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U.S. Steel plants are on a layoff spree. Here’s why.

China's economy is cooling, but its steel mills are still going strong -- which is a problem for everybody else who produces it.

Piles of steel pipes are ready to be exported at a port in Lianyungang, Jiangsu province, China. (Reuters/Stringer)

For those who find the idea of a rapidly growing China to be cause for concern -- because with economic size comes political and military power -- the news that its meteoric rise is leveling off might be welcome. But for a lesson in how the global economy works in sometimes unexpected ways, consider what that's doing to steelworkers across the South and Midwest.

According to a Wall Street Journal article, the problem isn't just that China's economy is cooling off. It's also that its state-owned steel mills, which produce as much steel as the rest of the world combined, haven't slowed down to match demand. Rather, China's mills have stayed in high gear, which means the rest of the world has been flooded with cheap Chinese steel, with U.S. imports rising 68 percent last year alone.

Imports of steel have been on the rise for years now, contributing to a long decline in industry employment and perennial calls for trade sanctions against overseas competitors that U.S. producers suspect are keeping prices artificially low. A surging dollar and plunging energy prices have made this situation even worse.

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Now, with consumption slowing in China, real downsizing has begun. U.S. Steel, the 13th-largest steel producer in the world, has been on a pink slip spree, idling plants and cutting staff as part of an "ongoing adjustment" to accommodate for lower demand. So far this year, it's laid off workers in Alabama, Texas, Ohio, Indiana and Illinois, amounting to a few thousand out of its 23,000 employees in North America.

U.S. Steel, the largest business enterprise in the world when it launched in 1901, suspected this might be coming. "Steel production capability, especially in China, now appears to be well in excess of home market demand," the company wrote in its most recent disclosure for investors. "Any excess Chinese supply could have a major impact on world steel trade and prices as excess and subsidized production is exported to other markets."

What can the steel industry do about this? Basically the same thing it's done for years: Ask the federal government to investigate whether China's steel sales qualify as "dumping," or selling into a market at below-market value, which would allow the United States to place duties on Chinese exports. The American Iron and Steel Institute's annual policy agenda also made the case for laws that strengthen tariff enforcement and trade agreements that crack down on currency manipulation that makes foreign goods even cheaper, a tactic that the Obama administration has steadfastly refused to consider.

All of these processes take a long time, though. In the meantime, laid-off workers will have to figure out something else.


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