This article first appeared in the St. Louis Beacon, March 26, 2012 - WASHINGTON – Steel wheels, nails and bedsprings made in Missouri are on the list. So are pipes, paintbrushes and coat hangers from Illinois. Not to mention a host of other products, from Silicon Valley electronics to Detroit auto parts.
If it seems that the Chinese are throwing cheaper versions of everything but the kitchen sink at U.S. markets, think again. This month, an Illinois kitchen-sink manufacturer — the Elkay Cos. — asked Washington to slap an “anti-dumping” tariff on Chinese steel sinks.
Whether the product is sinks or steel wheels, the complaints by U.S. manufacturers allege that China unfairly subsidizes the plants that make such products, allowing exporters to sell them in this country at less than fair market value.
In the most recent Missouri case, executives of Hayes Lemmerz — an international steel wheels manufacturer that employs more than 300 people at its plant in Sedalia — asked the U.S. International Trade Commission on March 8 to order punitive duties against Chinese imports that they contend unfairly undercut their prices.
“Don’t let dumped Chinese wheels shut down these plants and cost these good, hardworking Americans their jobs,” said Donald Hampton Jr., who supervises the steel-wheel plants in Sedalia and Akron, Ohio.
That morning, U.S. Sen. Claire McCaskill, D-Mo., and U.S. Sen. Sherrod Brown, D-Ohio — showed up to back Hayes and the other steel-wheel firms. “Americans accept that there are going to be good times and bad times,” McCaskill said. “But they cannot accept when these jobs go away because of unfair and illegal subsidies provided to foreign competition.”
After the commission hearing, McCaskill said she has heard from many Missouri firms that blame Chinese exporters for “dumping” products in U.S. markets and – when the ITC imposes anti-dumping or countervailing duties on those imports – using unscrupulous tactics to avoid paying those tariffs.
“It is not reasonable for people in Sedalia, or anywhere, to suffer because companies in China will not play fair,” she said.
Thousands of jobs are at stake. According to a report last year by the labor-aligned Economic Policy Institute, the growth in the U.S. trade deficit with China displaced about 2.8 million U.S. jobs between 2001 and 2010. That trade deficit with China rose to a record $295.5 billion last year, with that 8.2 percent increase representing about three-quarters of the growth in the U.S. trade deficit other than petroleum products.
While states like California and North Carolina were hit hardest, the EPI estimated that Illinois lost 105,500 jobs and Missouri firms lost 38,700 jobs to Chinese imports over that decade. Of course, lower prices resulting from the Chinese competition benefit consumers as well as some U.S. companies that take advantage of the cost savings.
Holes in the U.S. anti-dumping process
How can American firms fight back? Other than making their manufacturing more efficient, or moving their plants to countries with lower labor costs, they can appeal to the government to impose anti-dumping and countervailing duties that, in theory, level the playing field against unfairly priced imports.
But that process is ponderous and expensive, and Chinese firms often find ways to get around it. Here’s how the system is set up: The Commerce Department determines whether “dumping” is occurring; the ITC determines whether such trade practices injure specific U.S. industries and, if so, whether to impose anti-dumping or countervailing duties; and the tariffs are enforced by agencies of the Commerce and Homeland Security departments.
Anti-dumping duties apply to goods sold in this country at or below the price in China; countervailing duties aim to offset the benefits of government subsidies to industries.
Every year, American firms spend millions of dollars in legal and related fees to bring such cases against Chinese imports. In the current “steel wheels” case involving Sedalia, for example, the ITC is likely to make its decision on possible countervailing and antidumping duties by April 17.
A parallel process is getting underway in the Illinois kitchen sink case, with Elkay — a leading maker of stainless steel sinks — alleging that its Chinese competitors are being illegally subsidized and are undercutting Elkay.
“Chinese sink imports have increased dramatically over the past three years due to significant under-selling by Chinese manufacturers,” said Steve Rogers, Elkay’s chief operating officer, in a statement. He said Elkay “cannot compete with foreign exporters that sell products at substantially less than fair value.”
But even if American sink or steel-wheels manufacturers convince the ITC to impose duties, such punitive actions don’t always make much of a difference – mainly because an increasing number of foreign shippers, many from China, are using illegal tactics to avoid paying the duties.
Take bedsprings, for example. At a Senate hearing last year, executives of the Missouri-based, innersprings manufacturer, Leggett & Platt, Inc. complained that Chinese competitors had found devious ways to get around the anti-dumping duties imposed against them in 2007. The duplicity involved shipping the bedsprings to other Asian countries and then to U.S. markets under false claims of origin.
“We have developed evidence that, each year, over a million innersprings subject to the antidumping order are imported into the U.S. without paying duties of up to 234 percent,” Leggett & Platt chief executive Karl G. Glassman told the Senate Finance subcommittee on international trade, customs and global competitiveness.
In the case of innersprings alone, such illegal transshipments cost the government an estimated $60 million a year, Glassman said, and eliminate the jobs of about 60 full-time workers at plants in this country. Back in 2008, the Government Accountability Office estimated that $600 million in duties were uncollected over a six-year period, mostly involving products made in China.
The experience of Leggett & Platt may represent the tip of the iceberg. In a 2010 report, “Duty Evasion: Harming U.S. Industry and American Workers," the subcommittee’s investigators concluded that “the circumvention of U.S. AD/CVD laws, either by foreign producers or importers, negatively affects industries throughout the United States, resulting in continued injury to U.S. industry, the loss of American jobs, and the loss of federal revenue.”
The report cited more than a dozen product lines for which there were antidumping duties that were being evaded. Among those products with manufacturers in Missouri and Illinois were:
- steel nails (both states)
- light-walled rectangular pipe and tube (both states)
- uncovered innersprings (Missouri)
- natural bristle paintbrushes (both states)
- steel-wire garment hangers (Illinois and formerly Missouri)
- steel grating (Illinois)
“The list can go on and on,” testified Roger B. Schagrin of the Committee to Support U.S. Trade Laws, an interest group formed by more than a dozen firms seeking tougher enforcement of anti-dumping duties. “Literally billions of dollars of trade are evading the imposition of billions of dollars of duties as lost revenues.”
The report found that certain Chinese suppliers and their U.S. importers avoid anti-dumping duties “by a number of unscrupulous schemes, including illegal transshipment and falsified country of origin markings, undervalued invoices to pay less duty, and misclassification of goods. In sum, they cheat.”
Better enforcement tools needed?
The chairman of that Senate subcommittee, Sen. Ron Wyden, D-Wash., is pushing a bill, called the ENFORCE Act, stop such cheating. “It is not enough to pass [anti-dumping] laws, they need to be enforced,” he said.
Both McCaskill and Sen. Roy Blunt, R-Mo., are cosponsors.
At the panel’s hearing, Blunt said Missouri firms had “frustration about trying to play by the rules here and all over the world, only to see others actively and successfully avoid” the duties. “It’s frustrating for big companies like Leggett & Platt, and it’s frustrating for family-owned companies like Mid Continent Nail in Poplar Bluff,” which has been hurt by Chinese steel-nail exports.
The ENFORCE Act aims to stop the evasion of anti-dumping duties and more effectively enforce the current laws calling for trade remedies. Among other things, the bill calls for simplifying the process by which U.S. firms can allege that foreign competitors are evading the tariffs; speed the investigative process; allow more sharing of import information among federal agencies; and require annual reports to Congress on enforcement.
Separately, McCaskill introduced a bill last fall, called the “Fighting for American Industry’s Right (FAIR) to Enforcement Against Duty Evasion Act, that aims to give law enforcement better tools to find and prosecute firms evading tariffs.
To plug what she views as loopholes in the existing law, McCaskill wants to require customs brokers to verify information about their foreign clients, as well as to require new shippers to pay cash up front to cover the estimated cost of U.S. duties on their products. Current law allows foreign firms that have not previously exported to this country to post a bond to cover such duties; and some such firms “disappear” before paying the full sum of the duties.
While the bill has not moved so far, a spokesman for McCaskill said last week that she had “gotten some positive feedback from industry.”
Trade restrictions can hurt U.S. firms
While some American companies can benefit from properly enforced anti-dumping duties, free-traders point out that such tariffs can be a double-edged sword.
The other edge: Such duties can hurt consumers who benefit from lower-priced foreign goods; damage other U.S. firms that rely on cheap imports of raw materials; and could spur Chinese retaliation against U.S. exports.
Solar panels provide one example. When the Commerce Department said last week that it would impose countervailing duties (of between 2.9 and 4.73 percent) on Chinese solar panels, the decision got a mixed reaction from U.S. companies.
Seven North American solar manufacturers had sought tariffs of 100 percent or more because, they alleged, the Chinese government provided discounts on raw materials, preferential loans, cash grants and other subsidies to its solar industry. Chinese solar panels now control about half of the American market; U.S. imports of Chinese solar panels increased to $2.65 billion last year from $21.3 million in 2005.
But not all U.S. solar manufacturers support the tariffs. Some firms, such as MEMC Electronic Materials, based in St. Peters, contend that imposing such duties on inexpensive solar panels from China would actually lead to a net reduction in U.S. jobs and slow the expansion of solar energy in this country.
Through its SunEdison subsidiary, MEMC is a leading provider of solar energy services. It is a global player in the manufacture and sale of silicon wafers and related products in the solar and semiconductor industries. At an ITC hearing last fall, MEMC’s Ken Hannah said that imposing high duties would mean that “prices go up, demand for solar energy in the U.S. will down down, and the U.S. solar market will be significantly undermined.”
And the solar battle is not yet over. In May, the Commerce Department is supposed to decide whether the Chinese are dumping solar panels here.
In another example, Missouri-based die-casting firms that use magnesium, including St. Louis-based Spartan Light Metal Products Inc., asked the ITC in 2010 to drop duties against Chinese and Russian magnesium that had substantially driven up their costs for the metal.
Last winter, the ITC voted to drop duties on Russian magnesium but continue the anti-dumping duties on magnesium alloy imports from China after determining that revoking the tariffs would likely “lead to continuation or recurrence of material injury” to the sole U.S. magnesium producer.
Spartan and other Missouri and Illinois die-casting firms – which employ more than 2,000 workers – were disappointed with China part of the ITC decision. They complained that duties on China’s magnesium alloy exports drove up the U.S. domestic price of magnesium and left them at a disadvantage against foreign die-cast competitors.
Spartan’s executive vice president, Michael L. Sparks, told the Beacon in an email that the ITC ruling has not helped because “Russian [magnesium] suppliers are not interested in servicing our industry. We were unsuccessful in soliciting bids from potential Russian suppliers for 2012 purchases.”
With the duties still high on Chinese magnesium alloy exports, Sparks said, the company has substituted aluminum to cover “a good portion of this business loss.”
Before the anti-dumping duties were applied in 2005, Sparks wrote, magnesium die casting represented more than half of Spartan’s business; last year, it was only 10 percent.
Sparks thinks the nation’s trade laws need to be changed to reflect all sides, not just those of complaining manufacturers. He suggests that the ITC and Commerce Department “review the overall economic impact of a decision, to the entire economy, not just the claimant.”
He added: “Given all the lip service for manufacturing jobs our politicians are providing, you would think they could devise a plan to compensate or protect the harmed industry, if it is deemed critical without destroying the larger downstream consuming industries, like we are a part of.”