MSCI Addresses Circumvention and Overcapacity in Section 232 Testimony

“MSCI believes the health of the U.S. domestic steel industry is critical to the entire U.S. manufacturing sector and the broader U.S. economy,” Weidner said. “Problems posed by foreign government-sponsored capacity expansion demand response from the U.S. government.”

In his statement, Weidman wrote:

“In particular, China has, through various anti-competitive mechanisms such as massive state sponsored subsidies, substantially increased its domestic steel industry in the last several years. This massive production growth comes during a time of stagnant—and negative—growth in its own steel consumption, when free market forces would dictate industry restructuring and consolidation. With investment in new capacity continuing to grow, and with growth in steel consumption expected to remain moderate, worldwide excess capacity in the steel sector will, if left unaddressed, continue to increase. “

“The causes of global excess capacity must be addressed to ensure a thriving North American industrial metals manufacturing industry, a healthy American economy and a secure nation,” said Weidner. “If the U.S. does not address this problem now, it will only get worse.”

Declining service center shipments are a clear indicator of injury from unfair trade practices, said Weidner. Carbon steel shipments in 2016 were down 34 percent from peak years before the 2008 recession.

Crude steel production dropped 10 percent in 2015 to 78.9 million tonnes and capacity utilization averaged just 70.1 percent, as noted by the ITA, said Wiedner. Production cutbacks contributed to loss of steel jobs as well as jobs in the fabricated metals industry downstream.

Job losses and plant closures are not due to U.S. inability to produce steel and products competitively, said Weidner, but are a result of unfairly subsidized foreign imports.

“The U.S. government, in an attempt to correct these actions, has rightfully imposed tariffs on various metals from countries that it has deemed to be unfairly subsidizing its metal exports to the United States,” Weidner explained. “However, there is growing evidence, that in an attempt to circumvent those rightfully imposed duties, the Chinese and others are simply processing that same steel into steel parts. These countries cannot be allowed to continue to circumvent U.S. rules and regulations.”

To address this circumvention, MSCI advised federal officials to provide relief for producers up and down the supply chain and to consider consequences of any new trade policy, including: the economic impact of global overcapacity on the entire domestic metals supply chain; transition times and implementation rules to any new policy; availability of domestic metals to meet U.S. national security needs, as well as general industrial and consumer demand; and trade flows under current free trade agreements, including NAFTA, where the written testimony requested the exclusion of Canada and Mexico from trade penalties resulting from the 232 investigation on steel.

“The inescapable conclusion is that something more than classic, free market forces are at work in the global steel market, in ways that have harmed U.S. producers and manufacturers, the steel service center industry and U.S. workers,” said Weidner.

The full comments by MSCI can be accessed here.