Trade Cases

Would Section 232 Be Good for Business?

Written by Tim Triplett

The controversial Section 232 tariffs/quota expected to be proposed by the Trump administration against foreign steel imports elicited many strong opinions from respondents to SMU’s July 5 flat rolled steel market trends survey. Only 22 percent said they feel duties of 20 percent or more on foreign sources of supply would be good for their business. About 44 percent believe it would be bad for business, while another 34 percent feel it would have no impact. Sixty-three percent of respondents believe that if President Trump places restrictive duties on steel imports, there could be a shortage of supply in the U.S. market.

SMU surveys manufacturers, service centers, toll processors, trading companies and mills. Following is a sampling of their most insightful comments:

· This would be very bad for manufacturing. The U.S. market already has some of the highest pricing in the world, and a poorly thought-out, across-the-board 20 percent duty would further weaken the U.S. market.

· I am a light gauge player. The only way to check and balance the domestic mills is to have a sustainable foreign source for our material. If not, eventually my end-users will move their business offshore. Who does that benefit? Steel mills lose. We lose. The American people lose.

· The price for our raw material will increase. I can only pass one price increase on per year.

· Anything that artificially increases our costs is always bad, and demand doesn’t warrant it.

· I ship steel from Canada to the U.S. If there isn’t a NAFTA exemption, I will become uncompetitive, along with many others, and U.S. manufacturing will be in chaos.

· It will force the coastal consumers inland and, hang on to your socks, the pricing will skyrocket. To quote the Bible: “…forgive them for they know not what they do.”

· We have thin margins as it is. If there is a 20 percent increase, our competition will begin sourcing finished goods internationally.

· Higher prices are usually good for service centers, but if it has a negative effect on U.S. manufacturing it will be bad in the long run.

· It will force 100 percent dependency on domestic Galvalume coil.

· The fabricated parts business will be lost to Asian competition. The USA already has the highest steel prices in the world.

· Domestic steel mills will have less competition so their prices will increase. In turn, this will make the finished goods product that we produce more expensive than the same part being imported from China. Buyers will buy the less expensive product made in China and we will lose jobs.

· It will encourage replacement products, like fiberglass duct, split systems, etc.

· The only foreign steel we buy is light gauge galvanized that the domestic mills don’t want to make anyway, so all this will do is raise the price and make it more difficult to source.

· We purchase light gauge product offshore. Obtaining product domestically will upset the apple cart due to a dramatic increase in the supply chain. It will eventually balance out, but I would expect some turmoil in the market as distributors of light gauge products jockey for market position.

· It’s good and bad. Prices will move higher for a time. Ultimately, steel consumption in the USA will shrink as more steel intensive manufacturing will be offshored. Section 232 a loser for the country.

· If Section 232 passes, domestics will follow with a round of large increases and it will send our industry into a self-made recession because people will stop buying and put projects on hold.

· We import a significant amount of steel. It will drive prices higher, which will be very difficult to pass on to our customers. We are already discussing having to trim our workforce if that happens.

· The U.S. market needs imports (fairly traded). Lumping everyone in under one umbrella of 20 percent duties is too simplistic and will cause shortages.

· If this action reduces the supply of material in a market already short on the supply of labor, the backlash would be political suicide.

· Galvanized could especially be in short supply. I think domestic mills GI production is already running in the mid-90 percent range.

· In the short term, panic buying will set in. We won’t know the true demand as many companies will buy more than they need due to all the uncertainty.

Not all the comments were critical of a Trump administration trade action:

· Prices will go up. Our sales dollars for the same quantity of steel will go up. A rising tide lifts all boats.

· Anytime the playing field is leveled, we are in a good spot

· It will finally stop the “laundering” of steel through different countries that do not face dumping and countervailing penalties.

· Supplies could tighten, but only for the short term as the mills settle in at higher utilization rates. That, along with [new producer] Big River, will keep things in check.

· As a distributor, I think our greatest strength is in leveraging our strong domestic supply chains. Since we’ve been good partners with the domestic mills, we expect to be treated well, as many of our competitors must re-shore their supply chains.

· There is plenty of unused capacity in the U.S. and opportunities for increasing productivity through technological improvements. Many companies see little incentive for making these investments in the current heavily-subsidized-imports environment. Some imports on products not yet produced may need to be allowed in for the interim. Therefore, the best solution is quotas by product types, rather than fixed duties on imports.

· How much is hype vs. reality? A 20 tariff on what, total shipments, allocation, historical import tons? I’m a Trump supporter, but his bark tends to be more effective than his bite.

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