BHP, the world\u2019s largest diversified natural resources company, recently celebrated the 50-year anniversary of its relationship with Japan \u2013 the two parties have experienced joint benefits as Japan\u2019s industrialization was enabled by a steady inflow of BHP\u2019s iron ore. During this period, Japan experienced a 1400% increase in steel production per capita, a 4x improvement in post-WWII standard of living, and was the \u201cfirst non-Western economy to reach wealthy nation status.\u201d [1] BHP has a vested interest in marketing this story as isolationist governmental policies gain traction globally.<\/p>\n
Most trade agreements today are less celebrated. The world\u2019s steel market is arguably \u201cthe most distorted industrial market in the world,\u201d and the United States has not protected its own steel industry. Foreign steel producers engage in dumping \u2013 the practice of discounting steel in export markets while enjoying comfortable margins protected by subsidies in their home country. [2] American Iron & Steel Institute Chairman John Ferriola shared his frustration that \u201cChina has subsidized the [steel] growth\u2026 through grants, low interest loans, [and] free land\u2026 simply stated, the Chinese government is a company disguised as a country\u2026 waging economic war on the United States\u201d. This results in higher steel supply than demand and lower U.S. steel prices. As a strong symbol of U.S. frustration, the Obama administration levied a 200%+ tariff on China\u2019s cold rolled steel. [3]<\/p>\n
President Trump resurfaced the topic during his campaign and gained political support from \u201cRust Belt\u201d cities on the promise of protectionist trade agreements. \u00a0These cities saw large levels of unemployment after low steel prices eliminated their ability to compete globally. \u00a0Trump emphasized \u201c\u2026they\u2019re dumping steel. Not only China, but others. We\u2019re like a dumping ground, okay?\u201d Steel is needed for defense \u2013 helmets, tanks, and rocket fuel \u2013 and Trump strongly believes this is not an area to become dependent on foreign sources. [4] He has suggested in post-election rallies a 45% tariff on Chinese imports that would \u201crip-up\u201d existing trade deals. [5]<\/p>\n
Currently, China is 41%, or $14 billion of BHP\u2019s earnings. A decrease in China\u2019s steel export ability would create uncertainty in iron ore demand. At the worst, global retaliation from China may cause a decrease in connectivity between Asia and Australia. Since mining is largely a capital intensive, fixed-cost business, lower iron ore prices directly impact profits. BHP\u2019s 2017 annual report details \u201cmodest economic growth\u201d in the short-term due to protectionism and a related external financial risk that is \u201cdifficult to predict and outside [BHP\u2019s] control\u201d. [6] BHP chief executive Andrew Mackenzie told the Financial Times that global businesses need a \u201ccall to arms\u201d. Mackenzie emphasized that tearing down trade deals will lead to extensive negotiations, decreased market efficiency, and increased geopolitical tension. [7] Jac Nasser, BHP chairman in 2016, spoke out directly against the tariffs, saying the issue is greater than BHP\u2019s balance sheet since \u201cthe whole world will start to be in complete trauma\u201d with guaranteed countermeasures from other countries. [8]<\/p>\n
Mackenzie further emphasized that \u201cfree trade doesn\u2019t take jobs on a net basis. It makes them. Big time\u201d.\u00a0 [9] But with one caveat: labor economists David Autor, David Dorn, and Gordo Hanson emphasized trading with China has not helped the U.S. workforce, but emerging market middle classes. As stated in the abstract, \u201c\u2026employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.\u201d [10] Despite expert economists agreeing that steel trade is unfair and caused unemployment in U.S. steel-making industries, they fear the backlash of the tariffs for the many Americans who are employed by steel-buying industries. [4]<\/p>\n
BHP executives including Mackenzie met with Trump in January 2017 to discuss a wide array of issues impacting the resources sector. [11] BHP\u2019s strategy of operating \u201cupstream assets diversified by commodity, geography, and market\u201d is their greatest line of defense at mitigating the risk of trade restrictions. [6] Going forward, BHP needs to continue diversifying their commodity portfolio and actively engaging with foreign governments to encourage both tariff and subsidy free steel trade. If tariffs are enacted, I recommend BHP to actively lobby and file for exceptions. I would evaluate BHP\u2019s relationship with China: by supplying China in one market, did they create a problematic situation in another? How should or can BHP and the community punish unfair trade?<\/p>\n
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[1] BHP Billiton, \u201cJapan and BHP\u2019s 50 year relationship.\u201d June 5, 2017. http:\/\/www.bhp.com\/media-and-insights\/prospects\/2017\/06\/japan-and-bhp-50-year-relationship, accessed November 2017.<\/p>\n
[2] Mastel, Greg and Andrew Szamosszegi. \u201cLeveling the Playing Field: Antidumping and the U.S. Steel Industry.\u201d Anti-Trust and Competition Policies, Economic Strategy Institute (February 1999).<\/p>\n
[3] Flanagan, Ed. \u201cChina\u2019s \u2018Zombie\u2019 Steelmakers Hit with Huge U.S. Tariffs.\u201d NBC News, May 18, 2016. \u00a0https:\/\/www.nbcnews.com\/business\/business-news\/china-s-zombie-steelmakers-hit-huge-u-s-tariffs-n576006, accessed November 2017.<\/p>\n
[4] Lowrey, Annie. \u201cThe Limits of \u2018Made in America\u2019 Economics.\u201d The Atlantic,<\/em> July 20, 2017. https:\/\/www.theatlantic.com\/business\/archive\/2017\/07\/made-in-america\/534339\/, accessed November 2017.<\/p>\n [5] Bryan, Bob and E. Holodny. \u201cTrump\u2019s considering a tariff that could put the economy on a path to \u2018global recession\u2019\u201d Business Insider, June 30, 2017. [http:\/\/www.businessinsider.com\/trump-steel-tariff-china-germany-japan-global-recession-2017-6], accessed November 2017.<\/p>\n [6] BHP Billiton. 2017 Annual Report. http:\/\/www.bhp.com\/investor-centre\/-\/media\/documents\/investors\/annual-reports\/2017\/bhpannualreport2017.pdf, accessed November 2017.<\/p>\n [7] Yeomans, Jon. \u201cProtectionism threatens climate change action, warns BHP Billiton.\u201d The Telegraph<\/em>, October 10, 2016. http:\/\/www.telegraph.co.uk\/business\/2016\/10\/10\/protectionism-threatens-climate-change-action-warns-bhp-billiton\/, accessed November 2017.<\/p>\n [8] Kehoe, John. \u201cBHP Billiton and Rio Tinto at risk in Donald Trump\u2019s Steel Crackdown.\u201d Australian Financial Review,<\/em> April 21, 2017. http:\/\/www.afr.com\/business\/mining\/bhp-billiton-rio-tinto-at-risk-in-donald-trumps-steel-crackdown-20170420-gvp55d, accessed November 2017.<\/p>\n [9] Donna, Shawn. \u201cBHP Billiton chief Andrew Mackenzie attacks barriers to trade.\u201d Financial Times, September 16, 2015. https:\/\/www.ft.com\/content\/07309d80-5cad-11e5-a28b-50226830d644, accessed November 2017.<\/p>\n [10] Autor, David H., D. Dorn, and G. H. Hanson. \u201cThe China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.\u201d The National Bureau of Economics, Paper no. 21906 (January 2016).<\/p>\n [11] Ong, Thuy. \u201cBHP Billiton\u2019s Donald Trump talks \u2018productive\u2019 says mining giant.\u201d ABC News, January 10, 2017. http:\/\/www.abc.net.au\/news\/2017-01-11\/bhp-billiton-talks-with-president-elect-donald-trump-productive\/8174894, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":" BHP, the world\u2019s largest diversified natural resources company, recently celebrated the 50-year anniversary of its relationship with Japan \u2013 the two parties have experienced joint benefits as Japan\u2019s industrialization was enabled by a steady inflow of BHP\u2019s iron ore. During […]<\/p>\n","protected":false},"author":10368,"featured_media":25482,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-25481","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n