Steel Users Seek Relief from Section 201 Tariff

Jason Sandefur

Fastener manufacturers and other steel-consuming industries faced with mounting raw material costs due to steel tariffs imposed in March 2002 by the Bush White House are looking to the coming months for relief. \
This March the U.S. International Trade Commission is set to begin a midterm review of the Section 201 tariffs on steel. �201� imposed tariffs of up to 30% on imported steel for a period of three years and a day. The remedy was touted as assisting domestic steel manufacturers to restructure to become more globally competitive. But the Bush tariff is frequently viewed as a political move to win steel producing states� electoral votes in 2004.
However, fastener manufacturers say tariffs intended to help steel makers are hurting steel users. Although 201 is directed at flat rolled steel, wire rod producers have used the inflated market to raise wire prices.
Fastener industry consultant Laurin Baker of Washington, DC-based Laurin Baker Group told FIN that a 30% penalty on imports gives U.S. steel producers a 30% margin to increase prices, which results in a 30% disadvantage for steel users. Baker expressed doubts about the benefit of 201, saying that every industry has learned to compete in a global market except steel, despite nearly three decades of various trade remedies.
Island of High Steel Prices
�The U.S. is an island of high steel prices,� Baker declared.
This island atmosphere is squeezing steel users by boosting prices 30% or more almost overnight. In a low-margin business, Baker explained, these costs can�t be passed on to automakers and other high-volume fastener customers who demand price reductions.
Illinois Tool Works lobbyist Mike Lynch said the squeeze can be daunting. The automakers are asking: �What part of 5% don�t you understand?��
Meanwhile, steelmakers are working hard to keep the tariffs in place, despite their effect on steel users. �They�re clearly running their customers into the ground,� Lynch told FIN.
Baker agreed, pointing to a recent decision by U.S. mills to demand executive action against 31 steel-importing countries who they claim are using their tariff exemptions to gain market share.
Within a month of the tariffs being imposed, Baker recounted lead times were strung out 12 to 16 weeks, causing work stoppages or spot market purchases, which resulted in higher prices for inferior steel.
As prices increased, steel users scrambled to buy steel wherever they could, leading to batch tests for each run, a practice that drives fastener costs up.
When steel prices began rising in early 2002, Kerr Lakeside Inc. president Charlie Kerr made the decision that his Euclid, OH-based company with 120 employees was not going to absorb the increased raw material cost. Kerr told FIN he continues to lose �a fair amount of business� because of the tariff, including a 300,000-piece order that would have ended up costing him $26,000 if he hadn�t turned it down.
�Many companies will absorb increases to meet secured financial obligations, despite the loss,� Kerr explained. Others have begun sourcing parts offshore to stay competitive, he said. At least one customer of his contracted work to a company in India.
�If the choice we�re faced with is going out of business or importing, we�re going to import,� Kerr stated.
Baker: Imports Not a Luxury
If �import� sounds like a dirty word, consider the fact that the U.S. steel industry doesn�t produce enough steel to meet domestic demand. �Imports aren�t a luxury, they�re a necessity,� Baker explained.
Baker pointed out that the tariffs ignore statistics that show steel imports have remained flat at about 20% of domestic steel consumption over the past two decades.
There are signs that the steel industry is using the remedy to improve its standing in the global market through large-scale consolidation, which allows companies to shed heavy legacy costs under Chapter 7 bankruptcy. Currently the steel industry has about 100,000 active workers supporting 600,000 retirees. Baker acknowledged that legacy costs must be lowered to make steel more competitive.
For steel users, the tariffs have created more negative consequences than positive, Baker claimed. Baker said some industry woes can be traced to antidumping duties imposed by ITC during the 1990s.
It�s important to understand that American-made fasteners are not obligatory, Baker explained.
�A fastener can be made anywhere in the world.�
Harry Branson of Threaded Rod Company noted that North American fastener manufacturers are feeling the Chinese competition. �It is price,� Branson observed. �They have low-cost steel and low-cost labor.�
Such major buyers as Fastenal have switched to Chinese products because of price, Branson noted. �At one time they were a good customer for U.S. product.�
Branson, who has been in the fastener industry since 1951, noted that several Indiana steel foundries have closed recently. It isn�t like the short-term recessions of the mid-1970s or early 1980s and early 1990s when there was just less buying, Branson recalled. Now steel business is just going elsewhere, he explained.
If 201 isn�t repealed or if it�s extended beyond the original timeline, the remedy will drive some fastener makers out of business, according to Baker. Financing will dry up under the wilting eye of bankers disconcerted by supply disruptions. �Less nimble� companies � small to mid size manufacturers � won�t be capable of absorbing higher steel prices.
Case in point: Baker said during the 1980s 40% of domestic fastener manufacturing jobs disappeared because of preferential trade practices employed by the Reagan administration for the steel industry.
�Once those jobs go, they don�t come back,� Baker contended.
According to the Consuming Industries Trade Action Coalition, there are more than 50 steel-consuming workers for every steelworker in America.
That�s why steel consumers are lobbying Washington to repeal Bush�s 201 tariff as soon as possible. The group recently won a victory when the National Association of Manufacturers decided to ask the ITC to consider the effects of the steel tariffs on downstream industry. The amendment urges the White House to instruct the ITC to report its findings on the tariff impact by July 2003. Lynch said what he wants to hear from the president is �has my decision [to impose import tariffs] affected steel consumers, and how?�
Fastener Working Group
Baker said the Steel Fasteners Working Group, organized by the Industrial Fasteners Institute, is working to convince Washington that �the collateral damage of these tariffs is too great.�
Baker was cautiously optimistic about the NAM amendment, calling it �a positive step� but stressing that more is needed. At the end of the midterm review in September Baker explained that the president could determine if the tariffs here been effective and can be repealed or reduced, a scenario Baker conceded was unlikely. Steelmakers are pressing for the continuation of 201. Even worse would be the extension of the tariffs beyond the three-year period.
To Baker and others the effect of the tariffs clearly indicate that where steel is concerned there is more at stake than just mill jobs. �It�s no longer possible to make trade policy on a single sector,� Baker remarked. �FastenerNews.com