Trade, China, and steel
The Chicago Tribune has two articles in its business section on trade with China — both of which show that all is not what it seems when you analyze a bilateral economic relationship between two large countries. The first story by Ameet Sachdev looks at the decision by Nucor to barnstorm in favor of the ...
The Chicago Tribune has two articles in its business section on trade with China -- both of which show that all is not what it seems when you analyze a bilateral economic relationship between two large countries. The first story by Ameet Sachdev looks at the decision by Nucor to barnstorm in favor of the administration "getting tough" with China:
The Chicago Tribune has two articles in its business section on trade with China — both of which show that all is not what it seems when you analyze a bilateral economic relationship between two large countries. The first story by Ameet Sachdev looks at the decision by Nucor to barnstorm in favor of the administration “getting tough” with China:
Under a big white tent adorned with American flags on the grounds of a steel mill, a school choir sang patriotic songs and a dinner of bratwurst and potato salad was laid out for hundreds. But first, speeches about the economic threat from China. Mixing an all-American theme with an ominous message, the chief executive of North Carolina-based Nucor Corp. came to the company’s plant in Illinois as part of an unusual corporate barnstorming campaign designed to keep everyone focused on what Nucor sees as unfair competition. “All too often jobs are being sent overseas because foreign competitors refuse to obey the law,” said Dan DiMicco, a huge American flag draped behind him. “Too few people are saying anything about it, let alone trying to change it.” While DiMicco rarely mentioned China in his speech, he made it clear that he was referring to China and how it was looking to gobble up his company’s jobs…. Manufacturers like Nucor continue to lobby politicians intensely on Capitol Hill about how China’s currency controls and state-run companies give it an unfair advantage in global trade. Nucor’s grass-roots campaign in small towns like Bourbonnais is striking because of the commitment DiMicco has made to getting his message out. He has held seven such rallies in the past year, crisscrossing the country to visit towns where the company has steel operations, such as Crawfordsville, Ind., Berkeley, S.C., and Jewett, Texas.
Of course, as the story goes on, things get a bit more complicated:
Once a maker of nuclear testing equipment, Nucor has spent more than $1.1 billion since 2001 to purchase 10 steel plants, including the one in Bourbonnais, from troubled sellers. Thanks to surging steel prices last year the company’s profits soared to $1.1 billion, from $62.8 million in 2003. One of the reasons for high steel prices has been the unprecedented demand from China, though, a fact that was not mentioned at the rally…. [E]conomists say Nucor’s statistics don’t tell the full story. “I would say most of the people who have studied this conclude that China is responsible for a very small portion of those job losses,” said Nicholas Lardy, a senior fellow at the Institute for International Economics in Washington, D.C. “The bigger problem we have is that exports to Europe have fallen,” he said.
In a sidebar, Michael Oneal looks at how U.S. firms across the board will react to a further devaluation of the yuan. Turns out there won’t be much of areaction:
Jean Blackwell, chief financial officer for Cummins Inc., of Columbus, Ind., said she’s all for free trade and a free currency. But she also said it makes little difference in the company’s decision-making. Most of the engines and generators Cummins builds in China are sold in China, taking advantage of the country’s economic growth. There is no currency effect. Where currency does come into play is in the buying of parts. Cummins sources as many components as possible in China and the price of those parts went up along with the currency. On the other hand, demand for Cummins engines in China has been so robust that the company has had to bring in engines made in the U.S. and elsewhere to meet orders. Those products are now priced a little bit more competitively…. Philip Franklin, the chief financial officer at Littelfuse Inc. in Des Plaines, said it is possible a strong enough yuan could make heavy manufacturers selling goods in the U.S. reconsider moving production to China to chase low costs. But for Littelfuse that wouldn’t make sense. The reason Franklin’s company has two plants in China is that all of its customers–electronics makers–manufacture their products there. If it looked like the yuan was having a negative effect on the economics at its China plants, Littelfuse could shift production to an even lower-cost plant in the Philippines. It wouldn’t force production back to the U.S. For Ralph Faison at Andrew Corp. in suburban Orland Park, the biggest concern these days is the soaring price of the copper Andrew uses in its telecom cable products. A 100 percent spike in the price of copper over the past couple of years–partially due to soaring demand in growing markets like China–caught Andrew off guard in the most recent quarter, depressing earnings and hammering its stock price. When it comes to China, however, Andrew is as bullish as it’s ever been. Andrew has three design centers in China and three manufacturing facilities. About a third of its total employment is in the People’s Republic. Andrew sells in China a lot of what it makes there, “so we have a natural currency hedge,” Faison said.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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