🚨 Korean Steel Industry Facing Double Difficulties from Chinese Low-Price Offensive and U.S. Tariff Bombs
Today Korean Economic News | 2025.03.17
📌 Korean Steel Industry Facing Double Difficulties from Chinese Low-Price Offensive and U.S. Tariff Bombs
💬 The domestic steel industry is struggling due to China's low-price steel offensive and the U.S. imposing 25% tariffs. Hyundai Steel has entered an emergency management system, cutting executive salaries by 20% and considering voluntary retirement. The government is preparing countermeasures to block circumvention dumping and strengthen country-of-origin certification.
1️⃣ Easy to Understand
The Korean steel industry is facing 'double difficulties' with simultaneous challenges in both domestic and export markets. On one side, low-priced Chinese steel threatens the domestic market, while on the other side, high U.S. tariffs are blocking export routes. I'll explain this problem simply.
Steel is an essential basic material for making cars, ships, and buildings, and is one of Korea's important industries. Recently, as steel demand in China has plummeted due to a domestic construction downturn, they are selling excess steel abroad in large quantities at low prices. This is similar to a store with accumulated inventory holding a massive discount sale.
Chinese steel is being sold at prices 15-20% cheaper than Korean steel, making it difficult for domestic steel companies to compete on price. Additionally, unfavorable exchange rates (strong Korean won) have further strengthened the price competitiveness of Chinese products. It's particularly difficult to verify the country of origin as Chinese steel enters through third countries via circumvention exports.
On the export side, the U.S. is imposing high 25% tariffs on Korean steel. This significantly weakens the price competitiveness of Korean products. For example, if a steel product costs $1,000 per ton and a 25% tariff is added, it becomes $1,250, making it difficult to compete in the U.S. market.
In this situation, domestic steel companies have entered emergency management mode. Hyundai Steel has cut executive salaries by 20% and is considering voluntary retirement, while POSCO is also strengthening austerity management. The government is trying to block unfair trade through strengthened country-of-origin certification and dumping investigations, but finding fundamental solutions is not easy in a rapidly changing global trade environment.
In this way, the domestic steel industry has become 'sandwiched' and is in a difficult situation. This is not simply a problem for one industry, but a serious issue that can affect related industries such as automotive, shipbuilding, and construction. In the long term, they face the challenge of competing on quality and technology rather than price through technological innovation and high-value-added product development.
2️⃣ Economic Terms
📕 Steel Industry
The steel industry is a national core industry that supplies basic materials to various industries such as automotive, shipbuilding, and construction.
- It produces various forms of steel products by processing raw materials such as iron ore and coal.
- It requires large-scale facility investment and is characterized by sensitivity to global economic fluctuations.
📕 Dumping
Dumping is an unfair trade practice where products are sold overseas at prices lower than domestic prices.
- According to WTO regulations, sanctions such as anti-dumping duties can be imposed.
- It is a strategy used to resolve overproduction issues in exporting countries and to expand market share in importing countries.
📕 Tariffs
Tariffs are taxes imposed on imported goods, used for protecting domestic industries and maintaining trade balance.
- Various forms exist such as ad valorem duty (price proportional), specific duty (quantity proportional), and mixed duty.
- It is common to lower or exempt tariff rates through trade agreements between countries.
📕 Circumvention Exports
Circumvention exports are a method of exporting through a third country to avoid high tariffs imposed on direct exports.
- It is considered a form of unfair trade that exploits rules of origin.
- It is a method to avoid regulations in international trade, characterized by difficulty in monitoring and detection.
3️⃣ Principles and Economic Outlook
💡 Causes and Global Impact of Chinese Steel Overproduction
China's steel overproduction and low-price export offensive are the result of a complex interplay of structural and cyclical factors.
First, China's domestic economic downturn is intensifying oversupply. China is the world's largest steel producer, accounting for about 50% of global production. However, recent downturns in China's real estate market and construction industry have led to a sharp drop in domestic demand. The Chinese government's tightened regulations on real estate development and real estate companies' funding difficulties have significantly reduced construction activities, leading to decreased steel demand. Nevertheless, production facilities continue to operate, resulting in accumulated inventory and oversupply problems. In this situation, Chinese steel companies are adopting a strategy of exporting large quantities overseas to prevent domestic price drops.
Second, the Chinese government's industrial policies are a factor sustaining the overproduction problem. China has prioritized core industries like steel for economic growth and employment maintenance. Local governments in particular are active in supporting steel companies for tax revenue and job creation. Subsidies, tax benefits, and low environmental regulations provided by local governments allow Chinese steel companies to continue production at low costs. Although the central government has been strengthening production restrictions and environmental regulations recently, it will take time for these to lead to actual production decreases.
Third, exchange rate fluctuations are affecting price competitiveness. Recent weakening of the yuan and strengthening of the won are factors further enhancing the price competitiveness of Chinese steel. Due to the exchange rate effect, Chinese steel products may become even cheaper in won terms, even if prices in dollar terms have not decreased. This exchange rate effect is an important variable, especially in the steel market where price competition is fierce.
Fourth, changes in global trade structure and increased circumvention exports also need attention. As major countries like the U.S. and EU strengthen tariffs and regulations on Chinese steel, China is expanding circumvention exports through third countries such as Vietnam and Indonesia. They are also utilizing methods such as exporting in semi-finished form and then changing the country of origin through simple processing locally. These circumvention exports become a means to avoid tariffs and trade regulations, and a factor that deepens the imbalance in the global steel market.
China's steel overproduction and low-price exports are having a wide-ranging impact on the global steel market. They are resulting in global steel price drops, deteriorating profitability for steel companies worldwide, and intensified trade disputes. Countries with geographically close and open markets to China, like Korea, are particularly affected.
💡 U.S. Protectionist Policies and Their Impact on Korean Steel Exports
The U.S. steel tariff policy, which has continued since the Trump administration, is part of a protectionist stance that is seriously impacting the Korean steel industry.
First, looking at the background and content of U.S. steel tariff policy, President Trump invoked Section 232 of the Trade Expansion Act in 2018 for "national security" reasons, imposing 25% tariffs on imported steel. This measure was basically maintained during the Biden administration and is expected to be further strengthened with Trump's re-election. Particularly, as the Trump 2.0 administration has set the revival of U.S. manufacturing as a major policy goal, tariff policies to protect core industries like steel are likely to expand further. Korea received partial tariff exemptions conditioned on quantity restrictions (quotas) through negotiations with the U.S., but recently these exception measures have also been reducing.
Second, the direct impact of U.S. tariffs on Korean steel exports is substantial. The U.S. is an important market for Korean steel exports, accounting for about 15-20% of total export volume. The high 25% tariff significantly weakens the price competitiveness of Korean steel, leading to a decline in market share within the U.S. The substitution effect is particularly prominent in common products rather than high-value-added products. Additionally, due to quantity restrictions (quotas), the total export volume itself is decreasing, reducing economies of scale.
Third, as an indirect impact, the global steel market is being reorganized. As steel products from China, Japan, EU, etc., that cannot be exported to the U.S. market flood into other markets, competition in third-country markets is also intensifying. This is a factor that exacerbates difficulties for Korean steel companies not only in the U.S. but also in other export markets. Also, the U.S.'s protectionist policies are creating a "domino effect" triggering similar measures in other countries, further complicating the global trade environment.
Fourth, steel tariffs also negatively impact U.S. exports of steel-consuming industries such as automobiles and home appliances. When the prices of steel raw materials used in Korea's main U.S. export items such as automobiles and home appliances rise, the price competitiveness of these products also weakens. Additionally, new forms of trade barriers being discussed recently, such as the "carbon border tax," are expected to be an additional burden on the export of the Korean steel industry.
In this way, U.S. protectionist policies are not only directly impacting the Korean steel industry but also having negative indirect effects through structural changes in the global steel market. Particularly in the context of intensifying trade conflicts between the U.S. and China, Korean industries positioned between the two countries are likely to face even more difficult situations.
💡 Domestic Steel Industry's Response Strategies and Government Policy Directions
The domestic steel industry facing double difficulties is seeking various response strategies, and the government is also strengthening policies to protect the industry.
First, the steel industry is operating emergency management systems to overcome the crisis. Hyundai Steel is implementing cost-cutting measures such as a 20% reduction in executive salaries and considering voluntary retirement, while POSCO is also strengthening austerity management. These measures are strategies for short-term survival, but there are concerns they could lead to weakened industry competitiveness in the long term. Particularly, if employment reduction and R&D investment cuts continue, there is a possibility of losing future growth engines. Therefore, companies need to find a balance between simple cost reduction and strategic investment in business restructuring.
Second, product high-value-addition and differentiation strategies are being presented as important breakthroughs. Since price competition with China has limitations, strategies to secure advantages in technology and quality are important. Particularly, portfolio transition to high-value-added products such as high-strength steel sheets for automobiles, special steel for wind power generation, and eco-friendly products is necessary. Additionally, there is a need to strengthen competitiveness through service differentiation such as providing customized solutions and establishing just-in-time supply systems. This requires continued R&D investment and technological innovation, and investment for the future must be maintained even amid short-term difficulties.
Third, the government is strengthening responses to unfair trade. It is responding to China's unfair export practices through strengthened country-of-origin certification, blocking circumvention exports, and expanding anti-dumping investigations. Particularly recently, measures are being pursued to strengthen monitoring of imported steel products and take rapid trade remedy measures when necessary. Efforts are also being made in parallel to solve the overproduction problem at a global level through cooperation with major countries such as the U.S. and EU. However, these measures must be taken within WTO regulations, and excessive protectionism should be avoided as it could have adverse effects.
Fourth, in the medium to long term, green transition and digitalization of the steel industry are necessary. In the era of carbon neutrality, reducing greenhouse gases and establishing eco-friendly production systems are inevitable tasks. Developing low-carbon production technologies such as hydrogen reduction steelmaking and expanding the proportion of electric furnace steelmaking is important and will be a key element of future competitiveness. Additionally, improving productivity through digital transformation such as smart factories and AI-based production optimization is also an important task. These green and digital transitions may be a cost burden in the short term but are essential conditions for securing global competitiveness in the long term.
Fifth, strengthening cooperation with steel-consuming industries and pioneering new markets are also important. Stability of the supply chain and product development must be continued through cooperation with major consuming industries such as automobiles, shipbuilding, and construction. Additionally, market diversification should be pursued by expanding entry into emerging markets, especially regions with high growth potential such as India and Southeast Asia. It is important to reduce dependence on the U.S. and China and secure stable demand in various markets.
Through these multi-layered response strategies and policy support, the domestic steel industry must overcome current difficulties and strengthen future competitiveness. Balancing short-term crisis response and medium to long-term industry innovation is a key task, and this requires cooperation among various stakeholders including companies, government, workers, and related industries.
4️⃣ In Conclusion
The double difficulties faced by the domestic steel industry are a complex challenge where global trade structural changes and industrial paradigm shifts are intertwined, beyond simple cyclical economic difficulties. China's low-price offensive threatens the profitability of the domestic market, and high U.S. tariffs limit opportunities in major export markets. This is a structural problem that is difficult to solve with individual company efforts alone, requiring industry-wide changes and strategic government support together.
The struggles of the domestic steel industry reflect changes in the global competitive environment and trade order. China is trying to resolve overproduction problems caused by domestic economic downturn through low-price exports to overseas markets, and the U.S. is strengthening protectionist policies to protect its domestic industries. Amid pressure from both sides, the Korean steel industry is in a particularly vulnerable position. Since steel plays an important role in supplying basic materials to Korea's major industries such as automobiles, shipbuilding, and construction, difficulties in the steel industry can have ripple effects throughout the industrial ecosystem.
In the short term, cost reduction through emergency management, along with active responses to unfair trade are needed. Government measures such as strengthening country-of-origin certification, blocking circumvention dumping, and expanding anti-dumping investigations will play an important role in protecting the domestic market. Additionally, efforts to obtain steel tariff exemptions or quota expansions through trade negotiations with the U.S. should continue.
In the medium to long term, industry restructuring and competitiveness enhancement are key tasks. Important strategic directions include product high-value-addition through technological innovation, production method innovation through eco-friendly and digital transformation, and global market diversification. Particularly in the era of carbon neutrality, developing eco-friendly production technologies will be a key element of future competitiveness.
In conclusion, the current crisis can be seen as a signal showing that the Korean steel industry needs to change for a sustainable future. A transition to a new competitive paradigm centered on technological prowess, quality, and eco-friendliness, rather than simple volume competition, is needed. This is a difficult challenge, but if successfully achieved, it will be an opportunity for the Korean steel industry to establish a differentiated position in the global market and continue sustainable growth. For this, cooperation and strategic response from companies, government, workers, and related industries are more important than ever.