Wednesday, September 4, 2013

Fair Trade - What’s at stake?

AEC Past Chairman Duncan Crowdis
In the last two blogs, we have talked about what it takes to be successful in a fair trade case such as the one the extrusion industry brought before the U.S. government. The process is long and arduous. It takes a focused commitment from the entire industry. And it takes money. On top of that, the drive must be maintained for the long run. This is not a sprint; it is a marathon.

So, is it worth it? What’s at stake?

As we mentioned in last week’s blog, the Chinese will NOT give up. They have extremely strong strategic, economic and political reasons to vigorously continue to fight this battle. The Chinese extrusion industry has built a capacity that far exceeds their current and future domestic need and, in fact, could supply a good part of the global requirement. Their desperate need to create employment significantly outweighs any supply/demand rational for this build-up in capacity.

Once you buy the argument that the Chinese extrusion industry will do everything in their power (legal or otherwise) to penetrate markets outside China to the extent possible, with the U.S. being the largest and most attractive target, it’s simply a question of – is it worth the fight to defend our business? So let’s take a look at what is at stake.

Our industry is incredibly diverse. It is one of our greatest strengths. We have operations in more than 40 states with over 300 presses that have a combined capacity of more than 4.5 billion pounds annually.

Here are some statistics that, while not backed up by a complex industry-wide survey (only governments can afford to do this), the data has been pulled together by a number of us that have been in the industry a long time and undoubtedly represent several hundred years of experience.

How many people do we impact?
  • In total our industry directly employs more than 20,000 Americans
  • When taking into consideration the supplier base, this number likely doubles to more than 40,000 employees
  • These 40,000 employees support over 100,000 children, spouses and aging parents.
The bottom line: there are more than 150,000 real people in the United States that count on our industry to feed them, clothe them, send them to school and support them in many, many other ways. They are counting on us; counting on you! Is that not enough reason to fight for what is right?

If not, let’s look at a high-level view of the financial side of our industry:
  • The domestic industry in the U.S. is currently operating at about 3.5 billion pounds per year with an estimated total  annual revenue of close to $8 billion
  • In 2009/2010, prior to the Department of Commerce applying the preliminary duties, imports from China reached a running rate of close to 20% of the total U.S. market, which would translate into an annualized reduction in domestic production of about 700,000 lb. today.
    • This level of production represents approximately 45 full presses and revenues of about $1.5 billion
  • And, unless a supplier to this industry has a business model that can easily shift their marketing efforts and production to China, the impact would be just as dramatic. Consider these products that are purchased by our industry:
    • Billet – Billet producers would see a reduction in domestic billet demand of about 900,000 lb. or $1 billion in revenue
    • Paint – assuming 15% of the domestic extrusion production is painted, paint suppliers would experience a reduction in revenue of over $25 million
    • Anodizing Chemicals – based on similar assumptions, this industry could anticipate a reduction in revenue of about $25 million
    • Dies –  Die makers would see a reduction of about 40,000 dies per year or about $40 million of revenue
    • And then there are all of the other supplies (packaging, maintenance, etc.)
And all of this assumes that the Chinese were not interested in any more than a 20% market share. This has not been the experience in other markets they have targeted (a subject of a future blog) and it would be a dangerous assumption for us in the U.S. to make.

While I would argue that these numbers are extremely conservative and that, in fact, our industry as we know it is completely at risk without concerted and industry-wide intervention, if anyone believes that these numbers seem exaggerated, divide them in half. The logic to fight is, quite frankly, no less compelling.

So, whether a player in our industry is driven by a sense of responsibility to 40,000 employees and their families or simply driven by a desire to have a financially strong and sustainable business, THE STAKES ARE EXTREMELY HIGH  and worth the fight.      

If you feel as passionate as we do and want to do something more than be an “interested by-stander”, contact the AEC to find out how you can help to control YOUR future.

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This post was written by AEC Past Chairman Duncan Crowdis

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