I was running at the gym yesterday morning and watching Fox Business channel where I saw that the Chinese are flooding the international market with surplus levels of steel because of the downturn in demand in their country. China produces more steel than the rest of the world combined which is an astonishing figure, and the influx of Chinese steel at a lower price has had a dramatic effect on the Western economies.

 

The production of steel in China has caused the amount of steel imported into the United States to increase by 34% in February 2015. This massive influx has triggered layoffs at U.S. Steel and Nucor, among others in American steel marketplace. Overall, the U.S. steel industry has seen 22 companies declare Chapter 11 bankruptcy protection.

 

The cumulative effect of the market flooding by China has led to the discussion both in Europe and the United States of whether a tariff should be instituted on steel. This is due to the fact that Chinese steel is made far cheaper than the rest of the world primarily because of the dramatically lower labor costs.

 

I disagree with the editorial in Forbes on this subject, while some of the information in the article there is sound, the author is against the implementation of a tariff on Chinese steel. The main rationale for that position being that he maintains that with the escalating costs for companies to manufacture products in the United States they should be entitled to access to materials such as steel at a cheaper cost to them.

 

I disagree with this position for two reasons: the impact it has on the American middle class worker, and I believe it is unfair for any country to dump excess products into the market and essentially undercut a particular industry, in this case the steel industry. This maneuver by China to flood the marketplace with surplus steel has hurt the American steel industry at a time when our country needs to keep as many manufacturing jobs as we possibly can. It has caused the layoff of the average American laborer which will have a profound effect on the already shrinking middle class in this country and will impact entire families as well.

 

The implementation of a tariff would be at least a prohibitive measure to safeguard the marketplace against this type of surplus flooding. It would allow American companies to level the playing field in their competition with emerging Asian economies.

 

In Our Defense

 

In all the commentaries and reports on this topic I have not seen anyone else mention an important aspect of this situation which is the fact that the U.S. government does not allow parts from China to be used in a Defense Department contract. The cheaper steel from China would not be able to be used in any of the products procured for the defense purposes of our country. Therefore, the American steel companies will have to produce to serve those contracts with a decreased labor force due to the market conditions changed by China’s actions within the marketplace over a period of years.

 

The lack of a duty or tariff on steel also means that the Defense Department could be paying more for domestic steel which is an issue that effects all taxpayers since we are footing the bill. Other Western nations are feeling the same effects to their respective domestic economies due to the activity of the Chinese companies handling of the supply dumping of steel.

 

The reports that I have read regarding the analysis and testing done on the quality of Chinese steel is that it is substandard when compared to other steel sources in the market and that is part of the rationale behind why certain companies and the Federal government will not use it for the defense contracts.

 

In India, also an emerging world economy, their steel production companies are asking the Indian government to impose a tariff to offset the impact of the influx of Chinese steel imported into their marketplace.

 

In the end, the tariff should be adopted in order to preserve fair market competition regarding the commodity of steel so that the Chinese companies will be forced to think twice before dumping excess product and disrupting the market conditions in the future.

 

(Some background information courtesy of Fox Business News, Forbes, WSJ.com, and Economic Times.com)