John D. Foster’s most recent presentation, “Expectations vs. Reality,” delivered at the SteelOrbis’ 9th Annual Rebar & Wire Rod Conference on January 22, 2018 in Las Vegas, Nevada, is now available:
SteelOrbis’ 9th Annual Rebar & Wire Rod Conference: Expectations vs. Reality
John D. Foster, President, Kurt Orban Partners /
Chairman, American Institute for International Steel
Question: The AIIS presented an economic impact study this past September that focused on the steel supply chain. What were the results of this study?
The objective of AIIS is not to discount the importance of the United States steelworkers who shoulder a critically important role in this country. Rather, we want to help educate the administration, Congress and all here tonight about how protectionist measures are not only unnecessary but, in fact, are dangerous to the overall economy.
A study from Martin Associates, which has conducted more than 600 economic impact studies over three decades that have been used by many government agencies, found that steel port activity supports 1.3 million jobs and $240 billion of economic activity.
- 26,400 of those jobs directly depend on steel cargos and the vessel calls involved.
- 33,000 are “induced” jobs created locally to serve and support those directly employed in the industry.
- 24,300 are indirect jobs generated as a result of local purchases by firms dependent upon seaport activity.
- And 1.2 million related jobs come from the users of imported steel, including steel service centers, distributors, and manufacturing customers.
It is clear, then, that there are a heck of a lot more jobs at stake than is claimed by the domestic steel industry, which, incidentally, is doing quite well by the Department of Commerce’s own reporting.
Speaking of the Department of Commerce, 40 percent of all antidumping and countervailing duty cases on the Federal Register today are for steel, making the domestic steel industry the most protected sector in the country. The Martin study shows the magnitude of the unintended consequences that could result from additional protectionist measures .
By the way, for those who may not be familiar with AIIS, we represent 120 companies throughout the steel supply chain, covering thousands of union and non-union stevedores that handle steel imports AND exports, as well as tens of thousands of jobs in the rail, barge, steamship and trucking sectors, plus Customs brokers, insurance carriers, steel distributors and fabricators, as well as steel traders, like yours truly.
This is important to mention, I think, since the purpose of the Martin study was to quantify the national impact of iron and steel products moving through the nation’s seaports and using the country’s highways, rails and inland waterways to get to the intermediate and final end users – in other words, the customer base we share with domestic mills.
Question: The oversupply of rebar in Turkey’s domestic market will increase now after the announcement of cancellation of import duties in 2018. Do you think more oversupply in Turkey will lead to higher rebar exports to the US no matter what? Please explain why or why not.
I do not expect to see any significant increases in exports of rebar from Turkey to the United States, in spite of what will, indeed, be an oversupply there.
I say this because Turkey is already the largest supplier of rebar to the United States, shipping 1.5 million net tons here in 2016, representing 70 percent of all rebar imports, and 1.6 million net tons in 2015, accounting for 80 percent of imports.
Notably, 2015 was the first year after the last round of antidumping was terminated in September 2014, and Turkey understandably felt vindicated from any trade infractions.
But in July of last year, Habas received a 16 percent countervailing finding and then various antidumping penalties, ranging from 7.4 percent to 9 percent. Yet, even with that, Turkey still exported 872,000 net tons to the United States through the first 10 months of 2017, which accounted for 63 percent of all rebar imports and set an annual pace of just over 1 million net tons.
The most recent negligibility report for rebar imports has Turkey at 66 percent, with the next largest player being Portugal at 5.6 percent.
In 2008 – which was a pretty strong year until the bottom fell out in the second half – Turkey accounted for only 32 percent of imports at 312,000 net tons, and it remained in the 35-65 percent range until 2015.
My guess is that, with the AD/CVD orders going forward and the archaic retrospection rules in U.S. trade Law, Turkey would be well served to hold at their current, let’s call it, comfort level of 65 percent penetration or less. I was recently advised by one of my friends and former colleagues who is in the audience here tonight that Turkey is expanding its market reach in places like Saudi Arabia and Central America. That, in my humble opinion, would be a more logical long-term strategy.
Question: NAFTA re-negotiations are currently underway. What would the AIIS like to see from a revised trade agreement with Canada and Mexico in terms of steel imports and exports?
President Trump is looking around the world for winners and losers in global trade. But with steel, especially in comparison to the more sensitive sectors of, say, agriculture and auto parts, I do not see many reasons to change the playing field with our two closest neighbors. I say this because:
One, nearly 90 percent of steel exported by the United States goes to Canada and Mexico. Just in terms of logistics and related costs, U.S. mills obviously see value in such close markets.
And, two, when you analyze the carbon, alloy and stainless steel trade in terms of both tonnage and dollars, the U.S. comes out quite far ahead. Using just the first 11 months of last year, the U.S. is behind Canada in carbon tonnage by about 840,000 net tons and is short on alloy steels by about 350,000 net tons, while with stainless, the U.S. has a surplus of 180,000 net tons. Put a dollar per ton value to all of this and the net difference is about $400 million. (Were the Canadian mills not so well situated for the U.S. automotive market, I suspect our steel trade would be close to being in balance.) Now consider Mexico, though, where the U.S. has a $59 million imbalance in carbon steels but is well ahead in alloy and stainless steels, by $488 million and $1 billion, respectively.
If anything, then, Mexico should be seeking NAFTA provisions that would level its steel trade with the United States.
Trump, as we all know, keeps threatening to withdraw from NAFTA. And, with the sixth round of negotiations scheduled to begin in Montreal tomorrow, Treasury Secretary Mnuchin said that the U.S. will bail if the deal is not revised to meet his demands.
Canada and Mexico have already said they will continue the pact with or without the United States, just as participants in the Trans-Pacific Partnership, the Paris Climate Accord and several other global agreements have done. My concern is that our country is now perceived globally as having abdicated its leadership role in the world and is, thus, being left on the sidelines during the strongest global economic recovery in more than 10 years.
Question: One of the main concerns about steel tariffs resulting from the Section 232 investigation is the threat of unintended consequences and global retaliation. Can you explain this, and describe why it’s such a serious concern?
There are several negative unintended consequences of protectionism, including job losses, as mentioned earlier, and retaliation by trading partners.
The wire rod industry provides a cautionary example. In that sector, protectionist measures not only closed the market for imported wire rod, but also opened the market for finished wire, wire products and, worse yet, less expensive substitute materials.
In 1999, imports of wire rods totaled 2.7 million net tons, while production in the United States was 5.5 million net tons, bringing overall consumption to 8.2 million net tons.
In 2017, after several rounds of antidumping and countervailing duty cases, imports had fallen to 1.2 million net tons, but U.S. production had dropped even further, to 2.1 million net tons. That is a 6 million net ton loss of wire rod consumption, a reduction of nearly 75 percent, over 18 years.
Not hard to understand, wire production went from 7.7 million nt to 3.0 million nt during those years while imports only increased half a million nt. The rough math here is that the US wire market also lost consumption by about 4.5 million nt.
Looking at the wire market in terms of percentages, in 1999 the domestic vs. import market penetrations were 67% and 33% respectively while last years those percentages were almost exactly reversed 34% and 66% respectively.
In short, overzealous trade protection may provide some near-term relief, but it often comes at the expense of long-term costs that are much greater in magnitude.
Question: The AIIS represents many levels of the steel supply chain that relies on imported steel. What is the general consensus from AIIS members regarding the potential impact of steel tariffs or quotas resulting from the investigation?
AIIS Member Concerns re 232
Many people at AIIS’s member companies remember the Section 201 days back in 2002 when then-President Bush implemented a three-year program of tariffs on imported steel.
I was chairman of the Texas Free Trade Coalition at the time and we held our meetings at a place called Brady’s Landing that overlooked the Houston Ship Channel. Within 60 days of the tariffs going into effect, the channel was an empty parking lot. This led to the initiation of the first Martin Associates impact study that showed the significant job losses that result from tariffs. Between this, the Free Trade in Steel Coalition in Baltimore, and Capitol Hill visits by many steel and non-steel players, we were able to whittle the three-year program down to 18 months. Not all of the damage could be undone, though, and some companies did not survive.
So, in short, yes, our membership is gravely concerned that any level of tariffs or quotas will lead to retaliation and job losses and will damage the nation’s economy.