President Donald Trump is taking aim at China over the country’s practice of steel dumping.
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U.S. steelmakers rallied Monday on hopes that Trump and the U.S. Commerce Department will take more aggressive action against China, whose cheap steel imports have driven domestic prices lower.
Through an executive order signed by the president last week, the U.S. launched an investigation under the Trade Expansion Act of 1962 into whether foreign imports of steel threaten national security. Trump also said more details about the administration’s plans for the North American Free Trade Agreement will come in a matter of weeks.
Commerce Secretary Wilbur Ross said the review will determine whether domestic manufacturing capacity is sufficient to meet U.S. demand, particularly for the military.
U.S. Steel (NYSE:X) climbed 3.8% in afternoon trading. The Market Vectors Steel ETF (NYSE:SLX), which tracks steel makers, was up 2%.
Imports account for more than a quarter of the entire steel marketplace in the U.S., and China controls roughly half of global steel capacity—although Trump said his executive order addresses all steel imports, not just Chinese steel.
One potential outcome is the Commerce Department could recommend a tariff. Section 232 of the Trade Expansion Act authorizes the federal government to limit steel imports for national security reasons.
Without a broad tax on Chinese steel, it’s unlikely the administration can do enough to turn around the struggling U.S. steel industry, analysts say.
“U.S. mills would certainly prefer that purchasers behave in a more ‘patriotic’ manner…by eschewing imports. However, it is unrealistic to expect steel buyers to sacrifice margin in the name of buying American unless more-stringent legislation compels them to do so,” Morningstar wrote in a research report published Monday.
China’s state-run newspaper responded Monday with an editorial, suggesting that “protectionist measures” by the U.S. could lead to a “tit-for-tat trade war” with other countries.
The executive order coincides with a broader effort by the Trump administration to pressure China into cutting off economic ties with North Korea, which relies heavily on trade with its neighboring country.
Trump has called on China to squeeze North Korean trade as a means of reigning in the Kim regime’s nuclear program.
“China is very much the economic lifeline to North Korea so, while nothing is easy, if they want to solve the North Korean problem, they will,” Trump wrote on Twitter (NYSE:TWTR).
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