State Awaits Fate of Steel Tariff

A repeal of the Bush administration’s tariffs on foreign steel could help gird California’s economy.

The 20-month-old tariffs have been budget busters for manufacturers in the state. If the World Trade Organization’s ruling against the duties Monday paves the way for their repeal, supplies would likely be boosted and prices reduced.

The tariffs “are limiting who I can buy from, and it’s costing me dearly,” said Vicente Wright, president and chief executive of California Steel Industries Inc., a Fontana-based steel mill that is paying 75% more for a ton of slab steel than it was a couple of years ago. “This isn’t a winning position for anyone.”

Charlie Kuffner, senior vice president of Swinerton Build ers, a San Francisco-based commercial construction firm, said a tariff on a raw material “drives up the costs for everybody, including taxpayers -- we have to pass it on.”

It was far from clear Monday whether the Bush administration would heed the WTO’s call to end the duties, even in the face of warnings that failure to do so could escalate the tariff tiff into a full-blown trade war.

That could hit California particularly hard. The European Union is threatening to impose retaliatory sanctions on a range of products, including key California agricultural goods such as rice, fruits and nuts.

The European sanctions would come just as the state’s crucial export sector is beginning to show signs of life after a prolonged slump.

“This is the last thing that California needs right now,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. “Washington gets involved in these things and we are sort of like innocent bystanders here on the Left Coast, dodging bullets left and right.”

Many California businesses said they took hits when the Bush administration slapped the tariffs on imported steel last year in a bid to protect U.S. steel producers.

Bill Bloomer, president of National Metal Stampings Inc. in Lancaster, said the tariffs initially resulted in shortages that drove up prices for some types of steel products he uses by as much as 80%. He said the worst of those shocks were over; prices have eased and availability is better for most types of steel he needs.

Still, he expressed frustration that the U.S. government has shown a willingness to protect a handful of large steel producers at the expense of small manufacturers, who he complained have been left to battle the forces of globalization largely on their own. California has shed more than 300,0000 manufacturing jobs since late 2000.

“The U.S. steel industry is bloated and inefficient,” said Bloomer, whose company employs 75 workers and makes parts for the automotive, medical and aerospace industries.

“To try to fix one industry that was grossly mismanaged at the expense of thousands of small end users who have had to be efficient just to survive doesn’t seem fair to me.”

California Steel every year imports 2 million tons of steel slabs, which are made into coils and sheets of finished metal for industrial users. Wright said his company had managed to get around paying duties on foreign steel by carefully avoiding purchases from countries with tight quotas that would trigger the penalties. But even though Wright has ducked the costly duties, he said the tariffs have driven up the cost of his raw material by limiting where he could purchase steel.

Wright said the tariffs weren’t the only factor behind the rising price of steel. He said growing demand, particularly from China, had driven up prices in recent months.

The price of U.S.-made steel has become a potential problem for the $2.6-billion San Francisco-Oakland Bay Bridge project. Projected cost overruns recently motivated Caltrans to reopen the bidding process to allow prospective bidders to use cheaper foreign steel. The previous specs had required bidders to use only domestically made steel.

Although no one can say for sure how much the steel spat has cost the California economy so far, economists say the state will be hit with a double whammy if the dispute escalates into an all-out trade war. Potential targets for retaliation included citrus, avocados and other agricultural products grown in California, as well as home-grown manufactured goods such as apparel and machinery.

“The best thing for both the California and U.S. economies would be for [President] Bush to back down and drop the steel tariffs,” UCLA economist Chris Thornberg said. “We need to move forward.”