Trump's Steel Tariff to Hit Chinese Supply Lines via Other Nations

A multi-billion-dollar supply chain that moves steel from China to the US via third countries is likely to be disrupted by a 25% tariff imposed by President Trump and set to come into force early in March.

The steel duty will intensify competition in the global market and undercut a vital source of sales for China’s struggling steel sector.

Trade barriers imposed in 2016 and 2018 priced most Chinese steel out of direct sales to the US, but opened the door to mills in countries with freer access to buy cheap Chinese steel and sell it on to the US after various degrees of processing.

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Trump’s steel tariff will rock this trade, according to China’s four leading steel consultancies, hitting sales estimated at almost a tenth of all Chinese steel exports last year, worth roughly $7 billion.

The collapse of China’s housing market, which used to consume vast quantities of locally made steel, has forced the sector to export its excess production – or “overcapacity”, as US politicians and unions have complained. That led to Brazil, Canada, Indonesia and Turkey hiking tariffs on Chinese steel over the past year.

And now, the prospect of more “excess” steel flowing onto a global market already awash with Chinese steel has triggered another wave of protectionism, much of it aimed at China in a further blow to its exports.

“The mounting trade frictions will add pressure on China’s steel exports,” state-backed research house China Metallurgical Industry Planning and Research Institute said in a note last week. “Lower exports and profits may lead to a further decline in the profitability of some companies.”

Orders down 20-30% from 2024

More trade barriers and fiercer competition over a smaller export pie is a problem for all steel-exporting countries. But they are especially tough for China’s steel sector, which is likely to be disproportionately targeted by tariffs.

Such a scenario could further undermine China’s economic recovery as it has used overseas sales to help offset faltering demand at home because of a protracted property crisis.

A Chinese steel trader told Reuters orders for delivery around the normally busy first quarter were “pitifully low” even before Trump signed the tariffs into law in anticipation of the decision.

“The export orders that we have received for shipments in March and April have fallen by 20%-30% from the same period in 2024,” the trader said on condition of anonymity as they are not authorised to speak to media.

Competition for other markets including the Middle East will likely heat up further as more Chinese steel floods into the region, one of the last without major barriers to Chinese steel. Lower prices there may in turn breed a new epicentre for trans-shipment.

Surge in imports from Vietnam

China exported a tiny amount of steel to the United States last year even as its total exports hit a nine-year high.

The White House called out these record exports in its rationale for the new tariffs. Cheap Chinese steel was displacing production in other countries into the United States or was being transshipped into the country, it said, in a statement that singled out Mexico as a potential case of transshipment.

While the exact definition and therefore size of the transshipment market is murky, Reuters estimates it at around 8.6 million tons, or 8% of China’s total steel exports last year, based on data from First Futures.

What is clear is that major steel exporters to the United States like Mexico, Vietnam and Brazil have also imported growing quantities of Chinese steel.

Last year, US steel imports from Vietnam surged 143.4% year-on-year. Vietnam topped others to account for 11.5% of China’s total steel exports, data from Chinese customs and the American Iron and Steel Institute showed.

“It’s lucrative for transshipment via Vietnam as US tariffs on Chinese steel are ten times of that on Vietnam,” analysts at Chinese steel consultancy Mysteel said in a note this month.

‘Steel trade war’

China’s top steel association said this month the new US tariffs could cause other countries to follow suit, which would hurt the competitiveness of China’s steel exports.

Justifying those fears, Vietnam and South Korea announced new duties against some Chinese steel products in the weeks after Trump’s announcement. India and the European Union have also said they may consider new tariffs and protections.

“Many countries will likely enhance their protection measures following the US move, making it harder for steel exporting countries like Vietnam,” said Do Ngoc Hung, Vietnam’s trade envoy to the US.

Vietnam, which received 12.8 million metric tons from China last year (11.5% of its exports), said last Friday it would impose a temporary anti-dumping levy of up to 27.8% on some steel products from China, effective from March 7.

South Korea also moved to impose tariffs of up to 38% on Chinese steel plate after a probe into alleged dumping of steel used in shipbuilding and construction (totalling 8.2 million tons last year).

India is also assessing a temporary tax of 15-25% on Chinese steel, while the European Commission looks at whether to tighten its quota system on steel imports.

Beijing has seen the clouds now gathered over its steel sector and is now advocating for companies to transition to low-carbon steel production.

China’s financial regulator encouraged banks and insurers to enhance medium-to-long-term lending support for technology innovation and equipment upgrades in sectors including steel, nonferrous metals and petrochemicals.

Banks and insurers should focus on the green transition in traditional industry to meet financing needs for the low-carbon transformation of high-energy-consuming and high-emission industries, it said in a statement.