China Ships Steel To Vietnam To Avoid U.S. Tariffs

After a complaint from U.S. steelmakers stating Chinese steel companies are shipping steel through Vietnam to secure lower tariff costs, the U.S. Department of Commerce is launching a formal investigation into whether Chinese steel companies at fault. How does the scam work? And how should American investors respond?

Dept. of Commerce Launched Investigation

U.S. steel companies could see a boost in the coming weeks after the U.S. Department of Commerce started a probe to see if China is avoiding tariffs by shipping steel to Vietnam first. The probe centers around U.S. steel maker claims that Chinese steel companies are shipping steel to Vietnam first, then importing the steel to the U.S. from there because Vietnam pays significantly lower import tariffs than China.

Chinese companies argue that they’ve done no wrong, and ship to Vietnam in order to coat the steel with zinc, making it corrosion-resistant. The Chinese companies say this is enough of an addition to the steel to make it a new product “made in Vietnam”, thus not requiring a higher Chinese tariff. However, U.S. steel makers counter that argument by pointing out that coating the steel is a simple process, “involving relatively small investment, that adds relatively little value, and adds no components or mass whatsoever,” which is not enough to say it’s made in Vietnam.

U.S. steel makers are fighting a glut of Chinese steel in the market, and seem to have found the source of it. In the first six months of 2016, shipments of steel from Vietnam to the U.S. rose to 312k tons of steel, up from 26k tons over the same time period of 2015. Meanwhile, in that same window, Chinese companies exported 6.3 million tons of steel, up from 4.3 m tons in the first half of 2016.

So what would happen if the U.S. probe finds China at fault?

The U.S. would raise duties on all Chinese steel coming from Vietnam to be on par with steel coming directly from China. As a result, the influx of Chinese steel in the market would slow to a trickle as supply and demand realign. The cost of steel would rise, and U.S. steelmakers would see not only a boost in sales, but most likely a rise in market share, as well.

Watch China fishing vessel chased, rammed until a Vietnamese fishing boat was sunk in this video.

U.S. steelmakers such as United States Steel Corp. (X), AK Steel Holding Corp. (AKS), and Nucor Corp. (NUE) are all spiking on the news. Expect the probe to find in favor of U.S. steel companies, and expect shares of those steel companies to rise accordingly.

Talking about cheating. It seems like Volkswagen is facing another lawsuit after U.S. Regulators discover a cheating device in their Audi cars. Read the full news in our yesterday’s news here!

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