Three US Tire-Chord Makers Threaten to Close Doors Due to Trump Tariffs

Three tire-cord manufacturers got a push-back in their effort to win trade exclusions from Trump. They threaten closure.

Arkansas Online reports Tire-cord makers with operations in Arkansas threaten closures after bid for tariff exclusion contested.

Bekaert Corp., Kiswire America and Tokusen USA jointly requested blanket exclusion from what they described as "grade 1078 and above wire rod for tire cord" that they import, arguing that the quality of wire rod they require is unavailable from U.S.-based steel producers.

If they can't get access to the imported steel they need, the companies say they will close their operations. Together, they employ 1,500 people at four plants in Arkansas.

"Stated simply, U.S. wire rod producers are incapable of producing grade 1078 and above wire rod to produce tire cord because that grade of wire rod must be produced in basic oxygen furnaces to achieve the strength, cleanliness and other properties to draw the wire rod to tire cord dimensions," according to the companies' legal representative, the Washington, D.C., law firm of Morris, Manning & Martin LLP.

But the Wire Rod Coalition, a trade organization of U.S. producers of carbon and alloy steel wire rod, disagrees and has filed an objection to the request for a blanket exclusion.

Coalition members say they can and do make the same quality steel tire cord without using the basic oxygen, or blast, furnaces that Bekaert, Kiswire and Tokusen say their steel requires. "Grade 1078 and above tire cord wire rod can be and is produced using electric arc furnace steel," the coalition's legal counsel, Kelley Drye & Warren, said in a formal objection.

Image from Rubber and Plastic News.

Trade Foolishness

People buy into that notion because it is repeated often enough.

But whether or not such steel is available in the US, those manufacturers will face much higher costs.

The same applies to every company in the US that uses steel or aluminum.

Job Reality

Employment is down 57.7% while production is up 7.7%. Those steel jobs are lost and gone forever. It's called productivity.

Jobs at Risk

There are about 6.5 million workers at manufacturers that use a lot of steel, but only 140,000 steelworkers, says Moody’s.

To protect 140,000 jobs Trump is willing to put 6.5 million workers at risk.

How stupid is that?

It's so stupid US Steelworkers do not even support Trump's latest play with Mexico and Canada.

Spotlight On Cars

Trade War Math

Trump Madness in Numbers

  • 6.5 million US employees benefit from lower prices.
  • Only 140,000 employees benefit from tariffs.
  • 325 million US consumers benefit from lower prices.
  • Cheap steel is to the benefit of US exporters if the EU applies tariffs and the US doesn't

If, as claimed, China is dumping steel, it is to our benefit at China's expense!

Only economic fools cheer Trump's trade madness.

Addendum

The above image is from Steel Industry Productivity with thanks to reader "Thimk" (not a typo).

A Bloomberg News story from June 20, 2017 offered a fascinating look at how a modern plant can now produce high-quality steel with few workers.

The plant in Donawitz, a two-hour drive from Vienna, needs all of 14 employees to make 500,000 tons of steel wire a year. The same mill in the 1960s would have needed as many as 1,000 workers to produce a similar amount albeit of lesser quality.

“We have to forget steel as a core employer,” Voestalpine CEO Wolfgang Eder told Bloomberg.

The policy point is that Mr. Trump’s tariffs are trying to revive a world of steel production that no longer exists. He is taxing steel-consuming industries that employ 6.5 million and have the potential to grow more jobs to help a declining industry that employs only 140,000.

Related Articles

  1. How to Not Sell Cars: More Steel Tariffs Coming Up
  2. National Security or Insecurity? Trump Tariffs Will Cost 195K to 624K Jobs
  3. Foolishness of Trump's Steel Tariffs in One Image
  4. Pandora's Box: Another Look at Steel Tariffs
  5. NAFTA is Dead: Trump Seeks Separate Agreements With Mexico and Canada

By the way, this setup is eerily similar to events leading up to the start of WWI. For discussion, please see Europe's Nationalism and Trump's Trade Policies Look Like WWI Prelude.

Mike "Mish" Shedlock

Comments (29)
No. 1-29
MarkBC
MarkBC

What if one country is temporarily dumping some commodity just to put the target country's companies out of business, then will raise the prices enough to make up the original losses and then some? Sure the source country is losing initially but not in the long run.

thimk
thimk

Good call - the F.R.E.D chart says it all . here is additional supporting documentation. We switched to high tech "mini mills" that use scrap. The question arises, though, do we make enough domestic steel to support a large war effort similar to WWII. We are down 1/3 production of 1973 peak of 137 million metric tons to 87 million tons. But current highly productive steel making is not a big job creator.

Carlos_
Carlos_

Mish said: " People buy into that notion because it is repeated often enough." That is a feature not a bug. Guess who used that a lot? The author of these: "If you tell a big enough lie and tell it frequently enough, it will be believed." "Make the lie big, make it simple, keep saying it, and eventually they will believe it."

hmk
hmk

At least this may cause the inflation that the fed wants so bad. I have spoken with an owner of a tier 1 automotive supplier and his distaste for China is off the charts. I cant remember all the trade issues he has had with the Chinese bottom line is they are horrible to deal with. He had to build a plant in China at the demand of of one of the big three, that replaced a profitable plant elsewhere in Asia and stated it was never profitable. Between govt coruuption, dishonesty and labor corruption making the parts was a nightmare. He finally closed the plant after the agreement terminated and left. They ship inferior parts to the US deliberatly made against specifications and when their parts fail there is no recourse . You have to sue in China and even if you are fortunate enough to get a favaorable verdict you won't collect. Trade wars are not a good idea but when the Chinese engage in gangster business practices I don't see why it isn't a good idea for the US to attempt to get better trade deals. I am hoping Trumps threats are just a bargaining tactic and don't come to fruition but will secure better trade arrangement around the world,

Tengen
Tengen

This is the problem with Trump's 9D chess, eventually everyone learns to play. The blueprint is the ZTE method of threatening to go nuclear and eliminate all jobs, ruining the optics of the whole endeavor. Every company should threaten this in the future.

Will they be telling the truth, that they're forced to permanently close doors? Who knows, it's 9D chess baby!

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Has that ever been successfully pulled off in the history of mankind? No!

Escierto
Escierto

The laws of physics and psychology do not apply to Trump and his negotiating tactics. He is operating in other dimensions beyond the realm of mere mortals. He is one of the characters from an Avengers movie with superpowers never dreamed of in a president. So they say.

hmk
hmk

Understood but the idea is the same if we are getting crappy trade terms with whoever, it doesn't hurt to try and renegotiate better terms. Maybe the bluster and threats work and maybe they don't but it may be worth trying. Hopefully it doesn't backfire. An interesting documentary on free trade is available online by Milton Friedman. He basically repeats what Mish states ie accept incoming trade no matter what. But what works in theory doens't always work in practice. So if the US is consistently on the short end of trade deals it is worth trying to fix. I don't know the intricasies of these disagreement but hopefully he is arguing valid points.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Addendum added - Thanks to reader "Thimk"

Carl_R
Carl_R

This is perfectly normal, and an expected consequence. If you put a tariff on Steel and Aluminum, you kill off any manufacturers who use steel and aluminum as an input. There is simply no way for an American manufacturer to compete with foreign products anymore. So, we lose all the tire-chord makers, and many, many other similar manufacturers who use steel or aluminum? It's OK, because we do it in the name of economic ignorance. The same thing happened in 2002, and it's important to repeat the disasters of the past occasionally so that we don't forget them. (sarcasm intended)

SleemoG
SleemoG

Now we know how Trump is paying for the tax cuts.

BobWilson
BobWilson

"Plant... needs all of 14 employees to make 500,000 tons of steel wire a year. The same mill in the 1960s would have needed as many as 1,000 workers..."

Mish - There is something wrong here. The graph shows an 85% reduction in man hours per ton since 1960. If that results in 14 employees, then the original number in 1960 should have been 100, not 1000. Either that, or the 14 current staff should be 140.

Brother
Brother

It sounds very efficient with so few employees needing to make tire cord all those charts proving that. Who needs China? The whining converters that don't want change.

Sechel
Sechel

crony capitalism. u.s producers attempting to wall off foreign supplies so they can charge a higher price. pure and simple. why is a domestic steel supply more ethical than a foreign one? it isn't. doubt the tire companies really care if they are buying domestic or foreign and that it all boils down to price and specs.

Sechel
Sechel

trump is attempting managed trade and directing where and how purchase and sales decisions get done and made. it didn't work in the ussr it won't work here. the end result is inevitable. the company closes and we buy the tires from abroad

Jojo
Jojo

"For every action, there is an equal and opposite reaction."

It's going to take years to recover the economy and get everything back in order once we get rid of Trump.

Vitos
Vitos

"Grade 1078 and above tire cord wire rod can be and is produced using electric arc furnace steel," the coalition's legal counsel, Kelley Drye & Warren, said in a formal objection."

MorrisWR
MorrisWR

Our economy has not been in order for decades. Trump will just accelerate the downturn.

Misc
Misc

The free traders are forgetting the offset. They say that the price increase due to tariffs affects more people than the people who get the benefit. They do not take into account the increase in taxes which decreases the deficit which is a plus for all Americans.

Realist
Realist

It is difficult to know how to respond to the many comments. It’s like watching a magician perform. It’s all about misdirection. Everyone is looking at the same thing, but not looking where they should be. The original story is about the impact of tariffs, and gives an example of how they actually hurt one business (manufacturing) to supposedly help another (steel). Trump supporters actually think that he is doing a good thing with Tariffs, while everyone else realizes that this will hurt far more US businesses and workers than it will help. Trump wants tariffs because he believes the US has lost jobs because of bad trade deals. As Mish always points out, job loss has been the result of automation, which has been changing the job market for hundreds of years. The effect of trade, is a rounding error by comparison. Trump is fighting the wrong war, and in the process he is alienating America’s friends and allies, and he will hurt far more Americans than he will help.

In addition, there are currently more available job openings in the US, than there are unemployed people to fill them. As I always say, the US does not have a trade problem, it has a skills problem. There are simply too many Joe six-packs who lack the education and skills needed to fill those empty jobs. If Trump wants to have Joe gainfully employed, he needs to get Joe the training that he/she needs in order to be a productive worker. (Side note: lack of skills among marginal workers is the main reason for low productivity growth over the last decade, in spite of continual improvements in technology.) Some of the comments are about how poorly the US economy is performing, as it continues its slow 2% growth. There are many reasons why the US can’t achieve higher growth rates (including personal, corporate and government debt levels), but another impediment is a lack of skilled workers to fill those empty jobs. Many businesses in the US would love to expand to meet demand, but can’t, because they can’t find the skilled workers needed. So even if Trump somehow magically creates millions of new jobs, who is going to fill them? I can guarantee that any new jobs created are not going to be filled by Joe. The entire trade and tariff thing is all a waste of time, and I suspect that the only thing that Trump will create with it is harmful to the US.

RonJ
RonJ

This is nothing compared to 60,000 American factories that have already closed, destroying countless American jobs, in large part due to China's granted WTO status. Which has apparently been abused according to an article i read recently.

stillCJ
stillCJ

Editor

At the G6+1 today Trump surprised the others by suggesting they all get rid of all tariffs and price supports. What do you think of that Mish? Personally, I love The Donald's negotiating style.

hmk
hmk
Realist
Realist said: It is difficult to know how to respond to the many comments. It’s like watching a magician perform. It’s all about misdirection. Everyone is looking at the same thing, but not looking where they should be. The original story is about the impact of tariffs, and gives an example of how they actually hurt one business (manufacturing) to supposedly help another (steel). Trump supporters actually think that he is doing a good thing with Tariffs, while everyone else realizes that this will hurt far more US businesses and workers than it will help. Trump wants tariffs because he believes the US has lost jobs because of bad trade deals. As Mish always points out, job loss has been the result of automation, which has been changing the job market for hundreds of years. The effect of trade, is a rounding error by comparison. Trump is fighting the wrong war, and in the process he is alienating America’s friends and allies, and he will hurt far more Americans than he will help. In addition, there are currently more available job openings in the US, than there are unemployed people to fill them. As I always say, the US does not have a trade problem, it has a skills problem. There are simply too many Joe six-packs who lack the education and skills needed to fill those empty jobs. If Trump wants to have Joe gainfully employed, he needs to get Joe the training that he/she needs in order to be a productive worker. (Side note: lack of skills among marginal workers is the main reason for low productivity growth over the last decade, in spite of continual improvements in technology.) Some of the comments are about how poorly the US economy is performing, as it continues its slow 2% growth. There are many reasons why the US can’t achieve higher growth rates (including personal, corporate and government debt levels), but another impediment is a lack of skilled workers to fill those empty jobs. Many businesses in the US would love to expand to meet demand, but can’t, because they can’t find the skilled workers needed. So even if Trump somehow magically creates millions of new jobs, who is going to fill them? I can guarantee that any new jobs created are not going to be filled by Joe. The entire trade and tariff thing is all a waste of time, and I suspect that the only thing that Trump will create with it is harmful to the US.

I wonder why more emphasis on getting skilled trade training isn't be pushed. In other countries like Germany they have a data bank on what skills are needed and in high school students are separated into a trades like educational track and the others into a college bound track. If someone wants to go to college instead of a skilled trade they still can.

Realist
Realist

RonJ. It’s not China. It’s not trade. It’s automation.

Thalamus
Thalamus

Automation will continue to decimate employment numbers worldwide. Resource extraction from other countries is favorable to the US protecting our nations respurces. That being the case, we must demand balanced trade with US trade partners and not allow worldwide conglomerates to control congress; which looks the other way on trade deals that benefit their bottom line at the expense of the US worker. This is the source of the problem—globalist corporations. Sure things make sense from the globalist perspective but their gain is our children’s’ future debt that lowers their standard of living to the point of eventual impoverishment. Creating perpetual trade deficits destroys our nations future slowly but surely. Any good leader would seek balanced trade but maximize foreign resource extraction. This maximizes our countries net worth and per capita value.

sachvik
sachvik

Realist - I find your views on this subject very refreshing. Completely agree when you say that tariffs will not work for Trump as they address the jobs of the past; if outsourcing does not get them, automation will! Question: with the exorbitant cost of upskilling (education), how is the USA to continue developing? Here's an article about a community trying to make the gig economy (the current employment fad in the tech industry) work for them and failing: https://www.theatlantic.com/business/archive/2018/06/gig-economy-inequality/560942/ The problem for me continues to be that technology is taking away all these old jobs and is not replacing them fast enough any more. Irrespective of people's assertions - technology takes away jobs and replaces them with "the same number" of higher end jobs, I find that hard to believe. My observation in the business world is that jobs get automated, and convert very quickly into 2 categories:

  1. Very few high-end, well-paying jobs, and
  2. The vast majority, of low-level, irregular (think gigs, 0-hour contracts) low-paying jobs. It is extremely difficult to break out from the latter category to the former, partly because people in the latter category cannot invest the time and money to learn the skills for the former, and partly because of the increased competition for such jobs...