Steel Users Speak Out

Dear Mr. Aldonas:

Thank you for joining our ISAC-2 meeting at the IMTS Show in Chicago last Friday. We appreciate the opportunity to exchange views with you.

As you heard from the audience during the public portion of the meeting, there is growing concern that the Administration's attempts to bolster the economy are coming at the expense of manufacturers. You heard the statement attributed to Labor Secretary Chao to the effect that we are moving from a manufacturing economy to a service economy based on information and technology. This, along with the Administration's apparent willingness to sacrifice the vitality of steel-using manufacturers to save a handful of non-competitive steel mills leaves steel users, who employ 13 million Americans, wondering where this Administration's true priorities lie.

You heard a metal fabricator report that he lost 30 percent of his business last year, and expected to lose another 30 percent this year. A Chicago-based automotive supplier said he used to export to several countries, but no longer can because steel is now 30 to 70 percent higher in price. A shipping container manufacturer reported dramatic steel price increases that he cannot pass along to customers. His customers are switching to other sources and his company is working only four days a week. "I've done nothing wrong, but my situation is getting worse," he said.

A Michigan automotive supplier reported losing major business to Asia, and described plans to close one of two U.S. plants. As you remember, he said, "I can't export, I can't even compete in my own country." Another Illinois steel drum manufacturer complained about losing major business to Asia, citing domestic steel prices of nearly $600 per ton vs. $300 per ton abroad. A Wisconsin lawn-mower blade manufacturer, who buys only domestic steel, reported that he's forced to move his production operations offshore where competitively priced steel is available, and import the blades to serve his domestic customers.

Many of the questions we heard on Friday are reoccurring among steel-consuming manufacturers, and we have yet to hear satisfactory answers. For example, why is it that the steel industry feels no pressure to present timely plans for rationalizing, restructuring and consolidating? Why, if steel consumers are forced to sacrifice so much for this tariff initiative, should they not also have the right to review steel industry plans? And finally, how much damage must be done downstream before you and your colleagues are ready to reverse an ill-conceived steel trade policy?

This would seem to be the central question. The Administration has adopted a preemptive strategy to avoid damage where Iraq is concerned, but seems willing to let the damage to steel-using manufacturers (and ultimately the American economy) continue and intensify.

Clearly, the Administration's steel trade policy undercuts the President's initiatives to bolster the economy. Capital investment by steel-using manufacturers has been dramatically reduced. And, as you heard, the emphasis on exports must seem ludicrous to these manufacturers who are losing out in international markets as well as in the domestic market. The reality is that the tariff regime is exporting their business opportunities, their growth potential, and their workers' jobs.

You've heard the five well-documented reasons why the Section 201 tariffs are inappropriate: (1) they do more harm than good; (2) they don't address the problem; (3) they threaten relationships with our trading partners; (4) steel imports are essential; and (5) AD/CVD laws exist to deal with unfairly traded steel. Here are suggestions for your consideration in shaping future steel trade policy:

First, recognize that instead of a single steel industry, there are two major categories of steel producers - those who are globally competitive, and those who are not. The competitive category is comprised mainly of mini-mills such as Nucor Corp. who have taken 50 percent of the steel market from integrated producers over the past several decades. The second category is comprised mostly of certain integrated producers.

The difference between categories is enormous. In 2000, while Nucor was achieving record sales and record profits, LTV (for example) was sliding into bankruptcy. Nucor made nearly $40 on every ton of steel that year, while LTV lost $40 per ton. Also, Nucor reported $113 million in profit for 2001, a recession year, while LTV went bankrupt.

Second, focus on the real problem - the high costs and relatively low productivity of certain integrated producers. The relatively inflexible costs of capital equipment, maintenance, labor, "legacy" obligations, and raw materials place certain integrated producers at a competitive disadvantage. Examples of the cost and productivity problems abound.

While excess world steel capacity is often cited as a contributing factor, it is hardly responsible for the non-competitiveness of certain integrated producers. And restricting fairly and unfairly traded steel through tariffs -- making the U.S. an island of high steel prices -- places a larger segment of our manufacturing economy in jeopardy since we must depend on imports to supply 20 to 25 percent of our domestic demand.

Third, end the Section 201 tariffs at the earliest possible moment. They are inappropriate to the task. The are doing more harm than good. They are undermining our economic recovery.

Section 201 requires that a trade remedy provide more benefit than harm. If ever this held true for the tariff imposed in March by the President, it is clear now that, on balance, Americans and our economy will lose as a result of this policy.

Between 1995 and 2001, steel-consuming employers added 1,255,000 new jobs to the economy, according to the Bureau of Labor Statistics (while jobs in the manufacturing sector as a whole actually declined by 829,000). Isn't it ironic that such an engine of economic growth is being punished by our steel trade policy?

Your willingness to hear the stories steel consumers have to tell is appreciated. But we need to take this beyond discussion to the next step and find a way to do something to resolve our dilemma. This situation is not fair, not economically wise and most importantly, not sustainable.

Thank you again for being with us in Chicago. I'll write you separately about steel industry falsification during the product exclusion process, as we discussed. I sincerely hope plans for the meeting on September 25 with the CITAC Steel Task Force materialize. I know they are looking forward to it. Best wishes.

Sincerely, Jon E. Jenson President