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SUNDAY, MAY 20, 2007
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China steel breaks bad for U.S., Decatur

Decatur’s tug-of-war with China came into focus yet again last week.

Independence Tube, in the midst of expanding its plant at Mallard Fox Creek Industrial Park, makes steel tube used in commercial construction. It makes that tube out of flat-rolled steel, including some made at Nucor Steel Decatur.

Last month, China — bowing to U.S.-led pressure — reduced export incentives it provides to some of its steel producers. Those incentives were in the form of a rebate in taxes Chinese steelmakers would pay if their product was consumed within China.

The change eliminated the rebate on many steel goods and reduced it on most. Nucor was a major beneficiary of the change.

Competitive advantage

The problem with any governmental export incentive is that China producers already enjoy huge competitive advantages over U.S. producers. They have access to government-backed credit, and in some cases are government owned.

Their labor costs are a fraction of U.S. labor costs. They have few safety regulations, and minimal responsibility for injured workers.

They can use antiquated plants because of lax environmental regulations.

Adding the export rebate to this imbalance was like raising one side of a seesaw; cheap China steel flowed into the United States, depressing steel prices, reducing demand for domestic steel and discouraging U.S. producers from expanding capacity.

Steel tube

Conspicuously missing from China’s reduction in export incentives, however, was steel tube. China’s tube manufacturers still receive a 13 percent tax rebate on tube they send overseas.

The discrepancy in how China treats steel tube and flat-rolled steel is an economic disaster for the U.S. tube industry, including Independence Tube.

First is the seesaw effect: Chinese producers, already enjoying numerous competitive advantages, ship more steel tube because of the rebate.

It gets worse, though. Steel tube is manufactured from flat-rolled steel.

That means Chinese steel producers wanting to take advantage of the rebate will merely convert their flat-rolled steel into tube, flooding the U.S. market with even more of their low-cost product.

Crowning irony

The crowning irony, though, is that by reducing export incentives on flat-rolled steel, China’s new policy increases Independence Tube’s costs. The flood of cheap flat-rolled steel hurt Nucor by driving down steel prices. It tended to help Independence Tube, however, by providing it with a less expensive supply of steel.

So in an ostensible effort to placate the United States, China has created an environment in which its producers will increase the flood of steel tube exports while increasing costs for U.S. steel tube makers.

Last week, several members of the U.S. House of Representatives — including Bud Cramer, D-Huntsville, and Robert Aderholt, R-Haleyville — demanded that the U.S. trade representative push China to remove the steel tube rebate. The opportunity will present itself Wednesday at a U.S.-China economic summit in Washington.

The congressmen complained that China’s steel tube exports almost doubled between 2006 and 2007, and likely would increase more with the rebate unchanged. They warned of closed U.S. facilities and laid-off workers.

Decatur has iron in this fire. The international sparks should be interesting.

Contact Eric Fleischauer at eric@decaturdaily.com.

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