William Perry’s May 25, 2017 US China Trade War newsletter writes:

We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore. The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole. The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice. They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts. In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Screen Shot 2017-05-26 at 11.09.39 AMThe above quote is from beginning of newsletter, this April 21 US Trade War website post reports imports from China will be hit, but the impact will especially harm downstream US manufacturers who rely on these materials to manufacture finished goods:

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

Automotive News (May 16, 2017) in “Commerce Dept. investigates steel imports used in auto parts,” explains:

In the auto industry, cold-drawn mechanical tubing is used to make stabilizer bars, shock absorbers and struts, trailer suspensions, axle shafts, half shells, spacers, steering columns and gears. Tubes also help reduce the number of welds, saving manufacturers time and money, while strengthening the structure and reducing overall vehicle weight.

The article notes over 150 other trade restrictions on steel imports are in place:

As of April 19, the Commerce Department has 152 anti-dumping and countervailing duty orders in place on steel from 32 countries. Twenty-eight of the 152 orders, or 18 percent, are on steel products from China.

American steel producers, associations, and lobbyists have added The steel orders represent almost 40 percent of all anti-dumping and countervailing duty orders in place. There are also 25 investigations underway for steel products.

U.S. Steel Giants Warn Foreign Imports Imperil National Security claims to economic damage claims, “U.S. Steel Giants Warn Foreign Imports Imperil National Security,” (Bloomberg Politics, May 24, 2017):

Chief executive officers of America’s largest steelmakers said global overcapacity of the metal is at crisis levels as they urged the U.S. to determine that cheap steel imports are a threat to national security.

The story also reports:

China’s steel exports to the U.S. have declined by more than 67 percent since September 2015 and the U.S. has enough domestic supply to meet its own needs, Yu Gu, first secretary at China’s Ministry of Commerce, said at the hearing.

Similar national security/trade restrictions are in store for aluminum imports, according to the Financial Times: “US launches national security probe into aluminium imports,” (April 27, 2017):

The US has launched a national security investigation into imports of aluminium, warning that its capacity to domestically produce the metal needed for fighter jets and armour plating has collapsed in recent years. 

Daniel Griswold of the Mercatus Center, in “A Matter of Steel Industry Security,” (Reason.com, April 28,2017), counters that the U.S. is still a steel industry power, producing all the military could possibly need:

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips. While it’s true that steel imports have risen to about a quarter of U.S. consumption, domestic steel output remains robust. During the past decade, according to the World Steel Association, annual output at U.S. steel mills has been trending slowly downward but it was still an impressive 78 million tons in 2016. That ranks the United States as the world’s fourth largest steel producer.

Domestic steel production far exceeds any foreseeable need by the U.S. military, which is a relatively small customer for domestic steel. The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. The Pentagon still needs steel for ships, tanks, and warplanes, but the demand has been flat or trending down for years. …

The 2001 report found that the Department of Defense’s annual requirements for steel “comprise less than 0.3 percent of the industry’s output by weight (i.e., 325,000 net tons of finished steel per year).” It also found that the steel that was imported came mostly from a diverse and “safe” list of foreign suppliers, such as Canada, Mexico, and Brazil.

Higher tariffs on imported steel and aluminum will drive prices even higher and further hurt U.S. manufacturers, especially those using imported steel and aluminum in the goods they export to the world.

Lots of domestic and imported steel are used by foreign automakers exporting cars from the U.S.  “Trump Reportedly Wants to Stop Germans From Selling So Many Cars Here, Where They’re Made,” (State.com, May 25, 2017) reports:

In 1994, BMW opened a plant in Spartanburg, South Carolina. Having invested $7.8 billion in the plant, BMW now boasts that it is the company’s largest single facility in the world. And it has spurred investments by a range of suppliers throughout the state. The cars made in Spartanburg there include the EX3 and X5 Sports Activity Vehicle, and the X4 and X6 Sports Activity Coupe. Last year, Spartanburg produced a record 411,171 vehicles, about 34,000 per month. According to BMW, it sells about 26,000 cars per month in the U.S. Now, not all the cars BMW sells in the U.S. are made here. Some are shipped in from overseas. And many of the vehicles made in South Carolina—287,700 last year, or 70 percent—are exported to points around the world.

Mercedes and Volkswagen also have huge U.S. manufacturing operations, as do Japanese and South Korean carmakers:

IAMA , the trade group for Asian automakers in the U.S., said its members last year produced 4.6 million cars between them, equal to 40 percent of all U.S. vehicle production, at some 300 facilities.

As earlier Debate Central posts have noted and many online articles have argued, steel and aluminum imports help U.S. manufacturers. “U.S. Steel Tariffs Create a Double-Edged Sword,” (WSJ, May 31, 2016) as higher steel prices raise costs of US manufacturing:

Duties on steel products from China, Brazil, India, Japan and other countries have contributed to the U.S. benchmark hot-rolled coil index rising more than 60% this year to $615 per ton, after falling 33% last year. In Europe, the benchmark index is up by 34%.

The article quotes U.S. challenged by import restrictions that have raised prices:

Some manufacturers are pushing back. In a letter to the Department of Commerce requesting an exemption, Steelcase Inc. Chief Executive James Keane said a tariff on a special kind of Japanese steel could cost one of his subsidiaries $4 million to $5 million a year.

The subsidiary, Polyvision, makes whiteboards for schools at a plant in Oklahoma, where it employs about 50 people. “If nothing changes, we would have to close our Oklahoma plant,” he wrote. “Schools can’t afford to pay more for these whiteboards, so if we raise prices to our customers they will use lower quality substitutes that are likely not made in the U.S.”

 

 

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