Concerns over a trade war are rising as the European Union (EU) plans to impose a 25 percent retaliatory import tariff on various US products, ranging from clothes to motorcycles, if US President Donald Trump indeed goes ahead with his plan to impose a 25 percent import tariff on steel imports and a 10 percent tariff on aluminum imports.
Stock markets went in red territory after the announcement of Donald Trump late last week when Trump stated that he wants steep import tariffs on steel in a bid to strengthen the US steel industry. Trump accuses China of selling steel products on the US market below production costs (dumping), made possible by the structural steel oversupply situation in China. However, the steep steel import tariff will apply to all steel shipments into the USA, not just for shipments from China.
According to Trump, the steel and aluminum imports pose a national security threat for the USA. However, this claim is dismissed across the globe and therefore provokes retaliation actions across the globe as well as complaints to the World Trade Organization (WTO).
Although stock markets are rebounding on Tuesday (06/03) - as investors start to become used to trade war rhetoric and therefore changed their focus on still-strong growth, robust corporate earnings and dovish central banks - there are some serious consequences if Trump indeed imposes the import tariffs.
Those US industries that consume imported steel will need to raise prices (provided foreign steel exporters pass on the higher cost to these US industries). This gives rise to inflationary pressures and that could be a reason for the US Federal Reserve to raise interest rates faster. Higher interest rates will make investors turn away from stocks and instead seek bonds. Meanwhile, higher rates discourage credit growth and economic activity.
World's Biggest Steel Producing Countries:
What about Indonesia in this US steel import tariff turmoil? The Indonesian Industry Ministry is reportedly preparing a number of steps to anticipate a rising flow of Chinese steel imports into Indonesia. Harjanto, Director General of Metal, Machinary, Transportation and Electronics Industries at Indonesia's Industry Ministry, said the steep US steel tariffs will force China to seek other export markets and therefore try to boost steel exports into Indonesia where plenty of steel is needed for the government-led infrastructure development program and where the per capita steel consumption figure is still low at 65 kilogram per year.
One of the steps would be to limit the types of steel that are allowed to be imported into Indonesia. Therefore, the Industry Ministry will now compile a database which lists the types of steel that are manufactured domestically. This database can then function as a reference for the Trade Ministry.
Another step would be to tackle a "leak" in steel import regulations. Indonesian steel importers can currently enjoy zero import duties on alloy steel. However, many of these importers are actually importing carbon steel with a very low alloy content (while Indonesia imposed anti-dumping tariffs on carbon steel), hence sidestepping heavy duties. Thus, this import policy of the government is not tight enough and leads to a big flow of imported steel products into Indonesia. While imported alloy steel should be used in the automotive manufacturing industry, it can be found in construction projects across Indonesia.
Purwono Widodo, Director for International Relations of the Indonesian Iron and Steel Association (IISIA), agrees with Harjanto and is concerned about a rising flow of imported steel from China into Southeast Asia, and particularly into Indonesia.
Based on data from worldsteel.org steel production in China rose 5.7 percent year-on-year (y/y) in 2017 to 831.7 million tons. Total worldwide steel production rose 5.3 percent (y/y) to 1.69 billion tons last year, hence China accounts for about half of total steel output across the world. Meanwhile, 1.62 billion tons of steel were consumed across the world in 2017.
Forecast Steel Demand in Indonesia:
(in million tons)
National Steel Consumption in Indonesia per Sector:
|Sector||% of Total
|Oil & Gas||7|
Source: Bisnis Indonesia
Some facts about steel & Indonesia:
• Indonesia is the world's fourth-largest steel importer
• There are 200 steel manufacturing companies active in Indonesia
• About 350,000 Indonesian workers are active in Indonesia's steel industry
• There are three steel industry clusters in Indonesia: Cilegon (Banten), Batulicin (South Kalimantan), and Morowali (Central Sulawesi).