Industry Market Trends

Steel Pipes, Subsidies, Tariffs and China

Dec 12, 2007

These are just a few words the U.S. Department of Commerce used last month when it found that the Chinese government has been providing improper subsidies on Chinese circular welded steel pipe exports. In its preliminary determination, the Commerce Department will impose tariffs to level the playing field.

"In its preliminary determination, the United States Department of Commerce will impose tariffs on China pipe exports to offset the unfair advantage of subsidies," according to a statement last month from six U.S. pipe makers and the United Steelworkers (USW). "The U.S. found that Chinese pipe was subsidized by an average rate of 16.59 percent. Individual rates ranged from a high of 264.98 percent down to 0.0 percent for one company."

Most Chinese producers will be subject to a duty of 16.59 percent. The Commerce Department has also applied critical circumstances, determining that this duty could be applied retroactively by 90 days.

The statement described circular welded steel pipe products as standard and structural pipe used in plumbing applications, HVAC systems, sprinkler systems, fencing and construction.

The trade suit, filed in parallel with the International Trade Commission (ITC) and the Department of Commerce on June 7, 2007, was brought by the Ad Hoc Coalition for Fair Pipe Imports From China and the USW.

The New York Times reports on the issue:

To meet its construction needs, China has become the world's largest producer and consumer of steel and steel products like pipe. Only since 2001 has it been a net exporter of steel. Though exports of steel pipe, used to make everything from scaffolding to sprinkler systems, accounted for less than $1 billion of the $232 billion trade deficit with China in 2006, China has doubled its share of pipe sold in the U.S. in two years to more than a quarter of the market. Over the same period, several American steel pipe factories have shut down, throwing hundreds of people out of work.

The pipe imports subject to the latest petition against China have surged from 10,000 tons in 2002 to more than 750,000 tons in 2007 — a 6,900 percent increase, according to the statement in which six domestic pipe makers and the USW applauded the Commerce Department for its preliminary finding.

The U.S. Trade Representative's Office announced in February that it would challenge China at the World Trade Organization over state subsidies of exports of not only steel, but also wood and information technology products, among other goods, as well as "import substitution" subsidies that encouraged Chinese companies to buy domestic products instead of imports.

Chinese officials and trade experts claimed that the subsidies were allowable under WTO regulations and that Washington was attempting to retaliate against China's rising trade surplus, which rose 14.7 percent in November to the third highest on record this year, according to Bloomberg News. China's trade surplus with the U.S. is on pace to exceed $250 billion this year.

The NYT reports:

Despite charges that China unfairly and illegally subsidizes its exports to undercut American producers, the Chinese deny that subsidies are a factor. They see an unfair assault on China's use of Western business models to modernize, provide jobs and take its rightful place in the world.

According to the USW statement, the result of China's dramatically increased pipe exports over the last five years has been "the loss of 500 domestic jobs, approximately 25 percent of the total workforce employed in this segment of the domestic pipe industry."

Treasury Secretary Henry M. Paulson Jr. and other cabinet members began the next round of a "strategic economic dialogue" today, aimed at easing tensions surrounding the threatened steel duties as well as this year's barrage of unsafe food and toys manufactured in China.

In remarks to a seminar on innovation in Beijing, U.S. Commerce Secretary Carlos Gutierrez acknowledged protectionist pressures in both the U.S. and China, reports BusinessWeek and The Associated Press: "We have to continue opening global markets," Gutierrez said. "America and China must work together to stem the tide of protectionist sentiment in our nations."

So here's my question: Is this dispute really about trade, or is it about American jobs versus Chinese jobs?