Testimony of Timothy N. Taylor
Before the House Ways and Means Subcommittee
on Trade
March 26, 2003
Subject: Effect of Steel Tariffs on Steel Consumers
Mr. Chairman and Members of the Subcommittee, my
name is Timothy N. Taylor and I am President of MacLean Vehicle
Systems, a wholly-owned subsidiary of MacLean-Fogg Company. MacLean-Fogg
is a privately held manufacturing company, based in suburban Chicago,
employing about 2000 people in 24 facilities in eight states and
six countries.
We produce fasteners and component parts for the
automotive, transportation equipment, general industrial, electrical
equipment and telecommunications markets worldwide. Approximately
10 percent of our $400 million in annual sales is exported, and
we import a similar amount of products from our own facilities
and suppliers in Europe, Latin America, and, increasingly, Asia.
The majority of products we produce at MacLean-Fogg
have steel as a primary raw material. We purchase approximately
50,000 tons of steel annually in our businesses. About half of
this steel comes from U.S. producers, 40% from Canadian producers
and the remainder from European and Asian producers. We purchase
wire rod in the form of finished alloy steel wire for our cold
forming operations, hot rolled bar, cold rolled bar, and stainless
steel wire rod as well as a small amount of plate and cold rolled
sheet steel.
We support a strong, profitable, viable steel industry.
We prefer to buy locally made steel when it is competitive in
price, quality and delivery. But we must have access to globally
priced steel, on the same basis as our competitors around the
world, if we are to remain competitive in the markets we serve.
Mr. Chairman, I am also Immediate Past Chairman
of the Industrial Fasteners Institute, an industry trade group
representing 85% of North American fastener production. As Chairman
of IFI, I am very familiar with what happens when tariffs and
other trade barriers are enacted on steel. In the 1970s and 80s,
Voluntary Restraint Agreements, tariffs, quotas and other trade
restraints enacted to protect steel producers resulted in 40%
of the U. S. fastener manufacturing capacity disappearing or relocating
offshore as a result of the higher U.S. steel prices that resulted
from these protections. I'm here today in the hope of preventing
an additional similar decline in the fastener industry and other
steel-consuming industries.
This economic principal of production never changes:
when a base raw material is protected by tariffs or other constraints,
imports of value-added products made from that material increase,
and U. S.-based manufacturers are placed at a competitive disadvantage.
Very shortly, production of those value-added products moves offshore,
and those jobs are lost forever. What is different today is only
the speed with which this happens. What used to take decades now
takes years; what used to take years now takes months. In our
globally competitive economy production changes happen far more
rapidly than they did 30 years ago and I am concerned by the pace
with which we are exporting steel consuming jobs.
MacLean-Fogg has suffered steel price increases
averaging 7% on most of our purchased steel items from both US
and overseas sources, and up to 15% on our stainless steel wire
as a result of the 201 steel tariff implemented in March of 2002
and prior administration actions implemented in 2000. That may
not seem like a lot, given the 30-50% increases that other steel-consumers
have suffered, but it is more than enough to place us at a competitive
disadvantage, especially when we started with a 25% disadvantage
on steel costs before the 201 tariff. That is a fundamental point:
the price of the raw material is irrelevant, so long as it is
a global price. When it is artificially increased in one country,
manufacturers in that country are disadvantaged and production
moves to the lowest cost.
We have approached our customers, primarily large
automotive producers, who have denied our requests for relief
from these increased raw material costs. They have threatened
to replace our products with products originating outside of the
United States if necessary. They have indicated that their own
vehicle prices are under severe pressure and they are actively
seeking lower cost components from other suppliers while at the
same time demanding that we lower our prices further or face the
loss of business to our competitors around the world.
Our government has provided repeated tariff, countervailing
duty and other protection to the large integrated steel producers
since the 1970s. Despite these numerous "temporary"
tariffs many of the large integrated steel producers have not
been able to earn an acceptable return. I would suggest that,
after more than 30 years of almost continuous protection, there
are structural problems in the steel industry that would be better
solved by market forces than by continued government action.
My concern is that in attempting to "save"
jobs in the domestic steel industry, we have severely damaged
domestic steel consumers. There are at least 50 manufacturing
jobs in the products produced from steel for every one job in
the steel making industry. To protect one job in steel making
with tariffs we are placing the 50 steel consuming jobs at risk.
In fact, according to a recent economic study commissioned by
the Consuming Industries Trade Action Coalition (CITAC), 200,000
jobs in products produced from steel were lost between December
of 2001 and December 2002 as a result of higher steel prices,
brought on largely by the tariffs. To put that in perspective,
there are only about 180,000 jobs in the entire steel producing
industry.
Faced with increasing raw material costs, and with
no ability to recover those costs from their customers, many companies,
including MacLean-Fogg, are buying or building factories outside
of the United States to avoid increased raw material prices here.
We have purchased three factories in Mainland China recently in
order to have access to competitively priced raw materials. I
cannot overemphasize the importance of raw material costs. Many
of these products, fasteners included, have such low labor costs
that labor is not the critical factor. In our fastener product
lines, for example, labor is less than 10% of the cost but steel
is 30 - 50% of cost. Since the steel we buy is 33% cheaper in
Asia we are buying and manufacturing in Asia increasingly because
of raw material costs, not labor.
The products we will be buying and manufacturing
in Asia include products produced with some sophisticated manufacturing
technologies that without the pressure of raw material costs would
best be kept in the United States. In other words, to remain a
viable supplier to our customers, we are being forced to export
our technology by government-induced economic forces, such as
tariffs and other imposed constraints. We would not need to make
these decisions if we had access to competitively priced raw materials
in the United States.
Let me be more specific. We have a plant in Richmond,
Illinois that employs 19 people making steel nuts. This plant
is the most productive fastener plant in the world. It is so automated
that these 19 people produce the equivalent of $12 million of
sales value of fasteners, which is three times the industry average
on a per person basis.
However, the steel we buy for our Richmond plant
costs $.30 - $.35 per pound today. We can buy these nuts in Asia,
complete and delivered to Chicago, for $.44 per pound, because
the same steel we buy here for $.30 - $.35 per pound costs $.20
- $.25 per pound in Taiwan and China. As a result, these 19 highly
skilled people may well lose their jobs this year if the tariffs
remain in place, because we will be forced to manufacture these
nuts in Asia where we can find competitively priced raw materials.
We won't make this decision because we want to.
We will do this because, if we don't, our customers will do it
for us. Mr. Chairman, this is a travesty of the worst sort. It
is an example of the unintended consequences of government actions
to meddle in the market. And, when we go offshore the steel making
jobs that supply us will go offshore too, and none of these jobs
will return once the technology is transferred.
Let me say again that MacLean-Fogg supports a strong,
globally competitive domestic steel industry. We also support
a strong, globally competitive domestic steel-consuming manufacturing
industry. In our view the best way to accomplish those two goals
is to allow the market to work without undue influence from government.
We therefore urge the removal of the tariffs at the earliest possible
opportunity, and we ask Members of Congress to support that goal.
Thank you for the opportunity to appear before you
today. I would be pleased to answer any questions you may have.
Timothy N. Taylor
President
MacLean Vehicle Systems
