Just as Barack Obama prepares to visit China next week, another trade case has soured Sino-US relations.
Yesterday, the US imposed duties of as much as 99pc on seamless steel pipes from China after American producers complained.
Seamless steel pipes are used in the oil, gas and water industries, or any other business that requires a pipe without seams that can handle high-pressure fluids moving through it.
Imports from China to the US are worth $2.6 billion a year, so it’s a relatively big industry. The new duty will be 36.5pc for the 37 largest exporters, and it comes on top of separate duties of around 21pc announced in September which were supposed to combat the government subsidies that enable Chinese producers to offer cheaper products.
“China’s government and exporters are being told we are fed up with their cheating on our fair-trade laws and penalties for these transgressions are long overdue,” Leo Gerard, president of the United Steelworkers, said in a statement.
There are going to be some strained smiles in the room when Obama meets Hu Jintao, especially as the US has already imposed tariffs on Chinese tires, prompting a complaint from Beijing to the WTO.
The US steel producers are upset because imports of seamless pipes from China have more than tripled in the last two years from $750m in 2007. That’s because rising oil prices prompted wildcatters in the US to go on the hunt for oil and they needed lots of new pipes as a result. Chinese pipe now accounts for half the market in the US and American workers have allegedly lost their jobs as a result.
A lot of the Chinese firms producing pipes are either wholly government-owned, or have good connections to the local governments which buy their products. This enables them to get their raw materials at a low cost. China also gives grants, preferential taxes, interest-free loans, export tax rebates, tax cuts, and even export quotas on raw materials to keep prices low.
According to Steel Market Intelligence, "China is widely regarded as the world’s worst abuser of steel export markets and subsidies, so we believe the US will continue to win these Chinese trade cases".
However, from a Chinese viewpoint, the US sanctions are harsh. Comparing Chinese and US steel pipe is like comparing Ferraris and Fiats. The US produces high-quality, expensive seamless steel pipe which is used by blue-chip companies such as ExxonMobil.
China, on the other hand, produces low-quality and cheap steel pipe, since that is all the Chinese market needs (they can always replace the pipe if it bursts – manpower is cheap). Of course, the new breed of wilcatters out there are small start-ups and they don’t much care about the quality of their pipes either, so they are happy to buy Chinese.
Slamming the Chinese pipes with tariffs is unlikely to suddenly shift the market back to American pipes. A more likely scenario is that the small oil and gas companies will simply buy less pipe overall.