VOL. 42 | NO. 17 | Friday, April 27, 2018
How we reached this point
By Hollie Deese
In the global market for steel, there is a significant overcapacity that is located in China, which has driven down the global price.
But, the problem, from the US point of view, is that there’s no way to really directly get at Chinese overcapacity because ultimately the United States doesn’t import that much steel from China.
Vanderbilt law professor Tim Meyer, an expert in public international law with an emphasis on international economic and energy law, says there is still a fair amount of room to negotiate, and there’s some willingness on China to take steps to address its overcapacity problem.
“There had been efforts underway through the G20 to address steel overcapacity, and China had indicated a willingness to work through multilateral negotiations, and addressing its overcapacity issue,” Meyer adds. “To some extent, there was progress being made on this issue in a less confrontational forum.
“The imposition of tariffs has, I think, made it a much more confrontational process of negotiation.”
“What the administration has done, instead, is it has decided to impose tariffs on all steel coming in to the United States, and then to go through, one by one, and exempt countries that reach agreements with the United States on other ways to address the steel problem,” Meyer continues.
“So, in the background, what the administration is doing is, it appears to be trying to line up support from other countries to restrict the global trade in Chinese steel, the trans-shipment of Chinese steel, into the United States, in particular. And, possibly, other measures to take on China.”
When the Trump administration announced that it had renegotiated the Korea-US free-trade agreement, KORUS, Korea agreed to reduce its steel exports to the United States by 30 percent in exchange for an exemption from the tariffs.
“The goal is to raise the price of steel, globally, in order to benefit US steel producers,” Meyer says. “And that is clearly going to come at the expense of US steel consumers, which would include, for instance, auto companies.”
Some other areas covered by Trump’s propose tariffs include information technology and products used for robotics and aerospace.
“In Tennessee, effects of the trade war should really be evaluated on a case-by-case basis: businesses like Dollar General (based in Goodlettsville) will be less affected based on the type of consumer they’re catering to, and the products they’re selling in their stores,” Miller explains.
“(Memphis-based) AutoZone, by comparison, will be affected adversely – steel prices will go higher and will be passed along to the consumer in the long haul, which is negative long-term for sales. In the short-term, it’s less of a big deal for Tennessee industries than it could be in the long run. Although it may be too early to tell – is this posturing or is this a long-term trade war?”
Trip Miller, managing partner at Gullane Capital Partners in Memphis, says no matter how you look at it, increased tariffs on steel and aluminum flow through to the consumer.
“Whether it’s an aluminum can of Coca-Cola or a beer can, the cost of steel for an automobile, or an aircraft like Boeing, or General Motors, or, in our state, Volkswagen in Chattanooga,” he says. “People can say that companies will eat those costs, but ultimately they get passed along to the consumer.”
Miller explains tariffs are just a tax by another name, and despite the tax cuts given earlier in the year, in the long run, these tariffs are not great economically.
“In the short-run a tariff and a trade war could really offset a lot of the perceived gains from the consumer, at least, from this tax cut,” Miller says. “Bottom line, we don’t like to see trade wars.”
Miller says Fred Smith, founder of Memphis-based Federal Express, has met with President Trump on two occasions to voice his concerns about tariffs.
“He thinks adamantly it’s a bad idea,” Miller continues. “It’s certainly a bad thing for Federal Express. It’s a business that’s dependent on global trade.
“And a lot of Tennessee companies have definitely been against this. Not good for the manufacturers either. They’ve been pretty vocal.”
Sweden-based Electrolux pressed pause last month on a planned $250 million expansion in Robertson County’s Springfield plant. Electrolux is Europe’s largest home appliance manufacturer and had planned to grow another 400,000 square feet, with construction to begin later this year.
The solar industry in Tennessee is in for a particularly bumpy ride.
“The U.S. solar industry, and in particular in Tennessee, is an industry that is based on the installation of solar facilities and, ultimately, the generation of solar energy,” Meyer continues. “So, both the solar tariffs and the steel tariffs hit them incredibly hard because they are consumers of those products that would be imported. It raises, substantially, the cost of their imports.”
Koczaja says LightWave has a backlog of projects, and the desire and interest for solar energy is there. And so is his desire to make his business work.
“At the end of the day we will find the keys to what makes sense for people, and try to just listen to the market, and deliver what it’s asking for,” he says. “We have to. It’s the solar coaster – we’re nimble, we react.”