This Chinese government poster depicts the vast, populous nation’s attitude towards its massive development efforts after WWII. Chinese growth over the past 20 years has been both a blessing and a curse for other industrial nations. The poster reads, “Sending more steel to the frontline of national construction” Cai Zhenhua, 1953 (IMAGE: IISG, Flickr CC)
This week, twin blows to the Chinese steel industry offer hope, at least temporarily, to the struggling American steel and iron mining industries.
Yesterday, the U.S. Commerce Department announced it was planning to impose a 266 percent tariff on Chinese and other foreign steel due in response to the longstanding practice of “dumping.” China’s steel industry is nationalized, which allows the country to sell steel for less than it costs to make in order to keep people working. This has the effect of undercutting privately owned steelmakers in other parts of the world who cannot afford to operate under such conditions.
Chinese mines and steel mills have been losing money in amounts that would make even hard times American steelmakers blush. But in a huge country like China, the government figured it was better to keep people working than deal with the social unrest and hardships that come from them not working.
Well, all that was already changing this week. On Monday, China announced the biggest single layoff of workers in the history of the world. Miners, factory workers are among the cuts, including 500,000 people in the steel industry alone.
Some will say the two things are related — that U.S. tariffs forced the Chinese layoffs. I’d argue both are related, but to a much broader core issue: there is too much iron ore and steel on the world market. Since China is such a big producer of steel, and is experiencing an economic slowdown, they are finally forced to deal with the brunt of the layoffs. Since the U.S. knows it can’t produce iron ore or steel at current prices, it is protecting its domestic industry with tariffs.
Tariffs like this do not last forever, nor can we assume this implies a sudden reversal for the long term fortunes of iron ore and steel. However, this does strongly suggest that American steelmakers will be able to resume more robust production once the demand catches up. That will eventually trickle back to the iron mines here at the head of the Great Lakes, at least for a time.
Minnesota mines still have the problem of technological changes in the steel industry, which will require billions in upgrades to Iron Range mines over time. Further, low iron prices will continue to have a dampening effect on profits, which over time could affect the health of parent companies. Miners here, however, have a more straight-forward prerogative: work.
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