Steel Tariffs Threaten China's Supply Routes to the U.S.

New tariffs introduced by the U.S. are poised to significantly impact steel supply chains originating from China and passing through third countries en route to the United States.

The United States has imposed a 25% duty on steel imports, set to commence on March 12. This move targets the complex supply chain that has allowed Chinese steel to enter the U.S. indirectly through processing in countries with fewer trade barriers, such as Vietnam and Brazil. This chain has been crucial since U.S. trade barriers in 2016 and 2018 largely blocked direct Chinese steel imports.

The impending duty is expected to affect a significant portion of China’s steel exports, a vital part of the country’s industry, which has been struggling amidst declining domestic demand due to a property crisis. The tariffs are anticipated to disrupt nearly $7 billion worth of Chinese steel exports, which accounted for almost a tenth of their total exports last year.

Competition in the global market is expected to intensify as Chinese steel, unable to reach U.S. markets directly, could be diverted worldwide. Such diversion would exacerbate existing protectionist sentiments globally, posing further challenges to Chinese exporters.

China’s steel sector, heavily reliant on exports to offset domestic economic challenges, faces increased pressure as other countries may follow the U.S. lead, placing additional tariffs on Chinese steel. The China Metallurgical Industry Planning and Research Institute has already highlighted the potential negative impact on profitability due to decreased exports.

There are concerns within China that the new U.S. policy will drive other nations to adopt similar measures, thereby intensifying the challenge for Chinese exporters in maintaining their market share internationally. Countries like Vietnam and South Korea have recently announced new tariffs on certain Chinese steel products, indicating a trend of increasing trade barriers.

Vietnam, a major recipient and subsequent exporter of Chinese steel, has seen U.S. steel imports from its ports surge, up 143.4% year-on-year. Such dynamics complicate the already labyrinthine steel supply routes, and new tariffs could exacerbate these complexities while testing international trade agreements.

The American Iron and Steel Institute and data from Chinese customs highlight the significance of Vietnam in China’s steel export narrative, contributing 11.5% to China’s total steel exports last year. The complex network of trade relationships underscores the intricate nature of global steel markets.

As the U.S. and other nations erect new trade barriers, China’s steel industry faces critical challenges. The evolving landscape necessitates strategic adaptations to sustain its export levels amid rising global competition.