Maxwell Bernstein AP Macroeconomics Eric Bloom Naturalist #1 Millers article in the WSJ explains that due to the increased

steel price differential between US and China, more buyers are choosing to import. The rate of increase of domestic steel production is incredibly high; just one year ago, the US was producing steel at a -$19 differential with China. According to Vice President of Midland Steel Warehouse Corp. Howard Allen, even with the surrounding import costs factored in, it ends up being about 10% cheaper. China, it seems, has both an absolute advantage and comparative advantage to the US in steel production. US Steel companies would like to see a tariff imposed; the CEO of US Steel Mario Longhi is of the mind that the current prices are distorted by unfair trade practices.

It seems as though the WTO does not like when the US imposes protective tariffs on steel2,3, or when China enacts retaliatory tariffs4,5, so I dont think that Longhis wishes will come true. Despite the increasing trade deficit, the US cannot do much. As a result, the USD may depreciate slightly, and the Yuan/Renminbi appreciate. Eventually, this could hurt imports from China, bringing back some more domestic production, as Allen predicts.

The following graph shows that the increased demand for Chinese steel increases the demand for the CNY. This increase in demand requires an increase of supply of USD to the foreign exchange market. The USD depreciates relative to the CNY, and the CNY appreciates relative to the USD.

International Trade Graphs

Foreign Exchange Graphs

Sources 1 Miller, J. W. (Jan. 26, 2014). Steel Imports Into U.S. Surge. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702303277704579344852685727292 2 Becker, E. (2003, November 11). U.S. Tariffs on Steel Are Illegal, World Trade Organization Says. The New York Times. Retrieved from http://www.nytimes.com/2003/11/11/business/us-tariffs-on-steel-are-illegal-world-tradeorganization-says.html 3 Linton, E. (2012, October 18). WTO Strikes Down China Tariff On US Steel. International Business Times. Retrieved January 27, 2014, from http://www.ibtimes.com/wto-strikesdown-china-tariff-us-steel-849313 4 ASSOCIATED PRESS. (2013, August 2). W.T.O. Backs U.S. Appeal on Chicken Tariffs in China. The New York Times. Retrieved from http://www.nytimes.com/2013/08/03/business/wto-backs-us-appeal-on-chicken-tariffs-inchina.html 5 Epstein, L. (2009, December 31). A U.S. Steel Tariff Heats Up the Trade War With China. DailyFinance.com. Retrieved from http://www.dailyfinance.com/2009/12/31/a-u-s-steeltariff-heats-up-the-trade-war-with-china/