Indirect steel trade deficits continues to rise

Oct. 12, 2007

The latest American Iron and Steel Institute (AISI) ( analysis of U.S. “indirect” steel trade shows that U.S. indirect steel imports reached a new high of 39.8 million net tons in 2006 – up 8 percent from 2005 and up 22 percent since 2000 – while indirect U.S. steel exports reached a new high of 20.6 million net tons in 2006, a 2 percent gain from 2005 and up 15 percent from 2000.

The AISI analysis identifies indirect steel trade as the volume and value of steel incorporated in finished products in eight major consumer markets imported and exported between the United States and 11 major countries in four regions.

Since indirect import gains outpaced the rise in indirect exports, the indirect steel trade deficit increased in 2006 to 19.2 million NT. This is 15 percent greater than 2005 and only 4 percent below the record year of 2002.

The American Iron and Steel Institute says America’s enormous, growing deficit in indirect steel trade serves as an ongoing warning about the increasing long-term challenges facing domestic manufacturing. For the automotive sector (which remains the single largest source of indirect steel imports), the indirect steel trade deficit grew to 9.5 million net tons in 2006, after being relatively stable in 2003-2005. However, while the indirect steel trade deficit for this sector rose modestly from the 2003-2005 sector average of 8.7 million net tons (which was 22 percent below the sector deficit in 2002), the indirect steel trade deficit in 2006 remained well short of the sector’s record deficits in 2001-2002. This decline reflects in part the increasing automotive production in the United States, largely by foreign producers such as Toyota, Nissan, Honda and Hyundai, which have significantly expanded the scope and scale of their U.S. operations. These companies rely mainly on domestically produced steel. While the automotive sector’s indirect steel deficit since 2002 is one positive development, the significant overall deficit in America’s indirect steel trade highlights continuing structural problems for U.S. manufacturing. Of particular concern to domestic steelmakers is the fact that U.S. indirect steel imports from China last year (6.1 million net tons) increased 20 percent from the level in 2005. Moreover, our 5.5 million net tons indirect steel trade deficit with China in 2006 was the largest deficit with any country, and was 3.9 million net tons greater than in 1999.

“China has the world’s most heavily subsidized steel industry and a huge excess of inefficient steel capacity. Its mercantilist model of government subsidies, currency misalignment and export-led growth extends well beyond steel to include downstream producers throughout the Chinese manufacturing base,” said Andrew G. Sharkey, III, president and chief executive officer of the American Iron and Steel Institute. “Because no U.S. manufacturer, regardless of how efficient it is, can compete against the Chinese government, this model of economic development represents a growing threat to the U.S. steel industry, the American manufacturing base (our domestic customers) and U.S. national security. AISI therefore joins with other U.S. industries in urging the adoption of a pro-manufacturing U.S. policy that has at its core more effective laws against unfair trade. The place to start is with passage into law this year of strong China trade legislation.”