Yes, Turkish steel is a thing

There's an obvious cynical explanation for the US decision to double the tariff rates on steel
and aluminum from the Republic of Turkey. The White House has been pushing the country
to release an American pastor. The lira has been vulnerable, Turkish companies have
obligations in other currencies, and so any poke at the country's growth becomes leverage.

But Turkey is a real part of a real trade problem. Chinese steel has been finding its way to the
US through other countries. Earlier this year, the Department of Commerce recommended
that the US place tariffs on steel from the whole world, or even higher tariffs on a short list of
countries that were re-exporting Chinese steel, Turkey among them. The White House chose
the first option: swing a sledgehammer at the whole world. Now it's back for another swing,
just at Turkey; it's an arbitrary decision, but it's not coming completely out of nowhere.

Let's start with the basics. Though not on the scale of Canada or Brazil, Turkey is a
significant exporter of steel to the US:

Note how China doesn't make the top ten. As a direct exporter to the US, China doesn't pose
a problem. But China does make a lot of steel. Way too much steel. The scale of China's
capacity to make steel and the pace of its growth are, in fact, staggering:
In February the Department of Commerce released its Section 232 investigation, in which it
determined that imported steel was a national security risk. Let's leave aside the conclusion
for a second, because the report does provide some insight into how the global steel industry
works. Here's testimony in the investigation from Tom Gibson of the American Iron and
Steel Institute (admittedly not an impartial observer):

But while direct steel imports from China may be down, the high level of Chinese exports to
the world continue to put pressure on the global steel market, and lead to increased imports
from many third countries. Chinese exports to third countries are being further processed into
downstream steel products that are then exported to the United States. For example, Chinese
billets are being further processed in Turkey into long products which are then exported to
the United States, while Chinese flatrolled steel is being converted into pipe products in
Korea which are then, according to Commerce Department determinations, being dumped
into the U.S. market. In addition, Chinese cold-rolled and corrosion-resistant steel is being
shipped to Vietnam for minor further processing before being exported to the United States is
a blatant effort to circumvent AD and CVD orders on these products. As a result, the U.S.
industry continues to suffer from the injurious impact of Chinese overproduction of steel that
is exported to world markets. 

The issue is not that Turkey is a competitor on steel. Rather, it's whether it's a conduit for
Chinese steel. From the 232 investigation, here's another look at steel importers into the US,
this time ranked by growth from 2011 to 2017:
The high-growth countries are some of the same ones Mr Gibson mentioned in his testimony.
Over the same years that China was rolling out its steelmaking capacity, a few countries were
expanding their exports to the US at a comparable rate. This is difficult to tease out; Vietnam
was adding its own capacity, for example, as it imported steel from China. Countries roll their
own steel, then add value to steel rolled elsewhere. You don't have to believe that imported
steel is a security threat to see that there aren't any great options for dealing with the
commercial consequences of China's steel behemoth.

So the Department of Commerce made three recommendations. The administration could

impose a global quota at 63 per cent of 2017 imports, a global tariff of 24 per cent, or a
targeted tariff of 53 per cent on a short list of countries: Brazil, South Korea, Russia, Turkey,
India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia and Costa Rica.

Ultimately, of course, the White House chose a global tariff. They exempted Argentina,
Australia, Brazil, and South Korea, imposing quotas instead. Here's where that leaves
Turkey: stuck with a 25 percent tariff, still on that 232 report list as a good target, but unlike
Brazil and South Korea, without an exemption. If the White House happens to feel like doing
something to Turkey, it's a vulnerable target.

The White House does.

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RightRivetingRead Aug 20, 2018

I don't think Turkey being a conduit for Chinese steel into the US had anything to do with the
50pc tariff. Turkish volume into the US was already down dramatically ahead of the 25 pc
determination, and more so afterwards; the issue is the yawning arbitrage opening up between
US domestic pricing and the rest of the world has led to a window for Turkish exporters to
move some tons (helped by the lira) when they're struggling for overseas markets. 

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asd Aug 15, 2018

Jesus, I thought FT readership was smart and informed. This is not a case of big bad (but
stupid) bully Trump kicking Turkey to the curb.

1. Turkey has been flirting with a financial crisis for years now. With a persistent current
account deficit and an overly stimulative monetary policy, not to mention the growing
kleptocratization of the Turkish economy around Erdogan's clique, it was only a matter of
time before foreign investors and lenders finally bailed on the country. Trump only gave it an
extra push.

2. Erdogan's rupture with the West has been a long time coming. Some blame it on EU
dragging its feet on Turkish ascension (why did you give them false hope in the first place?),
others blame it on a culture of extreme Turkish nationalism stoked by conspiracy theories and
delusions of grandeur, but the result is undisputed. Erdogan and his base has felt for a while
that the Christian West is no friend for Turkey, which should assume its historical role as a
pan-Islamic leader and reach out to the rising powers of the East. Familiar rhetoric, really.

The spat over the American pastor is really just the straw that broke camel's back.
Relationship has been strained for years, and a confluence of recent events & new
management at Washington has brought this to a head.

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sardonic Aug 15, 2018
@asd

I am not clear why you are arguing against something tangential to the article. The article was
making a point that Turkey has been a significant source of (Chinese) steel imports for the
US. That point was  made adequately.

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6RecommendReply
The Invisible Hand Aug 15, 2018

@asd

1. Why did it take Trump's "push" to alert savvy foreign investors? Because they never
expected such idiocy.

2. As to why the EU gave the Turks "false hopes" of accession, please note this was because
of US pressure who wanted more influence in the EU through Turkey, Poland, the Baltics.
Well, the US scored 2 out of 3.

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asd Aug 16, 2018

@sardonic @asd  Not arguing against the article, arguing against the commenters.

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1 reply
Sparc Aug 15, 2018

On this logic the rest of the world should ban google Facebook et al.

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asd Aug 15, 2018

@Sparc  How does that follow?

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Sparc Aug 16, 2018

I make competitive cheap steel and you can’t compete so you impose tariffs. You make
competitive cheap internet search so I ban it. What’s the difference it’s called competitive
advantage and we are all better off if we just let the market decide. I use google and buy
Turkish steel. If you want to ban Turkish steel I just ban Google why not? It’s all idiotic. You
are trying to save American steel jobs which cost too much and are uncompetitive and
dressing it up as Chinese subsidy. Find an American who will work Chinese hours for
Chinese pay? If you want to argue that China subsidises steel I will argue that the USA
subsidises Google. Google Facebook steal the worlds data. Is that not a subsidy by a legal
system that can’t tell black from white? Google location services still track you even when
you explicitly turn them off!

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2RecommendReply
EU City Zen Aug 15, 2018

Finally Trump found someone he can bully around and feel great again. If Turkey fights back
hard enough, he'll turn on the Kingdom of Bhutan.

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4RecommendReply
Ancient Class Warrior Aug 15, 2018

China is indeed the source of the greatest steel market problems, but the long-established
procedures of the US Commerce Department for identifying dumping and subsidised
exporting had, through a series of investigations initiated by US steelmakers, already cut
down China as a relatively minor also-ran in the US steel imports league.  The Section 232
tariff (or any other general action against Chinese steel imports) could not have been
expected to reduce imports much further, especially while steel prices in the US market are so
high compared with the rest of the world.  It is blindingly obvious that action needed to be
co-ordinated internationally, but Donald Trump is temperamentally and psychologically
resistant to such a perception.  

In the face of the failed tariff tactic, imports continued to pour into the USA from all over the
world, so the US government has resorted to quota restrictions that are a blatant breach of
WTO rules - described as "Voluntary Restraint Agreements" of course, offers that US trading
partners can't refuse - and to outlawing the normal international sharing of processing and
fabrication that is a traditional feature of the world steel industry.  Thus, stand-alone
galvanizing lines in Vietnam, set up as an alternative to a steelmaking plant with integrated
hot-rolling and cold-rolling lines with associated coating lines, which would have gobbled up
capital finance in a country already facing enormous demand for development finance, have
been deemed to be providing Chinese steel rolling mills with a back door into the US market. 
In reality they have simply bought substrate coil for their coating lines from whomever, and
galvanized (and in some cases also painted) the coil.  This is not the trivial activity Thomas
Gibson implies it is (US steelmakers should know this.  When the rest of the world began
using galvanized coil for car bodies they had to acquire new galvanizing technology and
invest in new galvanizing lines to serve their carmaking customers who were being sued by
crowds of angry owners of rusting cars had been guaranteed not to rust).  Vietnam's exporters
of cold-rolled and coated steel coil now have to show US customs certificates of origin or
face the same anti-dumping and anti-subsidising charges levies on Chinese steel coil.  Any
other non-integrated producers are exposed to the same risk.  
Coordinated international would be so much more effective...

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f.mayweather Aug 15, 2018

[The best paella in the world is served in El Palmar, La Albufera, Valencia.]

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ForrestGump Aug 15, 2018

The chart titled "China is the source of problem" has a tinge of unfairness.  Why shouldn't
China produce as much steel as they wish (and suffer the consequences if no buyers are
forthcoming)?

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ale bro Aug 15, 2018

@ForrestGump there's an expectation that business runs at a profit.  the chinese businesses
are part of the chinese state, and this allows them to run without regards to profits and so they
can sell the product for less than cost of production.  this forces private competitors into
bankruptcy, and so is prohibited under WTO anti-dumping measures.  in any price war, the
state has bottomless pockets compared to private enterprise, and so it can just wait until all
other producers are bankrupt.  once it controls the market, monopoly pricing will ensue.

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8RecommendReply
Thatsright Aug 18, 2018

@ale bro @ForrestGump

If you criticize China supporting its own industries, how do you explain US support for GM,
Fannie Mae, Freddie Mac etc during the financial crisis?

At one point end 2008, it all felt like the US government was exactly like Soviets, during the
1950s

And it was Nixon, who opened China up for trade

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The Invisible Hand Aug 15, 2018

For Erdogan the real American threat after the 2016 coup is the suspected ongoing attempt at
regime change. He will chose to suffer economic damage rather than losing face and power.
Love him or hate him, he is more rational than Trump and, besides the evangelical pastor, he
also holds Incirlik as a hostage.  

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3RecommendReply
asd Aug 15, 2018

@The Invisible Hand  If you think the US base in Turkey is a hostage that Erdogan can use,
you have zero insight into what is going on.

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Ali Aug 15, 2018

@asd

No but they can close it down and end all US influence in Turkey. Or once they kick out the
US can invite the Russain instead. That would be a good fingers up at Trump.

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The Invisible Hand Aug 15, 2018

@asd @The Invisible Hand

Joker, with your superior insight please let us know how useless Incirlik is for the US
airforce, for intelligence gathering, as a depot for nuclear weapons aimed at Russian
heartlands and as a base from which to destabilise Turkey, if push comes to shove. Why have
the Americans not abandoned Incirlik to  save some money (and friction with Erdogan) if it is
not essential? 

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3RecommendReply
f.mayweather Aug 15, 2018

[Troy. Been there, seen it, done it.]

[The mussels stuffed with peppered rice were a treat.]

[As well as the Aga/Sofia.]

[No, it’s back home to Spain, back to port. Sagunto. Next year.]

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alpha Aug 15, 2018

I seriously doubt this has anything to do with steel. 

Turkey has US nuclear weapons bases and is a vital security asset.

President Erdogan has been disobeying orders, flirting with other powers, and is now being
punished.

The US has precipitated a financial crisis, which forces Erdogan to make an immediate
decision where his loyalties lie. Since the US is the only option for a bail out, he is going to
be forced backin the fold.

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f.mayweather Aug 15, 2018

[ . . . Lepanto on my mind, am remembering that Christmas is coming. Holidays next year.]

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Leftie Aug 15, 2018

Turkey cannot 'win' a trade war with the USA.   It's to do with relativity.  Turkey is a small
and weak economy that the giant USA can beat easily.  President Trump wants to "make
America great again" by bullying anyone or any Nation that defies him.    Perhaps the EU -
collectively a bigger economy than the USA - should act as a mediator?   Either way,
President Erdogan will have to release the US Pastor or ruin his country and his own place in
glory.

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Hedo Aug 15, 2018

@Leftie Ah, if the pastor was only a pastor... We live in a world where might is right. US
may afford to harbor a person who was the leader of a network which infiltrated entire state
apparatus over the years. But Turkey has to turn in the agent-pastor.  It's fair, right?

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4RecommendReply
Leftie Aug 15, 2018

@Hedo @Leftie It's not right at all.  But it's what President Trump wants.  And he'll abuse his
powers to get it.

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Stanley E. Morris Aug 15, 2018

Turkey has to be punished also by the food products that it exports to USA.

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Leftie Aug 15, 2018

@Stanley E. Morris There's no need to overdo the bullying.   Turkey is a small, fragile and
vital NATO nation.    

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3RecommendReply
xrmt Aug 16, 2018

Small?

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Leftie Aug 16, 2018

@xrmt In comparison with my own income, Turkey is very wealthy.  Compared with the US
economy, Turkey is one eighth of its GDP.    That's small.

Relativity matters in all things - ask Einstein when you meet him!  

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f.mayweather Aug 15, 2018

[Overheard, at Bob Mundell’s Italian castello . . . what’s Chairman Mao ever going to teach
Benjamin Franklin, much less Canterbury and Rome.]

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Mudrets Aug 15, 2018
Of course steel goes through multiple processes before it is part of any finished product. In a
global economy, as the economists would tell us, the value chain moves to the optimal point.
Trump's inadverent consequence of his actions will be to destroy all faith in global supply
chains, reducing countries to looking for self sufficiency and the eventual conclusion will be
war as the nation view overrides all other concerns.

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5RecommendReply
Ancient Class Warrior Aug 15, 2018

@Mudrets  You put it better than I did

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1RecommendReply
f.mayweather Aug 15, 2018

[Like I said, anarcho capitalism is dead, buried.]

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1RecommendReply
f.mayweather Aug 15, 2018

[Read much into those words, piracy included.]

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Crowbar Aug 15, 2018

@mason[und]dixon [the force is strong in this one]

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gelato Aug 15, 2018

@mason[und]dixon probably because it never existed. the US has always been protectionist 

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