Under the law and for all practical purposes, international trade is Washington’s domain. But the dumping of nation-subsidized, below-market steel has become so profound a problem for Pennsylvania steel manufacturers that state House members engaged in the fight this week. They have the most notorious culprit, China, in their sights.
The House approved a resolution, HR 811, urging Congress and the President to use all resources at hand to end foreign steel dumping and, more long term, extend China’s designation as a “Non-Market Economy.” In addition, the House Manufacturing Caucus, chaired by Eli Evankovich (R-Westmoreland, Armstrong) and Mike Schlossberg (D-Lehigh), on Wednesday listened to steel and manufacturing experts cover the breadth of the crisis. It’s a frightening story, especially as PMA President David N. Taylor rightfully told the committee, in the larger context of China’s international power grab.
“It’s part of a plan of attack on the United States by a dictatorial government in Beijing and their weapons of choice are dumping steel and other products, industrial espionage, and cyber attacks,” Taylor told members of the caucus. “They are waging economic warfare against us.”
The economic harms are mounting. Steel plants are shutting down and 13,000 American steelworkers lost their jobs in the past year alone. Their jobs, and the down-the-line jobs, are nearly impossible to replace.
"The average steel worker makes $70,000 a year," said Chris Masciantonio, US Steel's General Manager of Government Affairs. "Each one of those jobs is responsible for seven additional jobs."
Masciantonio testified alongside United Steelworkers (USW) district supervisor Bobby “Mac” McAuliffe.
China simply produces far more steel than not only its own market demands, but more than the demands of the entire global market. Last year, China’s government-owned plants produced over 400 million metric tons of excess by edict from Beijing while the United States, the world’s largest market-based economy, produced 100 million metric tons in total. Chinese steel has to go somewhere, and with our historically low tariffs, much of it comes to our shores. Chinese steel currently comprises 30 percent of the U.S. supply market.
On Wednesday, the U.S. Department of Commerce increased tariffs for at least one class of steel products. Commerce set final anti-dumping margins of 265.79% for all Chinese producers of cold-rolled steel. Commerce also issued final countervailing duties of 256.44% for all Chinese producers, higher than the 227.29% found in December.
The duties are one part of the solution, but they have their limits.
“Countervailing and anti-dumping duties are like playing whack-a-mole,” said Scott N. Paul, President of the Alliance for American Manufacturing (AAM), appearing at Wednesday’s hearing with PMA’s Taylor. “They ease the problem for a while but it just arises somewhere else.”
Another priority is extending China’s Non-Market Economy (NME) as HR 811 asks Commerce to do. The House approved the resolution Monday with a 196-0 vote. This December China’s NME designation is scheduled to end under an agreement made in 2001 when the nation joined the World Trade Organization. The NME designation allows Commerce to use a different, more stringent methodology, than it would with a market economy when imposing tariffs.
Even further, US Steel in late April filed a complaint with the U.S. International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930. It’s a bold, but necessary move. Section 337 hasn’t been deployed in nearly 40 years. In the complaint, the company is asking regulators to investigate dozens of Chinese producers and their distributors for allegedly conspiring to fix prices, stealing trade secrets and circumventing trade duties by false labeling.
US Steel’s Masciantonio said that the company believes it will know by the end of May whether ITC will take up the investigation. He said the move has the full support of the unions including the USW, the trades and the Teamsters.
“The investigation could take ten months,” Masciantonio said. “But a full investigation will bring transparency to what’s been going on. We want the evidence to be public.”
Other solutions, as Taylor pointed out, lie in reforms to the state and federal tax structure to bring the tax burden for Pennsylvania companies more in line with the rest of the world. Pennsylvania’s capped net operating loss provision, for instance, is especially punitive to cyclical businesses like steel manufacturing, and the federal corporate income tax is the most onerous among industrial nations: it’s a global tax not a territorial one that amounts to a double tax if U.S. companies bring income back to the states-- they don’t to the tune of $2 trillion overseas that should be invested here.
As AAM points out in a recent study, “Steel import surge threatens U.S. national security.”
“As the backbone of our defense industrial base, and a foundation of our military readiness, steel is used in a broad range of military applications, ranging from aircraft carriers to nuclear submarines to tanks and armored vehicles,” the study says. “Virtually every military platform is dependent to some degree on steel and specialty metals.”
After more than a decade of downplaying concerns, the U.S. Department of Defense was much more candid in its 2016 annual report to Congress on China’s military and security development. Rapid modernization and expansion of the air, land, sea, space, and cyberspace capabilities of the “People’s Liberation Army” prove China’s near-term ambitions to project force further from its shores, bully its neighbors in territorial disputes, and take control of the commercial shipping lanes in the South China Sea. By 2020, China’s navy will be larger than the U.S. navy, with very serious consequences for America’s leadership in the Pacific.
According to the latest report from the U.S.-China Economic and Security Review Commission, China has used cybertheft against the U.S. military to accelerate their weapons programs by stealing American technology. Specifically, the report cited a 2012 Defense Science Board analysis explaining how Chinese cyberattackers acquired details on multiple U.S. systems such as the Littoral Combat Ship, Black Hawk helicopter, Aegis Ballistic Missile Defense, Patriot surface-to-air missile, Global Hawk UAV surveillance aircraft, F/A-18 Hornet combat jet, and F-35 Lightning II joint strike fighter. The F-35 is the most expensive weapons system in American history with a total cost of $1.5 trillion dollars, representing many hundreds of billions of dollars of our military’s most advanced research and development.
“China’s industrial espionage is inseparable from its military and political espionage,” Taylor said. “In the same way, its economic warfare against America’s steel industry is only one manifestation of China’s boil-the-frog, one-step-below-open-aggression assault on our country. Cyberattacks, anti-satellite warfare activity, industrial espionage, steel dumping – these are all parts of a coordinated attack against American security. We shouldn’t tolerate it – any of it – one day longer.”