Speeches & Floor Statements

Remarks Of Sen. Alexander - Steel Tariffs

Posted on July 16, 2003

Mr. President, President Bush, is working very hard to get this economy moving again. I have strongly supported his jobs growth and tax cut plans. I believe his hard work and those plans are paying off. But in one case, I want to respectfully suggest that the President consider making a mid-course correction. That case is the sad story of steel tariffs. It is the story of an honest effort by our President to save jobs that has backfired. The backfire could not be coming at a worse time. The President's hard work to get the economy moving again is beginning to pay off. The last thing our country needs right now is a wave of plant closings in the auto and auto parts industry. But that is exactly what will happen if the tariffs continue. The tariffs have become a job killer in the United States and a jobs growth program for Korea, Japan, Germany and other countries that produce quality auto parts. In March 2002, the Bush administration imposed tariffs of up to 30 percent on ten different categories of steel imported from Europe, Asia and South America. The tariffs may have saved a few steel-producing jobs for the time being. But since their institution in March 2002, the tariffs have already destroyed nearly as many jobs in the steel-consuming companies of America than exist in the entire steel-producing industry of America. Some auto parts plants in my state of Tennessee are already closing because of the higher costs of steel imposed by the tariffs. On top of that, last Friday, the World Trade Organization ruled that these U.S. steel tariffs are illegal and in violation of global trade rules. The European Union has already announced that it intends to impose $2.2 billion in retaliatory sanctions on American imports sold in Europe ranging from footwear to fruits and vegetables - and that will destroy still another batch of American jobs. If these steel tariffs continue through the years 2004 and 2005 as scheduled, there will be a wave of plant closings across Tennessee and other steel consuming states, especially among auto parts suppliers. Ironically, many of the steel-producing jobs themselves will also disappear, for two reasons: (1) when the tariffs eventually end, the protected and inefficient steel mills will find themselves unable to compete in the world marketplace; and (2) the demand in this country for this kind of steel will have dropped because automakers and auto parts suppliers will be buying parts overseas - instead of buying U.S. steel to make parts in the USA. Fortunately, the President has an opportunity in September to review the decision he made in March 2002 to impose steel tariffs. I respectfully urge him to chalk this one up to experience, to acknowledge that this exercise proves once again that protective tariffs are self-defeating and usually boomerang, and end the tariffs. This would allow America's steel-consuming auto parts suppliers and other American manufacturers a fair chance to make their products in the USA instead of overseas. I began to first notice the effects of the new tariffs during my campaign for the Senate in 2002. Tennessee is home to at least 900 auto parts suppliers employing about 100,000 people. Let me describe just how important these jobs are to us. Before the auto industry came to Tennessee in 1980, we were the third poorest state - only Mississippi and Arkansas were below us in family income. Our average family incomes were 80 percent of the national average family income. Then Nissan came to Tennessee, and Saturn came to Tennessee, then BMW and Toyota and other automobile plants put their assembly plants in other parts of the south and southeast. These automakers wanted just-in-time, quality auto parts suppliers close by. To attract them, Tennessee built the best four lane highway system in America. As a result, and as a result of our central location, over the last twenty years, the number of auto parts suppliers in our state grew from a couple of dozen to at least 900. These auto parts suppliers became the greatest contributors to a new prosperity in our state. During the 1980s, Tennessee became the fastest growing state in family incomes, and by 1990, our incomes became 100 percent of the national average. During this time, of course, we were losing many other jobs, especially in the textile industry. But the textile jobs were being replaced by new, higher paying jobs in the auto industry. These auto parts plants usually came to smaller communities - to Shelbyville, and to Rogersville, and to Lexington and to dozens and dozens and dozens of smaller Tennessee communities - usually adding 100, 200 or 300 $30,000 to $50,000 a year jobs with good benefits. Because labor costs of auto suppliers are low, typically 15 to 25 percent, labor costs alone do not justify moving these plants overseas where wages are lower. So at a time when our greatest challenge seems to be how we keep our manufacturing jobs from moving to China, or to Mexico or to Southeast Asia, the auto parts suppliers in Tennessee seemed like a godsend. They were good jobs that seemed likely to stay - stay, that is, unless some unexpected new cost forced the auto plants to look outside the U.S. for a more competitive environment. Enter the steel tariff. The President's decision in March 2002 boiled down to this: it slapped a tariff of up to 30 percent on 10 different categories of imported steel. For Tennessee, most of it affects hot and cold rolled steel, the kind that is used to make cars and trucks in our country. And here is an irony. At the time of the tariff, many auto parts suppliers in America were buying only about 5 percent of their steel overseas. In other words, of about $5.4 billion the U.S. auto industry purchased in 2002, only about $270 million came from overseas. But as soon as the tariff was placed on this 5 percent of steel that was imported, domestic steel producers raised their prices on the 95 percent of steel that was being produced in the U.S. Suddenly, auto parts suppliers and other steel consuming businesses were paying up to 30 percent more for all their steel - in some cases even more than that because of shortages. In some cases, steel companies broke their contracts in order to charge higher prices. The parts suppliers turned around to their customers - the big automobile companies - and tried to pass along these price increases. The answer from the auto companies was: sorry, we're cutting costs, we're not increasing them. Because auto suppliers could not raise prices to cover increased costs, they suffered losses and began to lay off employees. In a few instances, entire plants closed. Both the automakers and the auto parts suppliers began to consider the next logical step - looking offshore for a place to build parts where steel was cheaper. Mr. President, most small American manufacturers live on the edge. They are constantly under pressure to cut costs. And, if costs can't be cut, they cut a job or two, and if cutting a job or two doesn't do it, the only option is to move all the jobs overseas where costs are lower. It is that, or go out of business. So let us think what will happen in 2004, if the tariffs continue. It is very predictable and it is this; auto parts suppliers will move from Tennessee, from Wisconsin, from West Virginia, from Minnesota, from steel consuming states - particularly auto parts suppliers - they'll move to Mexico, Korea, Japan, and Germany. There are many such countries capable of making quality auto parts where steel is at global market prices. Since the U.S. tariffs do not apply to auto parts - only to the steel material - the auto parts suppliers will do only what they can do. Make the parts in Japan and then ship them to the Nissan plant in Tennessee at a much lower cost than what they can make in Tennessee using U.S. steel. This means small manufacturing plant after small manufacturing plant in small American town after small American town in state after state in 2004 will be closing their doors and shipping those good paying jobs with benefits to Korea, Germany, China and Japan. These same jobs that, more than any other factor, helped my state of Tennessee become prosperous will be gone. And I am afraid it will be hard to get them back. Steel consuming jobs vs. Steel producing jobs This tariff is a good faith effort to save jobs in the United States steel mills. There are about 200,000 of these steel producing jobs nationwide, that according to a study by Dr. Joseph Francois and Laura Baughman. But here is the backfire. According to the same study, more than 200,000 Americans in steel consuming industries have lost their jobs in the last year because of the steel tariffs. When one considers the huge number of jobs in the steel consuming sectors of American business - especially in the auto industry - compared with the relatively small number of steel producing jobs, I am afraid what happened last year is only a fraction of the job losses that will occur during 2004 and 2005. Tennessee, for example, has only 3,396 steel producing jobs. But Tennessee has 100 times that many steel consuming jobs (328,501); and 95,900 of those are auto-related jobs. That is, jobs with both auto manufacturers and auto parts suppliers. This is not just a Tennessee story. The United States has 12.8 million steel-consuming jobs, 2.1 million of which are auto related. The U. S. has 226,211 steel producing jobs. I have selected at random a dozen other states and compared the number of steel consuming jobs vs. the number of steel producing jobs. Ohio
  • Ohio has 769,071 steel consuming jobs (234,500 jobs are auto-related)
  • Ohio has only 38,797 steel producing jobs. Florida
  • Florida has 470,416 steel consuming jobs (47,300 jobs are auto-related)
  • Florida has only 1,558 steel producing jobs. Pennsylvania
  • Pennsylvania has 553,315 steel consuming jobs (72,300 jobs are auto-related)
  • Pennsylvania has only 35,730 steel producing jobs. Michigan
  • Michigan has 794,795 steel consuming jobs (296,100 jobs are auto-related)
  • Michigan has only 11,744 steel producing jobs. West Virginia
  • West Virginia has 57,932 steel consuming jobs (8,800 jobs are auto-related)
  • West Virginia has only 6,718 steel producing jobs. New Mexico
  • New Mexico has 45,972 steel consuming jobs (5,600 jobs are auto-related)
  • New Mexico has ZERO steel producing job Illinois
  • Illinois has 646,968 steel consuming jobs (114,900 jobs are auto-related)
  • Illinois has only 19,834 steel producing jobs. Iowa
  • Iowa has 161,934 steel consuming jobs (23,200 jobs are auto-related)
  • Iowa has only 1,277 steel producing jobs. Minnesota
  • Minnesota has 248,047 steel consuming jobs (36,550 jobs are auto-related)
  • Minnesota has only 1,087 steel producing jobs. Wisconsin
  • Wisconsin has 365,933 steel consuming jobs (58,000 jobs are auto-related)
  • Wisconsin has only 2,253 steel producing jobs. Washington
  • Washington has 287,501 steel consuming jobs (18,800 jobs are auto-related)
  • Washington has only 730 steel producing jobs. Oregon
  • Oregon has 470,416 steel consuming jobs (15,700 jobs are auto-related)
  • Oregon has only 1,807 steel producing jobs. [Source: Steel producing & steel-consuming jobs - Study by Dr. Joseph Francois and Laura Baughman. Auto-related jobs - Alliance of Automobile Manufacturers.] Jobs Lost in Tennessee Let me give some specific examples of how the steel tariff has affected Tennessee during the last year. Tennessee ranks fourth in production of cars and trucks in the United States, with around 100,000 employees it has the seventh largest state employment by the auto industry, and a growing number of direct and indirect jobs in this sector stem from automotive suppliers. According to the Motor and Equipment Manufacturers Association (MEMA), more than seventy percent of the employment of the auto industry comes from auto parts suppliers. One example of how a steel-consuming company has been affected by the tariffs is ArvinMeritor. ArvinMeritor is a leading global automotive supplier. It sells to the passenger car and commercial truck and trailer markets, as well as their related aftermarkets. ArvinMeritor currently has six facilities in Tennessee (in Loudon, Morristown, two plants in Pulaski, Brentwood and Columbia) and employs about 1,500 individuals. In 2002, ArvinMeritor purchased more than one million tons of steel globally. More than 95 percent of the steel consumed by ArvinMeritor in the United States during 2002 came from North American steel mills. Now, ArvinMeritor has faced a number of critical challenges since the inception of the tariffs. In terms of pricing, Administration officials advised ArvinMeritor that they only expected a 4 to 6 percent price increase in the cost of steel in the United States after the imposition of the tariffs. ArvinMeritor's experience was far worse. It found that cold rolled steel prices from one of the company's U.S. steel suppliers rose by as much as 25 percent after April 1, 2002, just a few weeks after the tariffs were imposed, as compared to before the imposition of the tariffs, and the current price is 13 percent higher. Galvanized steel prices from one of ArvinMeritor's U.S. steel sources increased by as much as 40 percent after April 1, 2002, as compared to before the imposition of the tariffs, and the current price is 28 percent higher. Once, ArvinMeritor had seven facilities in my state of Tennessee, but on January 21, 2003, ArvinMeritor announced the closing of its 317-employee Gordonsville, Tennessee facility (which produced doors, seats, and sunroofs). These are the $30,000, $40,000, $50,000 jobs with good benefits in Gordonsville, Tennessee, gone. This closure and the related reduction of ArvinMeritor's employment levels at its Pulaski, Tennessee facility (which produces aftermarket parts) by 100 jobs were due to increased cost to the company's business units attributed in large part to the steel tariffs. A second example is the Dana Corporation. Dana is one of the world's largest suppliers of axles, driveshafts, frames, brake and chassis products, fluid systems, filtration products, bearings and sealing products. The company employs approximately 60,000 people worldwide. On April 1, 2002, Dana employed an estimated 3,000 people within its facilities located in Tennessee. Dana is one of the largest single purchasers of domestic steel in the U.S., with more than 95 percent of its total steel requirements purchased from U.S. steel producers. Due to its product lines, steel is Dana's largest single cost. As in the case of many auto suppliers in Tennessee and across this country, steel represents a large part of the overall production cost of automotive components. After March 2002, Dana experienced steep price increases on domestic steel ranging from 20 to as much as 50 percent. Coupled with delivery delays and supply restrictions or shortages, the tariffs have forced Dana to begin seriously evaluating a number of steps to limit its exposure to problems arising from steel tariffs. Among these steps is the use of offshore facilities to produce intermediate and finished products, as well as the active procurement of steel from exempt countries such as Mexico and Canada. If the goal is to save American jobs, how does it help to cause Dana, a large auto supplier, to move its facilities offshore? Those aren't Tennessee jobs. And to buy steel overseas - those aren't Tennessee steel producers. A third example is Dura Automotive Systems. Dura has five facilities in Tennessee, in Gordonsville, Greenbrier, Lawrenceburg, Milan and Pikeville. Dura employs 1,765 individuals in my state. It is the world's largest independent designer and manufacturer of driver control systems, and a leading supplier of seating control systems, engineered assemblies and structural door modules. Dura is also a leading supplier of door and window systems, engineered components and gas appliances to the North American recreational vehicle and mass transit markets. Dura is an American company that used to purchase 100 percent of its steel from U.S. steel sources - once again a prominent supporter of this nation's domestic steel industry. Dura experienced a loss of $10 million in 2002 due to higher steel prices, mainly for hot and cold rolled strip steel, and was forced to increase its steel purchases from the spot market, which is even more costly. In addition, Dura's lead times for deliveries of steel from domestic sources increased from 10-12 weeks to 18-20 weeks, adversely affecting Dura's "just in time" manufacturing process and imposing significant additional costs on Dura. Automobile companies don't want delays in their auto parts. They want them the same day they order them. And if the tariff produces delays, that is just as costly as tariff price increases. Overall, the prices for Dura's required steel have increased by an average 30 percent since March 2002. The result is that Dura is currently considering a number of strategic alternatives such as moving production overseas and sourcing its steel from offshore sources. That is very bad news to Tennesseans in Gordonsville, Greenbrier, Lawrenceburg, Milan and Pikeville - 765 families who have these good jobs. President Bush is working hard to improve this economy. I am his strong supporter. I believe he is on the right track. I believe his jobs growth plan is working. I want him to succeed. I believe the economy is beginning to recover, and the last thing we need is any new cost on a major segment of American manufacturers that slows this economy's growth down. I fear that if the steel tariffs stay on as scheduled, that we will see a wave after wave of plant closings in the automobile industry across this country - in Tennessee, Ohio, Florida, Michigan, Pennsylvania, West Virginia, New Mexico, Illinois, Iowa, Wisconsin, Minnesota and Washington - and we don't want to see that. I respectfully hope that as the President comes to September and sees this opportunity, he will say: I did my best. I made a good faith effort to save those steel producing jobs. It hasn't worked, it backfired, it's the wrong policy, and the best thing I can do for the American worker is to end the steel tariffs.