- The Washington Times - Monday, January 20, 2003

Companies operating in the global economy are finding ways around the tariffs imposed by the Bush administration last year."We have to," said Doug Grimm, a vice president at Metaldyne Corp., a Plymouth, Mich., company that makes chassis, transmission and engine components for the auto industry.
Steel tariffs implemented in March and duties against softwood lumber from Canada in May are two high-profile cases in which the Bush administration has tried to slow imports and protect U.S. industries.
The results have been mixed, with companies and industry groups citing the trade barriers for helping some while hurting others. Companies that see costs rise or profits fall because of tariffs look for ways around the trade barriers.
The market overwhelmed duties on softwood lumber from Canada, used largely in home construction, as companies increased output and lowered costs. Prices continued to decline.
Steel is a more complicated picture.
In Metaldyne's case, manufacturers supplying steel that the company turns into auto components are asking for 5 percent to 50 percent more than a year ago increases that Mr. Grimm says can't be passed on to customers.
To keep costs down, Metaldyne may tap foreign firms to supply 15 percent to 40 percent of its products either raw steel or finished components up from 2 percent now.
"We are in the process of negotiation and trying to work with customers to look at alternative supplies," Mr. Grimm said. "When we buy components offshore, that impacts jobs. And it's not like we can go and buy globally and then come back domestic."
The potential move offshore and potential loss of U.S. jobs would be an unintended consequence of tariffs that reached 30 percent on some steel products.
But the strategic moves by companies looking everywhere for price advantages, lobbying for tariff exemptions by domestic consumers and foreign producers, and a competitive push by some foreign manufacturers are typical responses to changing market conditions brought about by trade barriers.
U.S. companies using imported steel, for example, effectively lobbied for numerous exemptions to the tariffs, and countries not covered by the tariffs increased exports.
Tom Danjczek, president of the Steel Manufacturers Association, which represents small mills like Nucor of Charlotte,N.C., said steel imports covered by the March tariffs represented 5 percent of U.S. consumption by the end of last year.
As a result, steel prices on spot markets have fallen significantly since their summer peak. By the end of December, prices of hot-rolled steel were down 25 percent from July, though still well above prices from a year earlier.
Steel imports actually rose last year, the latest available industry figures showed.
The drop in prices and rise in imports led some major steel companies last week to call for more tariffs to plug the gaps. But the price pattern following additional tariffs a brief spike and then a decline likely would resume as companies worked around the trade barriers, economists said.
"It's kind of like taking a steroid. It gives you an immediate hit but it does wear off," said Gary Hufbauer, a trade analyst for the Institute for International Economics. And a "blowback" effect should be a concern.
"Customers will seek out alternatives," Mr. Hufbauer said.
Major U.S. steel producers credit the tariffs with taming steel-pricing structures. They are serving their purpose giving the industry some room while it consolidates, officials say.
The tariffs "definitely put a tourniquet on a very difficult situation," Thomas J. Usher, chairman of U.S. Steel Corp., said during a press conference last week.
The Pittsburgh company reported third-quarter 2002 adjusted net income of $103 million, a huge improvement from third-quarter 2001 adjusted net loss of $17 million, and is in the process of acquiring assets of bankrupt National Steel. Meanwhile, International Steel Group this month offered $1.5 billion for bankrupt Bethlehem Steel.
It is exactly the consolidation process that some thought the three-year tariffs would allow.
"Tariffs, if done properly and for the right reason, can have a positive effect. With steel, they permitted restructuring," said Peter Morici, a University of Maryland professor and former International Trade Commission chief economist. "The president took an action criticized by many and turned out to be right."
Industry analysts said the impact of the tariffs is difficult to gauge.
"All the arguments are partly true," said Charles Blum, president of International Advisory Services Group, a Washington consulting firm. "It is fair to say that the program would not restrict imports as much as disturb them."
Even more than tariff policies, supply and demand, with market psychology, determine prices, he said.
"It's extremely complex The trick is to understand the market well enough so you're not paying top dollar," Mr. Blum said.
The lumber industry saw less-ambiguous results following duties that averaged 27 percent on Canadian softwood lumber imports: Prices continued to fall after May and lumber companies suffered.
"If you want to tinker with the free market, you get games in this game everyone lost," said Russ Taylor, president of International Woodmarkets, a publication that tracks the lumber industry.
Canadian companies couldn't afford to lose the U.S. market, so they added shifts, lowered costs and increased production. U.S. companies thought prices would increase, so they also raised production. European firms saw a chance to grab market share, so they swelled the already abundant lumber supply with a small wave of imports.
"The scary part is the price could fall further if you take tariffs away," Mr. Taylor said.


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