U.S. steel manufacturers scored a victory Dec. 30 when the U.S.
International Trade Commission ruled that Chinese steel pipe companies
were dumping subsidized products into American markets.
U.S. steel manufacturers scored a victory Dec. 30 when the U.S. International Trade Commission ruled that Chinese steel pipe companies were dumping subsidized products into American markets.
The ITC’s unanimous ruling that China was in violation of trade laws — and the tariffs that will be assessed on Chinese products — could signify a shift in U.S. enforcement, manufacturing groups said.
American factories that are losing business to foreign competition, cutting jobs and reeling from the recession could find reason to be happy about tariffs leveling competition, manufacturing groups said.
The ITC ruling dealt only with steel pipe used in the gas- and oil-drilling industries. Tariffs wouldn’t hit other Chinese steel, such as plates and bars. But that could change if the ITC reviews other trade cases, manufacturing groups said.
“We would hope that it’s a sign of a toughening enforcement of our trade laws,” said Nancy Gravatt, a spokeswoman for the American Iron & Steel Institute in Washington, D.C. “We think we have good trade laws on the books, but they have to be enforced.”
Seven steel pipe manufacturers, including Pittsburgh-based U.S. Steel Corp. and Wheatland Tube Corp. with headquarters in Wheatland, Mercer County, filed the case. It alleged Chinese companies sold heavily subsidized low-price steel pipe in the U.S. for the past three years.
The ITC found that in 2008 Chinese firms were able to sell 2.2 million tons of steel pipe — or 33 percent of U.S. demand — at about half the price charged by domestic manufacturers, according to the ruling. The value of Chinese pipe was $2.8 billion. U.S. companies produced 3 million tons of pipes worth $6.2 billion.
The U.S. Department of Commerce could issue tariffs between 36 percent and 99 percent on Chinese pipe. In a similar case, the department on Jan. 5 slapped Chinese steel mesh products with tariffs between 46 percent and 289 percent.
Chinese companies receive excessive subsidies to make products and sold them in the U.S. at prices below the cost of production, Gravatt said. While the case at hand is steel pipe, those issues are prevalent in many industries, she said.
“Ultimately it costs U.S. jobs and steals market share by using unfair trade practices,” Gravatt said.
Unfair trade practices hurt small manufacturers the most, said Michael Smeltzer, executive director for the York-based Manufacturers’ Association of South Central Pennsylvania.
Many companies see contracts go to Chinese firms because the price per unit is much lower than what American companies charge for finished products, he said.
A metal part for a power tool might cost a U.S. manufacturer $1.10 apiece to produce, in which raw material prices were 98 cents, Smeltzer said. The Chinese can sell the same part for 89 cents, well below the cost for materials, due to subsidies, he said. That’s how it creates unfair advantages, he said.
Smeltzer also pointed to lost jobs in domestic manufacturing. It’s not unusual to see unions and manufacturers fighting side by side against dumping of subsidized products, he said. That’s because the swelling trade deficit with China equals lost jobs and closing factories in the U.S., he said.
“That’s why this issue has become such a passionate one, especially for those that are concerned about the impact on small business,” he said.
The U.S.-China trade deficit was $268 billion in 2008, according to the U.S. Census Bureau. In October 2009, the trade deficit was $188 billion, a 16 percent reduction from a deficit of $225 billion in the same month a year ago, according to bureau.
Chinese imports are unnecessary to meet domestic steel needs, Gravatt said. Before 2007, Americans were using about 100 million tons of steel a year, she said. Demand dropped to 63 million tons in 2009 due to the recession, she said.
Steel imports from all countries in 2009 account for 14 million tons, or 22 percent of demand, according to December statistics from the Steel Institute. China’s share of U.S. steel imports is the largest at 1.5 million tons, or 11 percent of total imports.
Overall, steel imports dropped nearly 46 percent compared with 2008, according to the institute. Imports from China dropped 70 percent in 2009.
“The bigger problem is that China has this tremendous capacity to produce steel,” said Roger Dick, director of Campbell Chain operations in York County for Houston-based Cooper Industries, which makes industrial chain, tools and other hardware products.
China’s production capacity is more than 500 million tons of steel, Dick said. They have to sell the products somewhere, which is why they undercut American manufacturers, he said.
Even though that’s problematic for manufacturers, low prices benefit industries such as oil and natural gas drilling, Dick said. New tariffs on Chinese steel will increase costs, which could mean higher prices for oil and natural gas, he said.
Not every manufacturer is convinced that tariffs are the best way to fix the trade problems with China. Companies that make large machines used in manufacturing processes could be hurt by tariffs if China decides to add its own to U.S. goods in response, said George Sipe, president of Weldon Solutions, a manufacturer in West Manchester Township, York County.
Weldon makes large machines to cut and grind metals and designs robotics for manufacturers. With the growth of manufacturing in China and other developing nations, the company is always looking to sell abroad, Sipe said.
“It’s a mixed bag, because we’re trying to export to China as much as we’re importing, especially with large machines,” he said. “So, if we slap a tariff on, then they slap a tariff on, and that goes back and forth, tit for tat. Eventually no one wins. It’s a slippery slope.”
Tariffs might level the playing field for large steel producers and help some small businesses that supply large manufacturers, but they’re not a cure-all for competitive problems, said Rich Randall, president of business consulting firm New Level Advisors with offices in Springettsbury Township.
Small manufacturers can’t control Chinese wages, currency value and tariffs, he said. They have to become more efficient in their processes and use technology to counteract disadvantages, he said.
“It does tend to be the small manufacturers, the family owned companies, that are supporting these larger manufacturers that are outsourcing production,” Randall said. “So they have to find other ways to make themselves more competitive.”