation has been done under a trade law that has not been invoked since 2001. Whatever action President Trump takes under section 232 by mid-April, the global trading system will get undermined. This cannot but be the case if national security becomes an accepted excuse to erect trade barriers.”

Reacting in an identical way, a Chinese government official has said the scope of national security is “very broad” and in the absence of a “clear definition,” this could be invoked by a country to further its trade interests. If the President gives effect to any of the options now available to him, the net effect will be a further sealing off of the US steel market, distortion of competition and pressure building on exporting countries to find alternative markets for the metal that cannot be sold in the US.  

Deployment of blanket trade restrictions as part of a section 232 remedy will present every major steel producing country with the twin risks of export reduction in the US and also becoming a destination for redirected import flows. India, which nurses the ambition to take crude steel capacity to 300 million tonnes (mt) by 2030 from the present around 120 mt (actual production is a little over 101 mt), will have to be watchful about the US-centred trade developments. According to steel secretary Aruna Sharma, India is exporting around 10 per cent of its steel production while imports meet 9 per cent of our steel use. Between April and January, our exports advanced by 40.2 per cent to 8.22 mt on a year-on-year basis. In the same period, imports grew by 5.5 per cent to 6.43 mt. 

It is only in the last two years that Indian steelmakers have started getting good prices for their products allowing some of them to become profitable. Sharma in the past took a slew of defence trade measures to ensure that Indian steel did not suffer injuries due to dumping of steel products at less than their production costs. The industry expects her to be watchful about section 232-related developments and take mitigating measures for any adverse fallout here.  

Hasn’t US commerce secretary Wilbur Ross, who shares President Trump’s get-tough approach to global trade to ensure that jobs are protected in local industries unable to stand foreign competition, sent out the warning that powers under section 232 can be applied in a “much more surgical way” than other trade actions? The President has the option to levy a broad 24 per cent tariff on all steel imports. Or he could slap a 53 per cent tariff on all steel products from 12 countries, including China, South Korea, Brazil, India and Vietnam. If this option is exercised, then all other countries will find their steel exports limited to the 2017 level. Yet another proposal entailing no new tariffs will enjoin on steel exporting countries to restrict their sales in the US to around two-thirds of last year’s level. India’s exports will be badly hit in case the President exercises the third option.  

The US is an important market for India, which as it goes on commissioning new capacity should be able to sell steel there in progressively bigger quantities without facing unreasonable trade hindrances. At 38.121 mt in 2017, up 15.4 per cent over the previous year, the US has remained the world’s largest importer of steel. India is the tenth largest exporter of steel to the US with a share of 2 per cent of the country’s imports. According to the US Department of Commerce, India left every other country behind in recording the largest export growth rate of over 200 per cent in 2017. More than 110 countries participate in steel exports to the US, which has a share of about 8 per cent of all global steel imports. 
 

Why is the US Administration so sensitive about steel imports, which in value terms represent around 1 per cent of total goods imported in the country? It will be recalled that during his election campaign, Trump made the promise in rust belt states of Pennsylvania and Ohio that he would reinvigorate steel and coal industries to ensure no further loss of jobs. Now as President, Trump wants to deliver on that promise. But what he is doing is bad economics. 

Big steel users such as automobile and construction industries will see their costs rise as further import restrictions will lead to higher metal prices. Employment in the US steel industry is less than 150,000 while that in manufacturing and construction is around 12.8 million. The President wants a “vibrant steel industry for national defence” irrespective of how prices will react because of his trade actions. “If we ever have a conflict, we don’t want to be buying steel from a country we are fighting,” says Trump. The reference is to China.   
 

But why should there be so much cribbing about imports from China when it is not the top country, not even among the top 10 from where steel comes to the US? Following the imposition of trade penalties by previous administrations, China is sending less and less steel to the US directly than in the past. But a good portion of the finished metal that comes to the US from Vietnam and South Korea originate in China as unfinished steel products. More than what comes to the US from the world’s largest producer, Washington’s principal concern is that the large volume that China sells in the world market is not allowing steel to realise its right value. The US also believes that China will have to scrap steel capacity in a bigger way for the world industry to make better use of capacity.