The top six automakers’ coalition to protest US tariffs on imported steel has received a scathing return blow as another coalition representing steel companies and steelworkers unions fired back at the automakers’ lobbying to eliminate the tariff, according to Global Insight automotive analyst Aaron Bragman.
Go deeper with GlobalData
In an investor’s note, Bragman said a coalition of steel producers and unions have formed “Stand Up for Steel”, and have begun a marketing and lobbying campaign to get the US International Trade Commission to maintain the 30% tariff on imported steel when it meets on 17 October.
The move came as automakers, attempting to reduce costs in order to improve profitability in the wake of skyrocketing healthcare costs, began lobbying for the tariff to be lifted. If this happens, foreign suppliers will have access to domestic vehicle producers, increasing competition and likely lowering prices.
Bragman noted that steel prices have been slowly falling since the threefold spike in 2004, but with steelmakers making noise about increasing prices this year, the automakers’ gloves have come off in the battle to control costs.
“Steelmakers will have a difficult fight, as the health of the steel industry that the tariff was enacted to protect in 1993 is a far different one than the consolidated, record profit-earning industry seen today,” he said.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe US International Trade Commission, a government entity which examines trade practices and recommends any legislative actions on various commodities, is scheduled to meet on Tuesday (17 October) to decide whether or not to eliminate the 13-year-old tariff.
The steelmakers claim that the tariff is necessary in order to maintain competitiveness with foreign producers, and that even as little as a 5% price concession to automakers would result in a round of domestic bankruptcies while yielding little true benefit to automakers.
Steelmakers are instead planning on requesting an increase in prices this year, as has been anticipated by General Motors (GM), the first automaker to engage in negotiations for setting the price of steel for 2007 contracts.
Automakers are crying foul. The coalition of the big six automakers (GM, Ford, DCX, Toyota, Nissan, and Honda) have all lamented the 30% import tariff, stating that it unnaturally inflates the cost of steel and no longer is needed given the threefold increase that steel prices have seen since 2003.
“It’s shameful that the steel industry continues to insist on special protections,” said GM spokesperson Greg Martin. “It’s time the sun set on these provisions that have resulted in record price and profit increases and a stranglehold on a predictable supply of such an essential material to the auto industry.”
Bragman said the steel industry in the United States today is very different to when the tariff was enacted in 1993. At that time, many smaller producers were struggling with bankruptcy and competition from inexpensive foreign producers who were undercutting business. While tariffs are rarely espoused as a truly beneficial macroeconomic policy, the powerful steel lobby successfully had one enacted to protect domestic producers. Since that time, a wave of bankruptcies and consolidations has swept the steel industry, resulting in there now being only four major US steel suppliers.
He added that negotiations to increase prices seem a rather counterintuitive manoeuvre at the current time, as steel inventories are reportedly higher than they have been since January 2005, and prices on the spot market are starting to fall due to overproduction and a cooling off of the Chinese building boom. Surging Chinese demand for steel tripled prices in September 2004 to over US$800 a ton, and dramatically increased automakers’ costs without the option of passing those costs on to the consumer due to very tight competition.
Prices have seen a slow but steady decline since then, but are still currently nearly 68% above where they were before the 2004 price spike. If supply was still tight, steelmakers may have had a case for maintaining prices or even increasing them, but given current market conditions, slowing demand from the automakers as well as in construction and durable goods manufacturing should put increased pressure on steelmakers to lower prices and reduce on-hand inventories.
As for the tariffs, by their very nature, they hinder the opportunity for free trade to be practiced and for market demand to regulate prices. Competition among steelmakers for domestic auto business is stifled, giving the steelmakers a very large hammer with which to beat automakers into paying prices dictated.
“Any benefit the tariffs provide to domestic steelmakers comes at the expense of automakers’ profitability, and with the consolidations seen in the steel industry, claims that further bankruptcies would result from dropping the 30% tariff on prices that are already 68% higher than they were three years ago seem sceptical at best,” the analyst concluded.
