Czech steelmakers to be hit by US duties, wider trade war is bigger concern

Czech steelmakers are likely to be hit by US duties as a trade war looms with the United States. While direct Czech exports to the United States are relatively small, the main concern is the knock-on effect as tradition markets are flooded with steel originally destined for the US.

Donald Trump, photo: Jette Carr, U. S. Air Force, Public Domain

US President Donald Trump signed off June 1 on customs duties of 25 percent on steel and 10 percent on aluminium imported to the US from the EU and other trade partners such as Mexico and China. The unilateral action is part of Trump’s program to rebalance global trade relations and cut the US’ ever growing trade deficit with the rest of the world.

Downsized over the last decades, the Czech Republic for its size is still a relatively significant player on European and world steel markets with two main producers, ArcelorMittal Ostrava, and Třinecké Železárny.

Last year, those two steelmakers were largely responsible for the 130,000 tonnes of Czech steel exported to the US with the value of the sales estimated at around 5 billion crowns. That’s still a relatively small drop in overall Czech steel production which in 2017 totalled around 4.5 million tonnes.

Jan Rafaj is deputy president of the Czech Confederation of Industry. He described the main Czech exports to the US:

ʺWe export seamless steel pipes for the petrochemical industry. We export rails and, for example, we export steel transformers.ʺ

The US importers might be willing to pay the extra for the Czech products or even seek to have the duties lifted on them by a special application to local authorities or, as is probably the goal, turn to local manufacturers.

On the other side of the coin, the Czech Republic has been a net steel importer since the end of 2006 with imports exceeding exports and the steel trade gap gradually widening ever since. Imports have increased by 68 percent between 2009 and 2017 and exports rose by 22 percent over the period. The steel trade deficit came to 2.5 million metric tonnes in 2017, ballooning from 1.7 million metric tonnes a year earlier as imported steel helped to fuel the booming local economy. Actually, the country is reckoned now to be the world’s 20th biggest steel importer.

Illustrative photo: ČTK/AP/Martin Meissner

But on the Czech side at least, the threat of imposing tit-for-tat duties on US steel imports are zero. Czech steel imports overwhelmingly come from Germany, Poland, Slovakia, Italy, followed by other EU countries. The US is nowhere to be seen.

But the US customs duties will not go without a reply. The European Commission, responsible for trade relations with the rest of the world, has already drawn up its list of customs duties in reply. These mostly target agricultural products but also, for example, US bourbon.

And the real risk is seen as an escalating trade war between the US and the rest of the world with President Trump’s penchant for unilateral action and face to face negotiations seen as fuelling the likelihood of that scenario. With exports representing around three-quarters of the Czech economy, although most of them to Europe, that’s likely to be the biggest concern about the US action.