Flooding the Steel Zone.
The Chinese steel industry is now a collection of mostly state-owned enterprises that employ an estimated 3.6 million Chinese workers. For comparison, U.S. employment in the steel industry is about 140,000 and Japan employs about 170,000. Surprisingly, China's steel behemoth is a relatively recent development. In 2001 when China joined the World Trade Organization, China did not have a commanding steel industry and was responsible for about only 15 percent of global production. By 2018, more than half of the steel produced in the world was produced in China. China added far more steel capacity over that time than the rest of the world combined.
Lost in those statistics are several smaller economic realities. Notably. China does not have any comparative advantage in steel production. The average Chinese steel worker produces a little more than a third of what the average American, Japanese, or European steel worker produces. More surprisingly, all during China's rise in steel production, the global steel industry--as was documented in great detail by the OECD--has struggled with low prices and an epidemic of excess production capacity, which should halt or at least limit new investment in steel production. The market certainly has not been signaling China to produce more steel, unfortunately the Chinese government has.
Literally were it not for China's unwavering industrial policy, the rise of the Chinese steel industry over the last two decades could not have happened. And that policy has resulted in the export of unemployment in the steel industry to the rest of the world.
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|Publication:||The International Economy|
|Date:||Mar 22, 2019|
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