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Section 332 Study: "Steel
Consuming Industries:
Competitive Conditions with Respect to Steel Safeguard Measures"
FACT SHEET
On Friday, September 19, the International Trade Commission (ITC)
released its Mid-Point Review report on the impact of the Section
201 steel tariffs on U.S. steel consumers (Section 332 study). The
study shows that the steel tariffs resulted in increased prices,
a significant net loss to United States businesses in decreased
returns on capital and labor, as well as findings of declines in
the availability and quality of steel in the year following the
imposition of the tariffs, and shift by customers to offshore sourcing.
Looking beyond the report's Executive Summary, which plays down
the full scale of the damage on U.S. steel consuming companies caused
by the steel tariffs, the body and substance of the report provides
strong evidence that the tariffs are damaging steel consumers and
the U.S. economy as a whole, confirming previous analyses by CITAC
Steel Task Force members. CITAC STF is urging President Bush to
terminate the steel tariffs as soon as possible.
Section 332 Highlights:
- The report confirms that the 201 tariffs have damaged the
U.S. economy, costing U.S. businesses more than $680 million.
The study states, "Overall, the simulation results indicate
that returns to capital fall by $294.3 million and returns to
labor, based on the net effect on all labor in the U.S. economy,
fall by $386.0 million as a result of the safeguard measures."
(Page vii and table 4-3). The study also states that these losses
were "offset" by tariff revenue increase by $649.9 million.
But where did the tariff revenue come from? From steel consumers,
who paid this tax on the imported steel subject to the tariff.
In other words, the study offsets the negative impact on the economy
by the tariffs by the increase in revenues into the federal coffers
from a tax increase (the tariffs). The study therefore is reporting
to the Bush Administration that a tax increase -the tariff money
paid by steel consumers to the federal government - offsets the
negative impact of the tariffs on the economy.
- In the first year of the Section 201 steel tariff, one quarter
of steel consuming companies reported that their customers had
shifted to purchasing finished parts or assemblies overseas as
a result of the steel tariffs. Twenty-four percent of steel
consumers reported that they lost customers to overseas competition
in the first year of the tariffs. (Table 2-15). While the 332
Study's executive summary only focuses on the 76 percent who did
not report this outflow of jobs, a 24 percent shift overseas is
a highly significant number for just one year of business under
the steel tariffs.
- Almost one third (29%) of steel consumers reported that
steel suppliers modified or broke contracts with their firms after
the implementation of the tariffs and reported a loss in profits
due to these problems of approximately $190 million. (pages
2-14 and 2-21). The report states that, "steel-consuming
firms reported many other problems associated with their inability
to obtain steel (table 2-10)." These include longer lead
times (43%), delayed deliveries (37%), steel shortages (29%),
being put on allocations by their suppliers (26%), broken contracts
(20%), and a refusal on the part of domestic steel suppliers to
provide quotes to the steel consuming firm (11%) (page 2-22).
[Note: numbers have been converted to percentage of respondents].
- The report confirms that prices remain higher than pre-tariff
prices. The report refutes the rhetoric of the domestic steel
industry that steel prices are below pre-tariff levels. "Prices
(based on the PPI) for most of the steel products generally increased
after the imposition of the safeguard measures; however, public
data indicate a decline in these prices after that initial increase
but remained higher than pre-safeguard prices for several products
including hot-rolled, cold-rolled, corrosion, bars, and pipe and
tube." (page 2-2). The report states that 39 percent of responding
steel consuming firms reported that the tariffs were the only
important factor in price changes. (page 2-12).
- The report confirms that most steel consumers have had difficulty
in passing steel price increases onto their customers. "Forty-three
percent reported that they were unsuccessful in passing on any
increase. Sixteen percent of responding steel consuming companies
reported that they were able to pass on price increases in some
instances but not in others." Had the ITC note included steel
distributors in its definition of steel consuming companies, these
numbers would be even higher. Steel distributors-firms that buy
imported steel and resell it to U.S. steel consumers- could pass
on the price increase to their customers.
- The report confirms that steel consuming companies had difficulty
in obtaining steel in the quantity or quality needed as a result
of the steel tariffs. Almost half (49%) of steel consumers
reported difficulty in obtaining steel in the quantities and quality
needed and of these firms, 75% stated that higher steel prices
were the principal difficulty (table-2-9 and page 2-21).
- Thirty-four percent of respondents said that employment
would increase if the tariffs were terminated September 20, 2003
and most respondents said that removing the tariffs would increase
their competitiveness. (page 5-12).
- Finally, the 332 study does not dispute the findings of the
CITAC Foundation's February 2003 study that higher steel prices
cost 200,000 jobs in the U.S. Both the ITC and CITAC studies
are in agreement that more jobs were lost in the year prior to
the implementation of the tariffs because of the economy. The
CITAC study isolated the effect of higher steel prices in 2002,
in part caused by the tariffs, on job losses. The main difference
between the studies is that the ITC assumes full employment (that
a worker who loses his or her job will be re-employed) and the
CITAC Foundation does not.
In summary, The ITC report confirms what the CITAC STF has been
stating for the past 18 months - the tariffs have hurt the U.S.
economy, severely damaged steel consumers and has done much more
harm than good.
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