The construction industry generally supports the Bush administration’s decision to lift tariffs on steel imports, including types used in equipment, bridges and buildings.
Industry sources said the tariffs, rescinded at midnight on Dec. 11, made some imported steel more expensive, at least for smaller manufacturers, but had little effect on equipment prices.
The import duties this year ranged from 24 percent on flat steel products to 12 percent on imports of rebar (reinforced steel bars used extensively in construction). The tariffs had been in effect for 21 months –– since March 2002 — and were to intended run for a total of three years.
Big Vs. Small Manufacturers
Nick Yaksich, vice president of government affairs in Washington, D.C., for the Association of Equipment Manufacturers (AEM) told Construction Equipment Guide (CEG) that respondents to an AEM survey of equipment manufacturers during the second quarter of 2003 indicated that their costs had increased from 20 percent to 30 percent.
“The deadline came up for making some kind of an adjustment to the President’s action,” Yaksich said. “We surveyed our members and their responses indicated they were seeing a 20- to 30-percent increase in the prices of construction equipment because of the tariffs.”
Yaksich said most responses were from medium and small manufacturers, who found it more difficult to get the type of exemptions that larger steel producers and equipment manufacturers were obtaining.
“What happened was that major U.S. manufacturers –– the big customers for steel –– went to the [Bush] administration right away, as soon as they were talking tariffs, and got the exceptions for some of the sheet roll and big-ticket items,” Yaksich said. “The tariffs caused a readjustment in their approach to steel purchasing, where they were trying to minimize the costs and the impact. It has been a battle for the last couple of years over exclusions allowing U.S. companies to import foreign steel [without tariffs]. Companies went to the International Trade Commission [ITC]. Exclusions were set up on such criteria like the economic hardship that the tariffs would cause, and whether they would limit availability of steel.”
Yaksich said the President’s decision to remove the tariffs has some major benefits.
“When you look at the global context of free trade, it stops the hypocrisy. We’ve talked about needing open markets and free trade. It was almost indefensible why we had the steel tariffs. I think that is the bigger message.
“The market is going to work itself out now that the [steel] companies have made their adjustments, with the restructuring that the tariffs allowed them to do. Now the administration can go back to the global table and say, ’Hey, we’re for free trade and we’ll prove it.’ What’s most encouraging is that the administration was willing to do the right thing. I think they did it on principle rather than because of any significant threat of sanctions by the European Union.”
A Caterpillar Inc. official told CEG that the controversial levies actually had minimal effect on prices of its machines.
“Small manufacturers using steel bore the brunt of the tariffs, as predicted, and they saw their steel prices go up anywhere from 20 percent to 70 percent,” said Bill Lane, Caterpillar’s director of government affairs in Washington D.C. “Some of these firms made the widgets, the parts which go into machinery. As for the larger companies, like ourselves, we were able to get exclusions [from the tariffs] for just about everything that we import. A lot of this reflected the fact that we have good lawyers, good buyers and above-average lobbyists. We were able to mitigate the negative impact of the tariffs, but they did affect our supplier base.
“I can’t comment on prices, but my impression is that companies in our industry resisted price increases,” Lane said, when asked if rising supplier prices tend to push up equipment manufacturers’ prices. “From Caterpillar’s standpoint, we’ve been through the fire drill for steel protection. This has been going on for the last 30-plus years. We saw the threat emerging, we put together teams to try to mitigate the impact, and we were largely successful. The small steel users were the ones who were greatly impacted.”
Lane said Caterpillar, like the auto companies, had longer-term contracts that weren’t affected by the tariffs, though its supplier base was affected.
“I don’t think that it’s accurate to say the tariffs tended to raise prices of our construction equipment or to say that removing the tariffs might tend to lower our prices,” said Ken Golden, manager of public relations of Deere & Company, Moline, IL. “Our prices did not move. We can only speak for ourselves, but, quite honestly, we don’t think steel prices are going to fall because of the tariffs being removed.”
Golden gave these reasons: “One, the dollar is weaker. Two, the economy is picking up; therefore, demand will pick up for steel. Three, the costs of the major inputs for the steel industry –– energy and scrap –– are up dramatically. All in all, these forces will keep steel prices flat as we enter 2004.
“While the tariffs were in place, we did see some increases in steel prices and we saw some supply issues where it was more difficult to get steel. You have to recall that, as the tariffs were in place, everyone was trying to buy from U.S. manufacturers; therefore, the supply got tightened.
“We had actually worked to encourage removal of the tariffs. However, we had good contracts in place for steel so we weren’t impacted as some people may have been. We didn’t change our prices.”
Golden also took a positive position of the President’s recent action.
“We believe the tariffs that the President put in place did what they were intended to do, which was to help the U.S. steel industry restructure. About 95 percent of our steel is bought from this industry. While we opposed the tariffs, we do think that restructuring has occurred, and we certainly have seen some stabilization of steel prices over the recent months, although the industry still has a tough road ahead. Removing the tariffs is now the appropriate move. We happen to believe in a free economy, a free market.”
“I think lifting the tariffs is a positive move,” said Ken Simonson, chief economist of the Associated General Contractors of America (AGC) in Washington, DC. “The direct impact is likely to be small and variable, depending on how much and what type of steel the contractor is using. I think it’s a very important signal that the U.S. is not going to provoke a trade war and that we still believe in principle in the reduction of trade barriers. When the administration was proposing them, we identified the tariffs as being potentially problematic.”
Simonson said, “There never really was a very large bump in prices for most contractors, who use steel in all types of construction, including bridges and buildings.”
With the possibility that less expensive steel might become available, Simonson was unsure if equipment prices would drop. “I just don’t know, given how the world market has changed, and the U.S. steel industry has restructured, how much we’re going to see prices drop for any one category of steel as a result of this,” he said. “That’s why I think the most important effect is as a signal and, hopefully, as a way of heading off retaliation and escalation of trade barriers that could wind up dampening economic growth generally.”
Simonson believes that such retaliation would have a negative effect on the construction industry.
“Most types of economic change impact the demand for structures,” he said. “If a manufacturer finds its market shut out, or finds that its costs have risen too high, that means a factory that won’t be built, layoffs will occur in the community, and people won’t be shopping or buying houses. All of those things affect the demand for construction work.”
The World Trade Organization (WTO) issued a final ruling on Nov. 10 that declared tariffs violated international trade law. The WTO set a Dec. 15 deadline for removing these levies. The Bush administration faced $2.2 billion in retaliatory tariffs in Europe and Asia on everything from oranges to motorcycles. Counter tariffs had already been imposed on American steel. These are now being removed because of the tariffs being lifted.
The WTO decision was called the rough equivalent of the Marbury vs. Madison decision in 1803 that established the Supreme Court as the final arbiter of the U.S. Constitution.
The tariffs, on 10 types of foreign-made steel, affected such steel-making countries as Japan, Germany, France and South Korea, whose exports to the United States far exceed their imports.
The highest levy was originally 30 percent on flat products such as plate, hot-rolled sheet, cold-rolled sheet and coated sheet. This went down to 24 percent in the second year and would have fallen to 18 percent in year three.
The tariff on steel rebar was 15 percent the first year, 12 percent during the second year, and would have fallen to nine percent next year.
The administration said the tariffs served their purpose by giving the U.S. steel industry time to reorganize, recover and better compete against foreign companies. Part of the increased efficiency came through new concessions to labor.
Leo W. Gerard, president of the United Steel Workers of America, called Bush’s decision “a dark day for manufacturing.” There are approximately 187,000 steelworkers in the United States, plus approximately 600,000 retired steel workers and dependents who rely on the industry for their benefits.