Manufacturers double down on support of
American steel production
The trade balances of China and the US have long been a subject
of intense scrutiny and debate. Recent analysis from the International Monetary
Fund suggests a shift in perspective may be needed – one that emphasizes
domestic macroeconomic forces over trade and industrial policies. As these
global trends play out, US manufacturers like Zekelman Industries and sheet
metal contractors are doubling down on the importance of domestic production.
China's widening trade
surplus and the growing US deficit have sparked worries about overcapacity and
the potential for a "China Shock 2.0". However, the IMF argues that
the focus on industrial policies misses the larger picture. Macroeconomic
fundamentals, such as shifts in saving and investment, are the true drivers of
trade balances. In China, a weakening property market and repeated lockdowns
have depressed domestic demand, while the US has seen a boost in spending
fueled by a growing fiscal deficit.
This has resulted in
China's trade surplus remaining significant as a share of global output,
despite being smaller compared to its own economy than during the "China
Shock" of the 2000s. The US, meanwhile, has seen its current account
balance deteriorate. Importantly, the IMF suggests that these imbalances are
largely "homegrown" and require domestic solutions.
For China, this means
addressing long-standing issues like the property sector's drag on activity and
the challenges of an aging population. Export-led growth is no longer a viable
strategy for the world's second-largest economy. The US, on the other hand,
must tackle fiscal adjustment through measures like tax reform and entitlement
changes.
But what of the role of
industrial policies and subsidies? The IMF acknowledges they can boost activity
in specific sectors and improve competitiveness. However, their overall impact
on trade balances appears limited. Transparency issues also hinder a full
assessment of their effects. As other nations, including the US, ramp up their
own industrial policies, the risk of trade distortions and tensions rises.
The Steel Manufacturers Association and six other industry groups urged House
Speaker Mike Johnson to include the bipartisan Leveling the Playing Field 2.0
Act in a package of legislation aimed at countering China's unfair trade
practices in July. The bill would strengthen enforcement of trade laws and
address issues like transshipment of heavily subsidized steel products.
"Any legislative
package on China needs to address its most dangerous methods of destroying
American jobs and industries," the groups wrote in a letter. "We urge
you to support American workers and industry and show China that it cannot
simply continue to dodge our trade remedies."
This complex global
backdrop underscores the importance of initiatives like Zekelman Industries'
"Demand Domestic" campaign. The company is highlighting the risks of
illegally imported steel products, including longer lead times, quality issues,
and the loss of tax revenue. As pressure mounts on electrical contractors,
Zekelman is investing in its domestic operations to provide reliable,
regulatory-compliant products.
