Does American Steel Need More Protection?

China has long been viewed as the principal gobbler of the U.S. industry’s market share, its steelmakers boosted by state help from cheap bank loans to below-cost electricity—but that helping hand is pushing less as Beijing’s policy priorities change.

And it isn’t just in comparison with Chinese steelmakers that America’s are struggling. The operating margin for U.S. Steel ’s European division was roughly twice that of its main U.S. segment in 2017—despite selling its steel at prices almost 15% lower on average. American steel sales prices are among the highest of major economies.

One big disadvantage for U.S. steelmakers that still rely on blast furnaces—as opposed to scrap—is expensive domestic iron ore, often from their own mines. Their cost of ferrous feedstock per ton of steel is $90 higher than the average in Brazil, Russia, Japan and China, according to analysts at Bernstein. Japanese and Chinese steelmakers import a lot of cheap ore from Australia and Brazil, where mining titans like Rio Tinto PLC and Vale SA have invested heavily.

As for Chinese steelmakers’ financing advantage, yes, they previously benefited from cheap state-bank loans—a chronic complaint of their foreign competitors. But those have become harder to obtain as lenders grow more conscious of the need to price credit risk appropriately.

Interest costs as a percentage of Chinese iron and steel companies’ gross profits have edged up to around 12% to 25%, from around 10% in the mid-2000s, according to China’s National Bureau of Statistics. That is still lower than for some big U.S. steelmakers: AK Steel ’s interest costs were equivalent to nearly a third of its gross profit last year, for example. But at Nucor , less reliant on debt, the figure was just 7%.

Comparable figures on steelmakers’ energy costs are difficult to obtain, but anecdotal evidence suggests China’s advantage may be narrowing. As Beijing gets more serious about air quality, cheap power gets less available. Large swaths of coal-fired energy production in the country’s north were shut down this winter to make the air more breathable for city dwellers—in line with President Xi Jinping’s call to make Chinese citizens’ lives not just richer, but “better.”

In the U.S., meanwhile, long-term energy trends have turned favorable, thanks largely to the shale gas revolution.

As for labor, Chinese wages are still much lower but are rising quickly, as those in America stagnate—and steel, in any case, is ultimately a far less labor-intensive industry than, say, garments.

Ironically, the Chinese state’s most notable support for its steel industry these days lies in shutting down huge parts of it. Beijing’s old obsession with keeping inflation in check has morphed into alarm at the damage that low steel prices could cause the largely state-owned steel industry—and its lenders. A campaign to shut down small, mostly private steel companies over the past 18 months has pushed up domestic prices and helped state-owned steel giants grab even more market share.

American manufacturing, finally showing real strength after years of lukewarm growth, deserves a better life too. Protecting one deeply troubled U.S. industry at the expense of many more employers and consumers downstream, however, isn’t the best—or, arguably, the fairest—way to help.

Write to Nathaniel Taplin at nathaniel.taplin@wsj.com