The Art of the Steel Deal

Why the U.S. and China Need a Production Rebalance

A closed steel factory in Tangshan, China, February 2016. Kim Kyung Hoon / Reuters

In early April, U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, met for the first time to discuss relations between the world’s two most powerful countries. The summit, largely focused on bilateral economic issues, ended with the announcement of a 100-day plan for trade talks between the two countries. The goal of the talks, according to U.S. Commerce Secretary Wilbur Ross, would be to fulfill one of the Trump campaign’s promises by reducing the $347 billion U.S. trade deficit with China, which in 2016 accounted for nearly 70 percent of the United States’ total trade deficit of $502 billion.

Last week, on May 12, the two sides announced the results from some initial negotiations. China agreed, among other things, to improve market access for U.S. credit-rating agencies and to remove import restrictions on U.S. beef. The United States, in turn, made concessions on Chinese poultry and said that it “recognizes the importance of” China’s One Belt and One Road (OBOR) economic initiative—a symbolic shift from the previous administration, which had reacted with indifference. The press release also had language encouraging China to receive U.S. liquefied natural gas (LNG) exports and stated that the United States “welcomes direct investment by Chinese entrepreneurs as it does by entrepreneurs from other countries.”

Negotiations will continue throughout the 100-day period, which ends on July 16. But to make further progress on major issues in the bilateral relationship, Washington and Beijing will need to identify “sweet spots” that fit both of their agendas. One such sweet spot is steel. China’s steel production currently accounts for over 50 percent of the global total. Yet its steel industry is plagued by overcapacity and is responsible for high levels of pollution—an increasing concern for China. At the same time, the Trump administration is attempting to revive U.S. steel manufacturing, which today accounts for less than five percent of world output.

The time is therefore right for a U.S.-Chinese trade

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