February 22, 2018
The Honorable Donald J. Trump
The White House
1600 Pennsylvania Avenue, NW 20500
RE: Department of Commerce’s Proposed Remedies under the Section 232 National Security Investigations of Imports of Steel and Aluminum
Dear Mr. President:
The Industrial Fasteners Institute (IFI) respectfully requests your consideration of the potential negative impacts on the U.S. fastener manufacturing industry from the proposed remedies presented to you by the Department of Commerce’s (Commerce’s) Section 232 National Security investigations on steel and aluminum. In our view, the negative effects on downstream consumers of steel and aluminum far outweigh any benefits that may be afforded to the domestic metals industry. Specifically, we suggest that the negative impacts from these remedies will do more harm than good to our economy and national security than they will provide benefits to the domestic metals producing industries.
We have provided similar comments to Commerce as part of the public comment process, and met with Secretary Ross on July 11, 2017. As a follow-up to that meeting, we asked in writing that Commerce exclude from its 232 recommendations the wire rod used to make fasteners. Increased domestic prices of wire rod that will inevitably occur as a result of any 232 action on our primary steel and aluminum inputs could make the fastener industry globally uncompetitive. The fastener industry is a vital part of the manufacturing capacity needed for national security. As explained below, fasteners are integral to most defense products, including ships, aircraft, weapons and transportation equipment. In recognition of the unique contributions of fasteners to defense products, Department of Defense procurement rules regarding domestic purchases of specialty metals contain specific provisions covering fasteners. Our most sophisticated weapons systems, such as the “stealth” aircraft, utilize specially designed fasteners incorporated into the design as part of the ”stealth” characteristics of the aircraft, and controlled under the export controls regulations. But fastener manufacturers must have viable commercial businesses to be able to serve the Department of Defense. IFI also signed two multi-association letters to you representing the concerns of steel and aluminum consuming industries dated September 7, 2017 and February 12, 2018. However, in light of Commerce’s recommendations released on February 16, 2018, we felt it critical to again communicate our concerns. If broad actions such as those Commerce recommends are undertaken, countries will simply shift production to downstream products such as fasteners, which will be imported with no restrictions. If you must take action under 232, we again request that all wire rod be excluded from these actions, and that Canada and Mexico be exempted.
We urge you to carefully consider our comments below regarding the negative effect these recommendations will have on the fastener industry and national security.
Background on the Fastener Industry
IFI represents approximately 85% of fastener production capacity in North America, and there are few, if any, products used in the pursuit of national security that do not contain fasteners. In 2015, the U.S. fastener industry accounted for $13.4 billion (of a $69.6 billion global market), and is projected to grow +2.6% per year to roughly $15 billion by 2020. In the U.S., the fastener industry employs approximately 42,000 people at about 850 different manufacturing facilities. Individual companies range in size from around $10 million in sales to several companies with more than $1 billion in sales. Many of these companies are family-owned, small to mid-sized businesses. The industry runs the gamut from basic metalworking manufacturing to highly automated facilities producing products with complex designs and engineering. Many fasteners are proprietary designs covered by one or more patents.
The fastener industry is critical to all segments of our manufacturing industrial base, including the defense industry. Not a single military or commercial aircraft or their power plants can be assembled without geometrically sophisticated fastener components. In the aerospace market, U.S. fasteners are the world standard: it is estimated that over 92% of aerospace fasteners worldwide are produced by IFI member companies. All automotive vehicles require many fasteners in their powertrain, structural assembly, steering, braking and control mechanisms, including electronics. Bridges, buildings, appliances, heavy trucks, off-road vehicles, consumer and military electronics, power generation, electrical grid, water and sewer infrastructure, oil and gas exploration and production, mining, rail, shipbuilding, medical products or almost any other segment you can name – all use fasteners and lots of them.
IFI’s Concerns with Commerce’s Recommendations from the 232 Investigations on Steel and Aluminum
Fastener manufacturing is a major consumer of metals, including steel and aluminum. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel and aluminum to remain globally competitive. IFI wholeheartedly supports our steel and aluminum supplier members and needs them to remain healthy. We also support addressing the overcapacity issues in China through negotiations with China.
Ideally, fastener manufacturers purchase their raw materials as close to the fastener manufacturing operation as possible, because metals are heavy, bulky and expensive to ship long distances. That requires a healthy, competitive domestic metal-producing industry, able to provide the necessary raw materials at globally competitive prices. However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of metals needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet or flat products.) Even if the metals industry was at 80 percent capacity as recommended by Commerce, they would not be able to, or would choose not to serve 100 percent of the U.S. market. They would likely elect to eliminate, due to this ruling, some smaller volume items at a future date (beyond the appeal date) thereby forcing parts like fasteners to be made in other countries.
Trade policies and global economic conditions over the past several decades have produced repeated “boom and bust” scenarios for U.S. metals producers. Developing countries such as China, in an effort to expand their manufacturing economies through exports and with heavy government subsidization, have dramatically increased their metals production capacities, particularly in the steel industry. This excess capacity has in turn led to increased shipments of metals from abroad, which understandably causes U.S. metals producers to seek relief under U.S. trade remedy laws. Unfortunately, this often leads to the foreign country turning to exports of downstream products like fasteners.
The fastener industry has experienced this scenario many times, where efforts to protect a basic raw material segment of the economy create unintended consequences throughout the rest of the economy. The most recent example occurred in 2002, when President Bush, at the urging of the U.S. steel industry concerned about a surge of imports, imposed 30% tariffs on nearly all imported steel under a Global Safeguard action. The impact on steel-consuming industries was immediate and devastating. The evidence of harm to the broad economy grew quickly, leading President Bush to terminate the Global Safeguard order after only 18 months instead of the full three years, but by then 1.3 million manufacturing jobs in steel-consuming and related industries had been lost.
The fastener industry not only understands the need to ensure that the U.S. has the necessary industrial capacity to provide for our national defense needs, we are a vital part of that very capacity. To be frank, steel and aluminum are commodities until somebody makes them into a part/end item. We are concerned that the proposed remedies under the 232 investigations do not give proper consideration to the importance of downstream industries to that industrial capacity. As noted above, fasteners are integral to most defense products, including ships, aircraft, weapons and transportation equipment.
Any action taken under these 232 investigations to help the domestic steel and aluminum industries must by definition create pricing power for those industries. However, the remedies proposed by Commerce will almost certainly cause higher domestic and global prices for the consumers of steel and aluminum, including fastener manufacturers. In addition, countries will merely shift production from steel and aluminum to downstream products such as fasteners, which will threaten the health of the U.S. fastener industry and thereby harm national security.
On behalf of the U.S. fastener industry, IFI urges you to carefully consider all impacts of any potential actions taken pursuant to these investigations, and to avoid any actions that would harm the competitive position of downstream industries such as fastener manufacturing.
Country Exemptions and Individual Company Exclusion Requests
With regard to Commerce’s comments that you could exclude certain countries from any tariff or quota actions, we strongly urge that you exclude Canada and Mexico if not all NATO allies if you must impose such actions.
Commerce also outlined a process that companies can use to receive an exclusion from the selected actions but the process is based on domestic capacity, not actual available supply. This means that a metals producer only has to claim it can make a product with no guarantee that it will ever be made. A manufacturer that needs steel or aluminum to make its product needs it available in the U.S. marketplace now to meet customer demands.
In conclusion, broad trade remedies such as those proposed that affect all steel and aluminum may produce temporary relief for a small number of metals producers, but they are blunt instruments that will have unintended negative consequences on steel and aluminum consumers necessary to national security. IFI urges you to carefully consider the global nature of manufacturing supply chains and the downstream impacts of Commerce’s recommendations on steel and aluminum consuming industries like the U.S. fastener industry.
Thank you for your consideration.
Kenneth J. McCreight
INDUSTRIAL FASTENERS INSTITUTE
6363 Oak Tree Boulevard • Independence, OH 44131
Phone 216/241-1482 • Fax 216/241-5901 http://www.indfast.org