Menu
Libération
ECONOMY

Feeling Trump’s Tariffs, at Home in U.S.

New York Times Weeklydossier
A Pennsylvania manufacturer that relies on Chinese steel pipe has few alternative sources — and now its Chinese rival may gain an advantage.
Steel tariffs will cost CP Industries half a million dollars over six months alone. Frank Derosky, a plant worker. (Ross Mantle)
par Eduardo Porter
publié le 24 avril 2018 à 14h52
CP Industries just got an expensive lesson in the unintended consequences of protectionism. 

Based in McKeesport, Pennsylvania, the company makes seamless vessels to store gases at high pressure — steel cylinders of up to six tons that it sells to the likes of the United States Navy and NASA, the space agency. It has received the first bill from the 25 percent tariff that President Donald J. Trump placed on steel from China and a few other countries: $178,703.09 assessed on a steel-pipe shipment at the Port of Philadelphia.

That’s equivalent to about two weeks’ payroll. Tariffs on steel pipe that the company has ordered from China will add more than half a million dollars to raw-material costs over six months alone.

«How long can we last?» mused Michael Larsen, the company’s chief executive. «I don’t know. We could go down relatively fast.»

The tariff will add about 10 percent to the cost of CP Industries’ cylinders, which can sell for up to $35,000. And foreign rivals are already swooping in to lure away some of the company’s biggest clients. «We haven’t lost a big one yet, but the discussion over who is going to pay for the tariffs has started,» Mr. Larsen said.

What most bothers him is that he will probably end up losing business to the company’s main rival in China, Enric Gas Equipment Company of Shijiazhuang, which also makes jumbo vessels. Noting that Enric’s goods are imported under a classification not subject to the tariff, a CP Industries news release added, «It is impossible for CPI to compete with its Chinese competitor on this basis.»

This is what economists mean when they warn about the costs of protectionism. A tariff to protect one industry amounts to a tax on all of its customers. The steel tariffs tax the nation’s more high-tech manufacturing — carmakers, aerospace companies, makers of vessels to store hydrogen for use in fuel cells — to pay for protection for an aging industry that makes a raw material.

Mr. Larsen is sympathetic to the plight of American steel companies. Though it is owned today by Everest Kanto Cylinder based in Mumbai, India, CP Industries emerged as an independent company in a 1989 spinoff from U.S. Steel. Still, it makes little sense to force the company to obtain its steel domestically. No company in the United States produces pipes big enough to make its trademark six-ton containers.

The company estimated that it could get only a fifth of the steel pipe it needed domestically. Domestic pipe is, moreover, delivered in random lengths and requires additional milling, cutting and testing, raising processing costs by about 16 percent. And Chinese pipes are much cheaper: Pipes from China delivered in Philadelphia cost $1,680 per metric ton, while U.S. Steel is charging $2,728 per metric ton at its works in Lorain, Ohio. A 25 percent tariff will not close the gap.

One option is German steel. But it will take time to shift suppliers. And German steel will be more expensive.

And there is lobbying. CP Industries is working to get Pennsylvania’s congressional delegation to support a waiver. It could also move the manufacturing process overseas to avoid the steel tariffs.

«We have a whole list of ideas that we could execute,» Mr. Larsen said. «But nothing we do will be more efficient than what we are doing now. And it will mean less value added in the United States.»

Mr. Larsen is not, by the way, an evangelist for free trade at all costs. Six years ago, when he was at Taylor-Wharton International, a manufacturer of smaller vessels for high-pressure gas, he teamed up with Norris Cylinder to bring an antidumping case against Chinese rivals and won. The government imposed an antidumping duty on Chinese imports to level the playing field.

He would like this approach used against his new Chinese competitors. But Mr. Trump nipped the strategy in the bud: Dumping — selling below cost to drive rivals out of business and gain market share — is not necessary when you are suddenly granted a 10 percent cost advantage. That’s roughly the kind of edge that the steel tariffs gave the makers of high-pressure gas vessels in China.

«As it stands today,» Mr. Larsen lamented, «they cannot be overcome.»

One manufacturer worries, ‘How long can we last?’