The 25 percent tariff imposed on steel imports by the US government is set to worsen the prospects of the struggling metal sector of China. The shares of major steel companies fell by up to 3 percent soon after US President Donald Trump announced the tariff. It is expected to hurt exports from China, which so far was a promising area amid lower domestic consumption and the real estate crisis. “If the tariffs were to be implemented stringently, both direct exports and transit trade would feel some impact,” analysts at consultancy Fubao.
China’s steel industry has been bleeding. It incurred losses of USD 5 billion in the first nine months of 2024 even as the total output fell by 1.7 percent to roughly 1 billion tonnes—the lowest in five years. According to industry insiders, as many as 75 steel plants suspended their production amid lower demand. About 50 percent of the operational ones are suffering from losses, reveals a survey carried out by MySteel, a market intelligence service.
The domestic demand for steel in 2024 remained weak, thus compelling China to focus on exports to stabilise the market and limit the losses. Eventually, there was a dip in production and consumption and thus a sharp decline in the prices. “China’s steel industry has entered a phase of ‘stock optimization’, with a persistent ‘three-highs and three-lows’ scenario — high output, high costs, high exports alongside low demand, low prices, and low profitability,” said Jiang Wei, vice-president and secretary-general of the China Iron and Steel Association (CISA).
China produced, consumed and exported steel on a massive scale during 2000-2020. However, the supercycle waned after Covid-19 hit the country’s economy hard. Now the demand is shrinking. “The decline was quite severe in the first half of [last] year. Demand is still poor,” said a steel trader named Xiao from Wuhan.
Marcus Garvey, head of commodities strategy at Macquarie Group, said China had reached the peak steel which meant there will be no realistic growth and the country would have to rely on exports against the backdrop of slack domestic demand. However, the tariffs are going to affect exports, thus aggravating the pains of China’s steel sector now. Experts have already warned of a 1.5 percent decline for the Chinese steel demand in 2025.
China’s steel shipment was “skewed to the downside” from 2025, said Citigroup, thanks to anti-dumping measures. Chim Lee, senior analyst at the Economist Intelligence Unit, said importing countries especially those in Southeast Asia and the Middle East were “under massive strain” due to unfair competition. ”We see a ‘whac-a-mole’ scenario: when one country starts to limit steel imports from China, Chinese steel producers are likely to redirect them to another country until that market, too, imposes new trade restrictions,” he said.
Chinese steel exporters had predicted problems for the Chinese steel sector if Trump won the elections. “If he wins the presidential election, there might be higher import duties on steel,” a Chinese trader had said. Chinese traders had suffered during the first term of Trump. “A lot of Chinese exporters, especially in the consumer products market, had already lost part of their US market over the past few years after tariffs kicked in,” said Michael Lu, president of China-based gift box producer Brothersbox.
Trade protection measures against Chinese steel are adding to the problem. Some countries have already ordered anti-dumping investigations into Chinese steel imports. “As the biggest supplier of steel product to the international market, Chinese exporters will either reduce export prices or reduce export volumes due to the trade cases. Both options will put pressure on steel mills,” said a Chinese exporter.
China had managed to find alternatives when Trump had imposed similar tariff during his first term. It could mitigate effects of the tariffs using the exchange rate depreciation, trade diversion and a reduction in exporters’ profit margins. However, Chinese economy is now in weaker position, according to analysts at Barclays, a London-based financial services company. “The channels above have all diminished significantly, suggesting a much bigger impact on China’s trade this time around,” they said.