New US tariffs on steel are expected to disrupt a massive supply chain, worth billions of dollars, that relied on rerouting Chinese steel to the United States via intermediary countries. This will increase competition in the global market and could undermine a key source of revenue for China’s struggling steel sector.

Due to trade restrictions imposed in 2016 and 2018, it has become more difficult for Chinese steel to be exported to the United States. As a result, mills in countries with more open trade policies have resorted to buying Chinese steel at lower prices and partially processing it before exporting it to the US market.

However, the Trump administration’s imposition of a 25% tariff on steel imports, which will take effect on March 12, will hamper this trade, according to four Chinese steel consultancies. The tariffs are expected to affect nearly a tenth of China’s total steel exports for 2023, which were worth about $7 billion.

The shift of Chinese steel from the US to the already saturated global market is likely to lead to increased protectionism, as countries seek to shield their domestic industries from the influx of Chinese products. In a recent note, the China Metallurgical Industry Planning and Research Institute, a state-backed research body, noted that “escalating trade frictions will increase pressure on China’s steel exports, potentially leading to lower profits and reduced margins for some companies.”