21:42 GMT +322 February 2019
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    This Aug. 11, 2009 photo shows laborers working at Huaxi No. 2 steel and iron construction material company in Huaxi, Jiangsu Province, China

    Steep US Tariffs Unlikely to Hurt Domestic-Oriented Chinese Industries

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    MOSCOW (Sputnik), Tommy Yang - The US administration’s decision to introduce steep tariffs on steel and aluminum is not likely to have a significant impact on Chinese companies in those industries, which primarily focus on the domestic market, as trade tensions continued to escalate between the United States and China, experts told Sputnik.

    The United States plans to impose import tariffs of 25 percent for steel and 10 percent for aluminum next week, US President Donald Trump said Thursday. The proposed harsh import tariffs are widely viewed as the latest step in Trump’s increasingly hostile trade policy against China, after introducing steep import tariffs on solar panels and washing machines in January.

    Trump’s decision came during the week when a top Chinese economic official is visiting Washington to discuss bilateral trade and economic relations. Despite the latest tariffs were not restricted to Chinese products, the new trade policy is widely viewed as targeting China, which is the world’s largest producers of both steel and aluminum.

    READ MORE: China Iron, Steel Association Slams US Decision to Set Metal Import Tariffs

    Chinese Foreign Ministry spokeswoman Hua Chunying urged the United States to "avoid diverting its troubles to its neighbors" and "restrain from using protectionist tools," during a regular press briefing on Friday.

    Domestic Consumption

    Chinese industry analysts suggested that steep US import tariffs on steel and aluminum were unlikely to cause panic in China, as most of the companies in those industries focus on the domestic market.

    Wang Guoqing, a senior analyst at Beijing-based industry consulting firm Gelan Steel, told Sputnik that exports to the United States played a minimal role in China’s steel industry.

    "The United States only accounts for a tiny fraction of China’s total steel export. Following a few years of restructuring in the steel industry, China steel export continued to decline in recent years and only exported 75 million tonnes of steel in 2017. But China only exported 1.18 million tonnes of steel to the United States last year, about 1.57 percent of total Chinese steel export for the year," Wang said.

    The industry expert explained that China’s steel industry was primarily focused on domestic consumption.

    "Steel production in China is still targeting domestic consumption, as opposed to overseas markets. Domestic demand for steel is very high because of infrastructure construction and the manufacturing industry. Steel production in China largely tries to meet domestic demand. Over 90 percent of the steel produced in China has been consumed domestically. It’s not like we produce the steel just for the purpose of export," Wang said.

    According to Wang, China’s steel export of 75 million tonnes in 2017 only accounted for about 9 percent of the nation’s total steel production of 830 million tonnes for the year. Figures from the World Steel Association showed that China’s steel production was about 50 percent of the global total last year, more than 10 times of US steel production of the same year.

    Nevertheless, the Beijing-based analyst admits that latest US steel tariffs could bring some pressure on Chinese steel exporters.

    "Harsh US tariffs on steel products could increase cost for Chinese companies when exporting those products and hurt their competitiveness in the US market. It could bring some pressure to Chinese steel export. The US trade policy could also trigger the rise of protectionism in other countries," Wang said.

    Not First Challenge

    Chinese analysts painted a similar picture in the country’s aluminum industry.

    "Aluminum exports to the United States are very low compared to China’s overall production. Total exports in China’s aluminum industry accounted for about 7.5 percent of the annual production in 2017. And exports to the United States stood at about 12 percent of China’s total aluminum export. That is to say less than one percent of China’s total annual aluminum of 50-60 million tonnes was exported to the United States. In the short term, it [the new tariffs] will have little impact on the supply and demand of the aluminum industry in China," Zhang Meng, a senior analyst at Beijing-based AZ China, a consulting firm specializing in the aluminum industry in China, told Sputnik.

    The industry expert explained that this was not the first time Chinese aluminum producers faced such punitive tariffs.

    "European countries, Australia, Canada and the United States have all initiated anti-dumping investigations against China before. But the measures implemented previously were all temporary punitive measures targeting a specific batch of products. One of the Chinese aluminum companies faced up to 374 percent of tariffs before," he said.

    Zhang warned that the new US tariffs could set a dangerous precedent.

    "The United States is just the first country to introduce broad tariffs and try to make it into the law. It’s possible for other countries to follow suit and introduce similar measures," he said.

    Forced Transition

    As new US tariffs continued to squeeze the profit margins for Chinese steel and aluminum exporters, many companies could be forced to turn their attention back on the domestic market, analysts suggested.

    "A number of aluminum producers in East and South China have been focusing on exports to US and European markets. They could experience a huge blow in the short term because of the new US tariffs. That’s because their profit margin is only about 5 percent in the highly competitive aluminum market. Now with a 10 percent import tariff being slapping on their products, they will have no profit at all selling to the United States. They have be forced to turn to the domestic market," Zhang, the aluminum industry expert, said.

    Wang, the steel industry expert, expressed similar views on the prospects for Chinese steel producers.

    "Many Chinese steel producers could simply avoid the US market if their products have to face such high tariffs. The 25-percent tariff would make it very difficult for Chinese steel producers to continue try to sell their products in the US market. They probably will not have any profit margin left," she said.

    The expert added that Chinese steel exporters could start to focus more on the domestic market where the prices continued to grow amid a supply shortage.

    The views and opinions expressed by Wang Guoqing and Zhang Meng are those of the experts and do not necessarily reflect those of Sputnik.


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