Made In The U.S.A.

Subsidized Chinese Steel

In Adventures on June 30, 2009 at 12:12 am

I’m not sure exactly how foreign governments are making it so hard for American steel producers, but I think I get the basics of it. Here’s what I know. Or at least, what I think I know.

1. One of the big steel producers at the convention last month said, “Part of the reason for the mess we’re in is China.”

2. It was explained to me by one of the big steel producers that foreign governments can artificially mess with competition by artificially messing with their currencies. How they do this, I’m not exactly sure. But I think it essentially boils down to playing unfairly by not converting dollars to yuan, and vice versa, according to rules that keep things even for all trading partners. (If you’re interested in learning more, Google the term “currency manipulation” and read about it in relation to the Chinese Yuan.)

3. It was also explained to me that governments subsidize their steel–and presumably other products too–by encouraging their producers to sell them at a discount. So, for example, if steel sells for $1 a pound everywhere in the world, Chinese companies can sell it for 50 cents a pound because the government provides an incentive–say, 50 cents in rebates to the producers for every pound of steel they sell. That means the company still gets its $1 per pound, and the country gets the benefit of becoming the place to turn for buying stuff. The country becomes the international producer of everything. Or at least, in this case, steel.

4. I fully understand that it’s hard, downright unfair, to try to compete with a government if you’re just a company. Even if you’re a big company… how can you possibly compete with all of China? If governments are doing battle with companies, no matter the government and no matter the company, it’s easy to see that the odds are in the government’s favor. (Unless, of course, the scales are imbalanced by lobbyists. But I’m not sure of any countries in which that occurs.)

5. I get why steel manufacturers are between a rock and a hard place. On the one hand, they really hate, hate, hate government interference that costs them more money in terms of emission controls and safety regulations and union salaries and whatnot. On the other, they really really want the government to step in on their behalf to help make the playing field a little more level.

What I don’t know is what the right answer is.

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