China’s steel problem: how its pandemic recovery risks making foes of trading partners

China’s steel problem: how its pandemic recovery risks making foes of trading partners

As the Covid-19 pandemic damages so many economies around the world, killing jobs and shoving millions of families back into poverty, an uncomfortable and politically challenging possibility is beginning to emerge: certain economies will suffer more sharply than others, and China seems set to recover more quickly and suffer less pain.

Managing the political anger this will generate will be one of the biggest diplomatic challenges China will face in 2021. Given Beijing’s blunt-instrument reputation in global diplomacy, this does not augur well.

Nowhere is this better illustrated than in the steel sector. Rapid recovery in production is already under way inside China – contrasted with deep contractions elsewhere in the world – and is set to escalate the rancour that has raged across the global steel market for decades.

Controversy over China’s surplus capacity and the global impact of exporting its surpluses has fuelled concern in the sector since the mid-1990s. This has made steel one of the most militantly protectionist of all sectors and the subject of more widespread tariff warfare than almost any other sector.