How Illegally Traded Imports are Destroying Domestic Manufacturing: An Interview with Zekelman Industries President, David Seeger
In light of the battle over whether to pass the Trade Promotion Authority (TPA) in the Senate last week and the impending battle in the House of Representatives quickly approaching, I sat down with Zekelman Industries President and newly appointed Chairman of the Committee on Pipe and Tube Imports, David Seeger, to gain more insight into a debate that’s keeping all of us on our toes. The debate over “FAIR” trade and what will happen when the TPA and the Trans-Pacific Partnership (TPP) are passed into law, specifically how it will affect domestic manufacturers.
A candid and enlightening interview, here’s what Mr. Seeger had to say:
Q: What is the greatest threat to domestic manufacturers, specifically in the steel industry?
The biggest threat is the tremendous overcapacity in steel production out of China. They have built over 400M tons of excess capacity that they are dumping into almost every market around the world, essentially destroying the global steel market. These are state-owned enterprises that sell below their costs, lose money and then receive new “loans” from the government each year that they have no expectation of repaying. In a market economy these companies would go out of business but in a state run economy, they can exist for however long the government chooses to prop them up.
Not only does it hurt domestic steel industries in the U.S. but also the manufacturers of downstream products that are made from steel such as pipe and tubing. The whole market becomes a distorted mess.
Countries in Europe, Asia, South America and North America are all filing trade suits to combat this unfair and illegal practice, but these are very time consuming, expensive and disjointed with the net result of solving very little. There are now millions of jobs in the manufacturing sector that have been displaced due to this practice.
Q: Do you think our Administration truly grasps the obstacles domestic manufacturers face when it comes to import products?
No, I do not.
First, let’s make a very clear distinction between imports and illegal/dumped imports. This distinction is almost never made when “free traders” make their case on why trade is good for a nation’s economy. Their argument on free/legal trade is valid, on illegal/subsidized trade it is not. They tend to repeat the mantra that “trade is good” no matter if it is unfair or illegal. I believe this comes from two very misguided beliefs. The first belief is rooted in that even if the imported products are illegally subsidized, cheaper products are good for the overall U.S. economy by putting more money in the consumers pocket to spend. However, this fails to recognize how many citizens have lost their jobs or have moved into lower paying jobs in the “service economy” and thus have less money to spend. This often spurs the question of “where did our middle class go?” We exported it to China.
The second belief is that while the illegal/dumped imports may hurt one sector of the economy, it helps other sectors. This is where the lobbying pressure from very large special interests comes in. While this can be somewhat complicated and varies by industry, one very clear example is the U.S. agricultural industry which in the eyes of almost everyone is heavily subsidized by the U.S. government. We want access to overseas markets for our agricultural products and are afraid if we restrict illegal/dumped manufactured products from these countries they will retaliate against our subsidized agricultural products. This has created a corrupt and broken marketplace when it comes to international trade and while this is just one example, it shows how we have put ourselves in a position of accepting one wrong in exchange for another wrong.
The bottom line is that free AND fair trade is essential for an efficient global economy. It’s all of the distortions that have leaked in over the years that has compromised and is destroying the U.S. manufacturing base.
Q: What should the Administration to do help lessen the effects of illegal imports on manufacturers?
First of all, it’s up to individual companies to find a way to compete against fairly traded imports and for the most part they have. We have abundant raw material advantages along with relatively cheap energy (the two biggest costs most manufacturers face), so we can compete with anyone. While we pay our employees much better and hold ourselves to stricter environmental standards, we can overcome these issues based on our other overwhelming advantages.
What the Administration can do to lessen the effects of illegal/dumped imports is to seek and support legislation such as the Level the Playing Field Act. This legislation addresses several areas of our current trade law that have fallen out of date or is being circumvented by our trading partners. One such area is the definition of injury as it pertains to an industry’s ability to satisfy the criteria of has it been injured by unfairly traded imports. The current conditions needed to meet this criteria are onerous and require companies to be losing money and on the verge of bankruptcy before they can seek relief. Companies may have closed divisions, laid off thousands of workers and failed to reinvest in their business in an effort to remain profitable in the face of these imports and thus not satisfy the criteria that they have been “injured”.
Q: In your opinion, will the pending trade legislation do enough to protect domestic steel manufacturers?
I believe the pending trade legislation, such as the Level the Playing Field Act as contained in the Customs bill, would go a considerable way in addressing the unfair trade that has been transacted for far too long. It would tell other countries, you can’t cheat and ignore the rules any longer or there will be consequences. Currently, we “encourage” and “hope” other countries will play by the rules, but we can do very little if they don’t and they know that.
We have the opportunity to make important changes to the anti-dumping and countervailing duty laws to make them more effective and efficient. These opportunities come along very seldom and Congress has a window to do something positive when it comes to addressing these trade distortions.
Q: Why do you think there’s been such an influx in imported steel over the past year?
We are the largest and by far the most open market in the world and with most other economies in the global market struggling, there is a natural inclination to sell into our market – even if you have to seek unfair and illegal ways to do it. Steel is a commodity that’s not easily distinguishable and lends itself to being dumped almost anywhere, as it has been. Most of the other major economies around the world are waking up to what the Chinese (and others) are doing and have put restrictions in place to shield their markets from these distorting practices. This leaves the U.S. as one of the few remaining markets they can sell into.
This, combined with the recent increase in the value of the U.S. dollar makes our products more expensive and other countries products less expensive. The outcome: a perfect storm for a flood of imports. (I’ll save currency manipulation for another day.) I do have to add that the only mention of currency in the legislation approved last week by Senate is that trading partners should “avoid manipulating exchange rates to gain an unfair advantage over other parties”. I think that verbiage illustrates perfectly the attitude in Washington that we are up against. In their view they have addressed the currency issue and can wash their hands of it; they have no intention of doing anything if our trading partners violate it (as they have and will continue to do so).
In the first quarter of 2015, the import share of the pipe and tube market was over 70%. This compared to the already extremely high share of 56% last year, shows what is happening. No other country in the world would allow their markets to be taken over this way and it’s repeating itself in almost all steel related products.
Q: What’s at stake if we continue to allow illegal imports into the U.S.? Are these exclusive to the steel industry?
What’s at stake is pretty simple: jobs.
Again, I want to point out that fair trade creates jobs, unfair trade takes them away. I just wish our Representatives could make this distinction. These jobs are also higher paying with good benefits, so losing them tends to subtract from the economy and carves out the middle class even further. Retraining workers to get jobs in the “service economy” is not an even swap. Want to address income inequality? Here’s a great place to start.
This is not exclusive to the steel industry, but certainly impacts almost every product made from steel. When I’m in Washington, I hear the same horror stories from shrimp producers to builders of bridges and almost all originate from China, causing other countries to distort their trade practices in order to compete.
Q: What might the repercussions be if the Trans-Pacific Partnership (TPP) is passed?
I would have no issue with TPP if we could simply put fair and enforceable rules in place for when our trading partners break the agreement, as they’ve shown time and again they will. They do this mostly because they know the rules are vague and won’t be enforced.
Look at the trade deficits we are running across the world, how can this be good for our economy? Trade does create jobs, but too often it’s creating them in other countries, not in the U.S.
I welcome and support any fair trade agreement that the Administration negotiates, but not the manipulated and unfair practices that seem to be the end result of most of our agreements. A perfect example of how trade should work is our relationship with Canada. How it should not work is what’s going on with China.
Q: Given the resource issues at customs and commerce, how should the government enforce current and future trade laws to protect domestic manufacturers?
Any future trade provision considered in the House (or Senate) must include enforcement provisions to ensure that trade is conducted fairly – that’s why we support adoption of enforcement provisions in the Customs Reauthorization Bill that will be considered in both the House and Senate.
Q: What can and/or should domestic manufacturers do to bring this issue to the “mainstream media” and average citizen (both of which are likely unaware of what’s going on and how it affects them)?
Great question, I think the industry has done a very poor job of getting this message out there and we’ve also been drowned out by special interests. We (all employees) need to reach out to our congressional representatives and go on the record that we expect their support on this.
Recently, Zekelman Industries made a concentrated effort to do just that and one of our employees letters was read on the Senate floor by Senator Portman during the debate. This is very important and needs to continue to happen. We need to write editorials to our newspapers and look to form coalitions with other interest groups to expand on the message. While environmentalists and manufacturers make strange bedfellows, why would you want to drive manufacturing out of the U.S. to the biggest polluter on the face of the planet? Maybe we have a common goal, and maybe packaging our message together would reach more people.
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