New U.S. steel tariffs, championed by President Donald Trump’s legacy policies and now taking effect this March, are set to upend a multi-billion dollar supply chain that has long seen Chinese steel flowing into the United States via transshipment through third countries. The move is expected to trigger a cascade of trade disruptions, intensify global competition, and further strain an already embattled Chinese steel sector.

The New Tariff Regime and Its Immediate Impact

On March 12, a 25% steel duty will come into force on U.S. imports of steel—an aggressive measure designed to shield domestic steel producers from foreign competition. This tariff is poised to dismantle an intricate trade network that has allowed Chinese steel to circumvent direct U.S. trade barriers. In recent years, with direct imports of Chinese steel largely priced out by earlier measures introduced in 2016 and 2018, mills in countries with relatively freer market access have been purchasing cheap Chinese steel, processing it, and then re-exporting it to the United States.

According to China’s four leading steel consultancies, this transshipment trade accounted for nearly 10% of all Chinese steel exports last year—roughly $7 billion in sales. With the new tariffs, this vital channel is expected to shrink significantly, undermining a major revenue stream for China’s steel industry. Analysts warn that the disruption will have far-reaching effects, leading to decreased export volumes, squeezed profit margins, and heightened competitive pressures on steel-exporting nations.

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Disrupting a Multi-Billion Dollar Supply Chain

China’s steel transshipment trade has long served as a workaround for stringent U.S. trade barriers. By routing steel exports through intermediaries in countries such as Mexico, Vietnam, and Brazil, Chinese producers have managed to exploit loopholes in the tariff regime. However, the latest 25% duty targets this very strategy. The White House has highlighted that cheap Chinese steel, when transshipped, not only undercuts domestic producers in the United States but also distorts global trade patterns by diverting volumes away from competitors with more favorable tariff rates.

The transshipment market—estimated by Reuters at around 8.6 million tons or about 8% of China’s total steel exports—is shrouded in some uncertainty due to its diffuse nature. Nonetheless, the ramifications are clear: if even a portion of this market is lost, Chinese steelmakers could face a double blow. Not only would they see a reduction in overseas sales, but the loss of scale might also lead to overcapacity domestically, further eroding profitability in a sector already under strain by persistent overproduction and environmental regulations.

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The Ripple Effects on Global Steel Markets

The imposition of the new tariffs has already sent shockwaves across the global steel trade. Major exporters to the United States—including Mexico, Vietnam, and Brazil—are bracing for increased competition as the market adjusts to a smaller pool of competitively priced steel. Vietnamese imports to the U.S., for instance, surged by 143.4% year-on-year last year, capturing a significant share of Chinese transshipped steel. Now, with tariffs skewing the cost advantages, these countries might either face declining demand or be forced to hike prices, which could ripple through global supply chains.

In response, several nations are already signaling the possibility of protective measures of their own. Following Trump’s announcement, Vietnam and South Korea quickly introduced new duties on select Chinese steel products. India and the European Union have also hinted at bolstering their own trade defenses. These actions suggest that the U.S. tariff could spark a broader wave of protectionism—a development that would further complicate global trade dynamics and intensify the risk of a trade war in the steel sector.

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Historical Context and the Evolution of Trade Barriers

The current situation is not without precedent. Over the past decade, trade policies have repeatedly been used as tools for protecting domestic industries, with steel often at the center of these disputes. The U.S. has a long history of imposing tariffs on steel imports dating back to the early 2000s, but the Trump-era policies marked a significant escalation, targeting not only direct imports but also indirect channels through transshipment.

These earlier tariffs forced Chinese steel producers to adapt by seeking alternative markets or reconfiguring their supply chains to avoid U.S. duties. While effective in the short term, such measures often led to market distortions and increased costs for downstream industries. Today’s new tariff regime represents an intensification of that approach—one that not only disrupts existing trade patterns but also sends a stern warning to other steel-exporting countries about the risks of relying on transshipment routes.

Historically, trade barriers have been both a boon and a bane. They can protect domestic industries and safeguard jobs, yet they also distort market mechanisms and can lead to retaliatory measures that hurt global commerce. In the current environment, China’s steel sector finds itself at a precarious crossroads, with mounting tariffs threatening to upend a business model that had long relied on global integration and strategic supply chain management.

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China’s Steel Sector: Under Pressure from Multiple Fronts

China’s steel industry has been grappling with a host of challenges for years. Despite being the world’s largest steel producer, the sector has been plagued by overcapacity, environmental pressures, and a weakening domestic demand driven in part by a protracted property market crisis. Over the past few years, Chinese steelmakers have increasingly looked to international markets to absorb their excess production. Exports, particularly those routed through transshipment channels, have provided a crucial lifeline.

However, the new U.S. tariffs threaten to sever this lifeline at a critical juncture. As noted by a Chinese steel trader, “The export orders that we have received for shipments in March and April have fallen by 20%-30% from the same period last year.” This decline in orders reflects growing uncertainty and the immediate impact of policy shifts, even before the tariffs officially take effect.

Furthermore, state-backed research from the China Metallurgical Industry Planning and Research Institute warns that mounting trade frictions will likely drive down both export volumes and profit margins. Lower export earnings could exacerbate the existing challenges in the domestic market, where oversupply and weak demand have already eroded profitability. For an industry that has long relied on economies of scale, even a modest contraction in overseas sales could have severe consequences.

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Geopolitical Ramifications and the Future of Trade Policy

The imposition of the 25% steel tariff is not merely an economic maneuver—it also carries significant geopolitical overtones. Trade policies in the steel sector have historically been intertwined with broader strategic considerations, and the current measure is no exception. By targeting Chinese steel, the U.S. is sending a signal that protectionist measures will continue to be used as a tool to counteract perceived unfair trade practices and to support domestic industries.

This latest move is likely to provoke strong responses from China. In previous trade disputes, Beijing has retaliated with its own tariffs or by imposing non-tariff barriers on U.S. goods. The risk of a full-blown trade war remains real, particularly as other nations—Vietnam, South Korea, India, and the European Union—begin to adjust their own policies in response. Such retaliatory measures could lead to a tit-for-tat escalation that disrupts not only the steel market but also other sectors of global trade.

Moreover, these actions could further complicate international negotiations on trade liberalization. At a time when multilateral efforts to reform global trade rules are already facing headwinds, a new round of tariff escalations in the steel sector might undermine confidence in the international trading system. Countries that have long relied on predictable trade policies may become increasingly cautious, leading to a more fragmented global market.

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The Transshipment Conundrum: A Closer Look

One of the most complex aspects of this emerging crisis is the role of transshipment. Traditionally, transshipment has allowed Chinese steel to bypass direct tariffs by first shipping it to intermediary countries before re-exporting it to the U.S. While this practice has helped to keep Chinese steel competitive in the American market, it has also blurred the lines of accountability and made it challenging for policymakers to track the true origin of imported steel.

According to data analyzed by industry experts, the transshipment market accounts for about 8.6 million tons of steel—a figure that, while modest in absolute terms, represents a significant share of China’s overall steel exports. For many Chinese producers, transshipment has been an essential strategy for maintaining market access and offsetting domestic overcapacity. However, the new tariffs directly target this loophole by raising the cost differential between direct and transshipped steel.

Analysts at Chinese steel consultancy Mysteel highlight that transshipment via countries like Vietnam is particularly lucrative because U.S. tariffs on Vietnamese steel are only about one-tenth of those imposed on Chinese products. With the new tariff regime set to level the playing field, the incentive for transshipment diminishes sharply. This could force Chinese producers to either seek alternative markets or face a steep decline in their overseas sales volumes.

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Broader Implications for Global Steel Trading Partners

The repercussions of these tariff measures extend well beyond China and the United States. Major steel-exporting countries that have benefited from the transshipment route will now have to contend with a shrinking export pie and increased competition. For example, countries such as Mexico and Brazil, which have traditionally served as key intermediaries in the U.S. steel market, may see their market shares erode as buyers recalibrate their sourcing strategies in light of the new cost structures.

In Vietnam, which has emerged as a significant player in the transshipment trade, the new tariffs could prompt a strategic pivot. Already witnessing a surge in U.S. steel imports—up by 143.4% year-on-year—Vietnam’s steel industry may need to innovate further to retain its competitive edge. Similarly, South Korea, another major exporter, has already begun imposing its own duties on certain Chinese steel products in a bid to protect its domestic market.

These moves point to a broader trend of rising protectionism in the global steel industry. As countries reassess their trade policies in response to shifting market dynamics, the risk of a fragmented, regionally segmented steel market increases. Such a scenario could lead to higher prices for consumers and businesses alike, while also dampening the overall growth prospects for the industry.

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Expert Opinions and Industry Outlook

Industry experts are divided on the long-term impact of the new tariffs. Some argue that while the short-term disruptions may be severe, the global steel market is resilient and will eventually adjust to the new normal. Others warn that the tariffs could trigger a vicious cycle of protectionism, leading to sustained lower export volumes for China and higher input costs for U.S. manufacturers that rely on imported steel.

A senior analyst at a leading Chinese consultancy noted, “If these tariffs force a significant reduction in transshipment volumes, Chinese steelmakers will face an uphill battle in restoring their international market share. This could accelerate a trend towards regionalization in steel trading, where countries increasingly source steel from their immediate neighbors rather than engaging in long-distance trade.”

Another analyst emphasized the geopolitical dimensions: “Trade is never just about economics. The current tariffs are as much a political signal as they are an economic tool. With multiple countries already taking defensive measures, we may be witnessing the early stages of a broader decoupling in the global steel trade.”

Such sentiments underscore the uncertainty facing the industry. For Chinese steel producers, the challenge is twofold: not only must they adapt to a rapidly shifting global trade environment, but they must also contend with domestic pressures—from overcapacity and environmental regulations to a sluggish property market that has dampened local demand.

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Strategic Responses: Adapting to a New Trade Landscape

In response to these multifaceted challenges, many Chinese steel companies are rethinking their business strategies. Some are exploring avenues to diversify their export markets, targeting regions such as the Middle East and Southeast Asia, where tariff barriers are lower or non-existent. Others are investing in technological upgrades and process innovations to boost efficiency and reduce production costs, thereby offsetting the impact of reduced export volumes.

The Chinese government, too, is under pressure to intervene. Policy measures to support the steel sector—ranging from targeted subsidies to enhanced trade negotiations—could provide some relief. However, any such intervention must be carefully calibrated to avoid triggering further tensions in already sensitive trade relationships with key partners like the United States.

Moreover, international bodies such as the World Trade Organization (WTO) may see an uptick in disputes as affected countries challenge the legality of new tariffs and countermeasures. The current scenario not only tests the resilience of the global steel market but also highlights the limitations of the existing multilateral trade framework in managing modern economic conflicts.

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Looking Ahead: The Road to a Resilient Global Steel Market

As the March deadline approaches and the new tariffs come into force, all eyes will be on how the market adjusts. For Chinese steelmakers, the immediate challenge will be to mitigate the loss of transshipment trade while finding new avenues for revenue. For U.S. manufacturers and global traders, the focus will be on securing a stable supply of competitively priced steel in a landscape that is rapidly becoming more protectionist.

In the medium to long term, the situation may catalyze a fundamental realignment in global steel trading patterns. The reduction in transshipment flows could drive companies to establish more localized production networks, reducing reliance on long-distance trade and building resilience against future tariff shocks. Such a shift, while disruptive in the short term, could ultimately lead to a more diversified and stable global steel market.

Economic analysts stress that the current phase of trade frictions is likely to persist, at least in the near future. With major economies rethinking their trade policies and regional blocs beginning to form their own supply chains, the steel industry may well become a bellwether for broader trends in international commerce.

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Conclusion: Navigating a Turbulent Trade Environment

Trump’s legacy tariffs on steel are set to reverberate across the global market, threatening to upend the established transshipment trade that has long benefited Chinese steel producers. As these new measures take effect, the resulting disruptions will not only impact China’s export volumes but also reshape the competitive landscape for steel exporters worldwide. With mounting trade barriers and the specter of retaliatory tariffs, the global steel industry faces an uncertain future—one in which traditional trade routes are being redrawn and new strategic alliances are emerging.

For Chinese steelmakers, the challenge is acute. Already under pressure from domestic overcapacity and a sluggish property market, the loss of a vital export channel could hasten an already precarious decline in profitability. At the same time, rival countries and trading partners are poised to seize the opportunity to expand their own market share, setting the stage for an increasingly fragmented and protectionist global steel market.

While it remains to be seen how these dynamics will ultimately play out, one thing is clear: the era of unobstructed global steel trade is coming to an end. Instead, we may be entering a period marked by heightened trade frictions, regionalized supply chains, and a new equilibrium that reflects the complex interplay of economics and geopolitics.

In the coming months, industry observers will be closely monitoring export data, price fluctuations, and policy responses from key players around the world. The outcome will not only determine the fate of China’s steel transshipment trade but will also serve as a litmus test for the resilience of the global steel market in the face of aggressive protectionist policies.

As stakeholders on all sides navigate this turbulent environment, the need for adaptive strategies and international cooperation has never been more apparent. Whether through technological innovation, strategic market diversification, or concerted policy efforts, the path forward will require bold action and a willingness to rethink established trade paradigms in a rapidly changing world.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

28th February, 2025