One looming issue for various U.S. industries is the future of trade relations with China. According to Thomas Prusa, professor of international economics at Rutgers University, New Brunswick, N.J., for the metals industry in particular, a lot hinges on what the new administration does.

One issue the administration might tackle involves what are known as 421 duties, which are special duties the United States may put on Chinese products. The law that created this special safeguard action against China was enacted over the last eight years, but it has yet to result in any duties.

"The Bush administration didn't want to have another trade dispute with China, so even though they have this law on the books, they've never chosen to pursue imposing tariffs under this special law--there's never been special safeguards imposed on China for any product, including the steel products that have sought special protection," says Prusa. "Looking forward, a big question is: Will the new administration be more willing to file these special safeguard actions against the Chinese?"

In the same boat
Prusa describes the current state of trade relations between the United States and China as tense, in no small part because of the wave of worldwide consolidation that swept the steel industry in 2003. China wasn't a part of that phenomenon, which has contributed to the current state of affairs.

"You have major U.S. and European firms controlling production, not just in the home market but in countries around the world," says Prusa. "By and large, China isn't part of these large production operations. So the ability for U.S. Steel Corp. or ArcelorMittal to exert discipline on the Chinese mills isn't the same as on the European mills. So the Chinese are outside this, and there's no doubt that there's a lot of tension between the United States and China, with respect to metals. And I would be surprised if that tension goes away in the near future."

This isn't limited to the metals industry, though, according to Prusa. He says industries ranging from textiles to agriculture are likely experiencing the same. What sets the metals industry apart is its long and active trade participation.

"The only thing that makes steel and other metals unique is that, historically, they've built active trade protection into their business models," says Prusa. "They're active users of these trade-restraint measures. That's not what you've seen in other industries. I'm not sure the metals industry has any more true pressure than any other U.S. industry."

Looking ahead
What differs today is that for the past five or so years, U.S. steel mills have experienced a great deal of demand from China, which has contributed to the steel industry's near-record and record profits over the past few years, says Prusa.

But unlike Brazil, Korea and Japan, among others, Chinese industries weren't built to have a major part of their production go to export markets, according to Prusa. And up until recently, China has been a net importer of steel, not a net exporter--but only for certain products.

"The Chinese can't make steel that would meet General Motors', Ford's or Toyota's quality standards, but they can make steel that's perfectly good for fence posts or water pipes, things that don't require the fit and finished quality," he says. "You have the Chinese able to produce the lower-grade products, and they have to import the higher-grade products."

And although the future of the global metals industry is uncertain, Prusa says the U.S. steel industry is not in any danger.

"We'll see how the market plays out," he says. "The steel industry is still undergoing a change in its worldwide industrial structure. The industry is in a far better shape than it was 10 years ago. The U.S. steel industry is built to succeed right now, and it basically had no chance but to fail 10 years ago." MM