MANILA/BEIJING U.S. President Donald Trump's first shot across China's bow over its steel exports, escalating a years-long brawl over trade between the world's top two economies, may not pull up Beijing.
China exported 620,000 tonnes of steel direct to the United States last year, a fraction of the 800 million tonnes it produces each year, equal to about half of world output.
Repeated allegations that the world's top steelmaker is dumping excess output on world markets may hit harder closer to home - in Japan and South Korea where steel sectors have borne the brunt of China's rampant sales abroad.
Speaking in the U.S. capitol at IMF and World Bank meetings after Trump launched a trade probe against China and other exporters of cheap steel, Japan's finance minister Taro Aso laid the blame squarely on China, saying its vast exports are hurting U.S., Indian and Japanese steel industries.
China's steel exports hit a record 112.4 million tonnes in 2015, then dropped slightly to 108.49 million tonnes last year, as mills have been chastened by threats of a trade dispute and better demand at home, experts said.
Exports fell to a three-year low of 5.75 million tonnes in February, recovering slightly to 7.56 million tonnes in March.
Still Trump's salvo will renew concerns that China may retaliate, with U.S. farmers fearing they would be in the crosshairs of any dispute.
"Trump will do what's best for America, but China will do what's best for China," said Roberto Cola, vice president of the ASEAN Iron and Steel Council.
If Trump slaps new tariffs on steel exports from China and elsewhere, that will trigger anti-dumping and countervailing measures from these countries, said Cola.
"It seems we're going back to the protectionist era."
(For a graphic on U.S. steel products imports, click tmsnrt.rs/2oPeo1z)
SCALE AND SOPHISTICATION
Two events this week illustrated the challenge and complexity in trying to force China to curb excess steel capacity and cheap exports, an issue which also plagued Trump's predecessor for years.
Customs data showed on Monday that Chinese mills in March churned out a record 72 million tonnes of crude steel, mainly used in construction and infrastructure.
Then, underscoring the scale and sophistication of China's vast export machine, the government on Wednesday published a roadmap outlining its plan to triple its export from almost 80 industries, including steel.
China's Foreign Ministry spokesman Lu Kang said on Friday the country needed to ascertain the direction of any U.S. investigation before it could make a judgment.
Chinese steel executives repeated their mantra that overcapacity is not just China's problem and it needs global coordination to resolve it, but also said it would be tough to rein in the sector.
"The Chinese government will not set export limits for the steel mills and could not keep track of every mill," said Li Xinchuang, vice chairman of the China Iron and Steel Association.
"It will not be a good thing for U.S. steel industry and consumers if Trump decides to adopt protectionism."
About a third of China's steel exports flow into ASEAN, or the Association of Southeast Asian Nations, which last year reached 34.3 million tonnes, based on data compiled by UK-based consultancy MEPS, which has been tracking China's steel industry since the late 1990s.
South Korea is the top market for Chinese exports where 12.3 million tonnes were shipped last year, followed by Vietnam.
GAMING THE SYSTEM
China's massive steel industry, with an army of millions and largely subsidized by the state, is unlikely to be deterred by Trump's attempt to probe into its cheap exports, as Beijing begins its global campaign to boost overall export shipments.
For years, Chinese steel exporters have been gaming the nation's tax system to pump ever greater amounts of surplus steel into world markets, crafting slightly different alloys to ensure their products sidestep Beijing's cutbacks to trade subsidies.
In China, a rebate system to reward exporters selling more value-added steel has been exploited for years, allowing even shipments that contain just tiny amounts of alloy elements to be given rebates.
The rebates which range between 9 and 13 percent are "in addition to subsidies for state-owned enterprises, which many of China's steel mills are," said Cola.
The rebates are helping many Chinese steel mills deeply undercut rivals overseas although some domestic producers say exports have dropped as demand at home strengthened.
Still, an early-year surge in Chinese steel prices has lifted prices of its export products and China has lost its competitiveness with rivals like India and Russia, said Kevin Bai from CRU consultancy.
"But domestic prices have since dropped quite significantly and close to cost and mills have started to carry out maintenance to try to control output and maintain prices," said Bai, adding that mills could boost exports if demand at home does not pick up.
"The government doesn't want to see higher exports, but I think that's debatable."
(Reporting by Manolo Serapio Jr in MANILA and Muyu Xu in BEIJING; Additional reporting by Leika Kihara in WASHINGTON DC and Ben Blanchard in BEIJING; Writing by Josephine Mason; Editing by Tom Hogue)