Steel producers in China receive state subsidies. The consequence: they can undercut prices on the world market. The technical term for this is „dumping“. When dumping takes place, international trade becomes very difficult for companies who abide by the rules of the free market economy and produce steel without subsidies from the state. The result is that jobs are at risk, including in Germany. And further steel production could slow down or come to a standstill.
Together, the European Commission and the European Parliament advocate stricter anti-dumping rules. However, the diverging interests of different governments make it difficult to come to an agreement. On the one hand, there are countries that have many steel producers and are negatively affected by dumping. On the other hand, other countries benefit from the low steel prices on the global market because they have a very limited steel production of their own. „There is a general unspoken fear that conflicts will erupt and trade hampered and wealth reduced“, says Hubertus Bardt of the Cologne Institute for Economic Research.
In absolute figures, the threat posed by Chinese cheapie steel is manageable. Of the three hundred million tons of steel that China exports, only two million arrive in Germany – making up about five per cent of German steel consumption. Nevertheless: German steel companies suffer under the economic conflicts that result from price dumping. That’s why the German Steel Federation (WV) – the interest group representing the German steel – closely monitors the situation. According to Managing Director and Chief Economist of German Steel Federation, Dr. Martin Theuringer, unrealistic prices cannot be permitted to ruin the market. It is important, he states, to prohibit dumping and substantial subsidies in order to avert losses inflicted on honest market players.
In order to create fair market conditions, it is necessary to establish regulatory instruments such as protective tariffs. However, it must be clear: Regulation is therefore no antithesis to a clear commitment to free trade. It is essential in a world of unfair actors in order to create the conditions for free trade in the first place. Rejecting protectionism and simultaneously ensuring trade protection is therefore no contradiction.
In the present climate Europeans are not only interested in the topic of dumping, but also in that of protectionism. The latest protectionist tendencies in the US hold dangers for the world economy and global trade. The consequences for the European and German steel industries could be grave: not only would they lose a valued trading partner, who stands for roughly 14 per cent of EU exports, i.e. 3,3 million tons (as much as 20 per cent in Germany). The streams of international trade would also be deflected and, as a result, the issue of cheap Chinese steel would be exacerbated. This would not only affect the turnover of German steel producers; it would put jobs in Germany at risk.