On April 18th and 19th, leaders from some of the world’s major steel producing countries met in Brussels to discuss the overcapacity problem that is wreaking havoc on the global steel industry. Last night, the governments of Canada, the European Union, Japan, Mexico, Korea, Switzerland, Turkey, and the United States issued a statement agreeing, among other points, that:

  • Restructuring in the global steel industry “should be market-driven, with production and trade flows reflecting the market-based competitive positions of steel producers (i.e., absent the effects of government measures that distort markets)”;
  • “Government support measures have contributed to significant excess capacity, unfair trade, and distortions in steel trade flows”; and
  • Government plans and subsidies should not encourage investment in steel capacity that would not otherwise exist, should not distort competition, and should not prevent loss-making capacity from exiting the market or otherwise encourage the net expansion of steelmaking capacity.

Unfortunately, China—the elephant in the room when it comes to excess steel capacity—got up and left the room. When asked about the steps that China might take following this week’s meetings, Chinese officials said, “China has already done more than enough. What more do you want us to do?”  Commentary in China’s official media described requests for China to take action as “a lame and lazy excuse for protectionism.” In a statement on Monday, U.S. Secretary of Commerce Penny Pritzker and U.S. Trade Representative Michael Froman expressed frustration with China’s refusal to participate in a global solution:

Unless China starts to take timely and concrete actions to reduce its excess production and capacity in industries including steel, and works with others to ensure that future government actions do not once again contribute to excess capacity, the fundamental structural problems in the industry will remain and affected governments—including the United States—will have no alternatives other than trade action to avoid harm to their domestic industries and workers.

As described in a report issued last week by Wiley Rein’s International Trade Group, China itself has long identified subsidies and anti-competitive government intervention as the primary drivers of the country’s overcapacity problem. But rather than tackle this problem head-on, China’s web of industrial policy plans prescribe more subsidies and state intervention. Unsurprisingly, China’s overcapacity problem has only worsened, while steelmakers in the United States and elsewhere have struggled as China has relied on foreign markets to offload its excess steel.