Domestic and Off-Shore Manufacturers Compete
for U.S. Business
by Samantha Carpenter
You may be wondering what possessed
SHELTER to publish an article about imports, since it is a controversial issue.
It’s simple. The imports topic is an extremely significant issue that has affected nearly every U.S. industry from textiles to glass to furniture to building products. You can not only read about it here, but also read and learn more from just about every news agency. It was only natural for SHELTER to explain this controversial issue, and keep readers abreast of how imports affect the building products industry.
Arguments Against Importing Products
There are several reasons U.S. manufacturers are upset about foreign manufacturers exporting products to the United States.
One reason is because the imports coming into this country are generally cheaper than the domestic products they are selling. (Manufacturers do not tend to complain when imports are being sold for more money than their products.)
The sale of cheaper products are directly related to another reason why manufacturers are upset about imports: manufacturers feel that foreign manufacturers are taking jobs away from the U.S. job market. Plus, U.S.
manufacturers argue that foreign companies are able to pay their employees much less, which makes it possible for them to to sell their products in the United States for much less.
Associated Press labor writer Leigh Strope wrote in her recent article, “Unemployment Rate Falls; Few Jobs Added,” that “the nation’s factories have been on life support, and the sector shed about a half million jobs in 2003.”
In comparison, a recent article in the Detroit Free Press said that manufacturing surged and the job market improved in December 2003.
“The employment index increased to 55.5, the highest since December 1999, from 51 and raised expectations that the United States might snap a 40-month losing streak in manufacturing jobs,” said the article.
The loss of manufacturing jobs to foreign labor can also be attributed to technological advances.
In a recent article in SHELTER’s sister publication, Door & Window Maker, written by John Matukaitis, marketing director for Delchem Inc. of Wilmington, Del., he said, “U.S. technological innovation has played a role in decreasing the competitive value of skilled U.S. workers (i.e., better equipment/machinery needing fewer people to run it).”
“Innovation and the ever-increasing flow of investment dollars (FDI) into China have also played a part. China is not a technologically-advanced region, yet U.S. companies are building new plants in China that are technologically-advanced,” said Matukaitis. “The Chinese workforce is not nearly as skilled as the U.S. workforce. However, thanks to technology innovation, China doesn’t need to have as skilled a workforce to compete, only a less costly one.”
Manufacturers are also upset about because they feel there is not an equal exchange of products between countries. (See page 32 for related statistics on U.S. wood imports.) A good example of this is the trade fight in which the United States and China are engaged.
The U.S. and China Trade Dispute
At the end of 2003, the Bush administration accused China of a host of trade violations. The administration created a new Unfair Trade Practices Team inside the Commerce Department to address trade barriers that are costing U.S. jobs, according to a Seattle Times article.
“All the moves are part of an administration effort to show concern for the steady erosion in the manufacturing sector of the economy, which [had as of September 2003] suffered 37 consecutive months of job losses starting before the recession began in March 2001 and lagging long after it was officially over in November 2001,” said the article.
According to the article, Commerce Secretary Donald Evans is planning to travel to China to discuss various complaints with the Chinese government.
But obviously, some in China have their own arguments.
According to an article by Taipei Times writer Joyce Huang, 1999 Nobel laureate Robert Mundell said in a speech in September 2003 (organized by the Taiwan Institute of Economic Research in Taipei) that “it is absurd and political for the [United States], Europe and Japan to blame China in chorus for exerting pressure on U.S.
manufacturers, causing unemployment and exporting deflation to the world, as it is a poor country with an annual per capita income of $1,000.”
A Closer Look
To get a better understanding of how U.S. manufacturers have been affected by imports, let’s look at an industry that is closely related to building products: furniture.
ABC News recently reported on the closing of the Hooker Furniture factory in Kernersville, N.C. Like many furniture manufacturers in North America, the Hooker facility was forced to shut down in favor of cheaper off-shore labor.
Hooker’s chief executive officer Paul Toms said in the report that the surge in foreign competition from low-wage nations like China—coupled with a wider downturn in the national economy—threatens to pull the whole furniture industry into a fight for survival.
Stoneville Furniture of Rockingham County, N.C., known for casual dining furniture, filed for Chapter 11 bankruptcy protection last year for the third time in 15 years and Broyhill Furniture let 506 workers go last year in Rutherfordton, N.C.
Statistics show that furniture manufacturing is declining in this country. According to the Richmond, Va.-based investment banking firm Mann, Armistead & Epperson, of all the household furniture sold in the United States in 2002, 39 percent was made offshore, up from 22 percent in 1994, and of the wood furniture, 48 percent was made offshore, up from 26 percent in 1994.
“Say goodbye,” Gary Shoesmith, who teaches economics at Wake Forest University, said of the furniture industry in a News & Observer article. “I think you’d be hard-pressed to find a modern, automated furniture factory that can compete on a worldwide scale.”
“A coalition of 32 furniture makers is trying to persuade federal officials to slow the growth of imports by imposing ‘anti-dumping’ measures against China. The group, the American Furniture Manufacturers Committee for Legal Trade, argues that China-made furniture is being sold in the United States at artificially low prices, a form of dumping that is banned by U.S. trade laws,” said the article.
It’s possible that tariffs could help the furniture industry in the United States. The International Trade Commission has made anti-dumping decisions in the past.
For example, in 2002, the International Trade Commission (ITC) decided to impose tariffs on replacement auto glass windshields from China.
The ITC’s 3-2 decision came after the Commerce Department ruled that seven Chinese companies sold their products to U.S. auto glass distributors at below-market value. The duties ranged from 3 percent to 124 percent, depending on the company.
“The imposition of anti-dumping duties on these imports will serve to restore a competitive market balance in the United States,” said David Sharick, vice president of PPG’a automotive replacement glass division. “[The] decision confirms what we’ve said for more than a year—that unfairly priced replacement windshields from China are causing harm to the U.S. automotive replacement glass windshield industry.”
Not all companies agree with the anti-dumping measures for the automotive replacement glass windshield industry.
Fuyao Glass Industry Group Co. says that it is making strides in its case against the dumping ruling made by the U.S. Department of Commerce (DOC) two years ago. Upon Fuyao’s appeal to the U.S. Court of International Trade in New York, the court has ruled that the DOC should withdraw its dumping charges against Fuyao.
“We believe the truth is on our side, so we spent a lot of time and money to prove it,’’ said Cao Dewang, president of Fuyao.
The DOC had not made a decision, however, at press time. Officials from Greenville Glass, an American subsidiary of Fuyao, said they expect the final decision by the DOC to be several months away.
“It must be noted that the dumping case is still in the appeal process and that no final determinations have been made by the Department of Commerce,” said Bruce Prescher, vice president of sales. “We should have a better understanding of the appeal in about half a year to nine months.”
He added, “In the meantime it is business as usual for Greenville Glass. We are still under dumping penalties and we are still in the appeal process. Hopefully soon we will reach a positive conclusion to this long and arduous lawsuit.”
Imported Building Products
As in the furniture industry, imports have also entered the U.S. building products market in record numbers.
Many foreign manufacturers contacted for this article did not respond or they would not go on record. One foreign-based company that did comment was Arauco Wood Products, with North American headquarters in Atlanta and international headquarters in Santiago, Chile.
Arauco imports a variety of products, such as plywood, mouldings, blocks, blanks, fencing, balusters and more.
Mark Young, lumber sales manager, says a benefit to coming into the U.S. market is that the company is a high-quality, low-cost producer, so customers get a good product for a competitive price.
Young acknowledges that lead times are longer from an off-shore producer, but he said once a company is in the cycle of buying material, it will have material coming all the time.
“With purchasing and planning systems today, everybody is pretty much buying off a computer, it really doesn’t matter if I’m three weeks, three months or even six months out, all I have to do is hit that lead time that I tell [them]. The material is always flowing into my customers,” Young said.
Dealing with Mistakes
What do off-shore manufacturers and suppliers do when there is a mistake?
Young says that his company doesn’t have too many things that get packaged in the wrong container or go to the wrong port.
“You have to have strict quality control within the country itself before it even leaves. That’s the last thing I want to have is material up here that is bare and was supposed to be primed,” he explained.
If the wrong material is shipped, Young says he will pick it up domestically or make arrangements to fix it and make it right by his customer.
Service is Important
Domestic manufacturers agree that service is important.
Pacific MDF Inc. of Rocklin, Calif., manufactures Pac Trim™ pre-primed multi-density fiberboard (MDF) bases, casings, crowns, etc.
Melissa Morinelli, U.S. sales and marketing manager, says Pacific MDF has seen several importers target U.S. markets with promises and price.
“They promise to abate long-distance service issues and turn the customer’s head with price,” said Morinelli.
Contact Lumber of Clackamas, Ore., manufactures cabinet components, door components, door frames, furniture components, mouldings and millwork, veneers, window components and has a variety of custom capabilities. The company doesn’t import any finished product, but they do import blocks and lumber from New Zealand and Chile.
Jim Snodgrass, vice president of export sales for Contact Lumber, says while imports have affected Contact a little differently, they have led to lowered pricing of finished products.
“Radiata [pine from South America or New Zealand] sells for cheaper than ponderosa pine, so overall it’s cut margins for us and for everybody as far as commodity products—mouldings, door frames and door jambs—because the cost is cheaper by importing finished products from South America,” Snod-grass said. “We and everybody else are basically in competition with an off-shore finished product.”
Matt Allen, vice president of Mt. Taylor Millwork of Milan, N.M., a manufacturer of solid lineal pine and oak mouldings (which imports some raw material from foreign countries to stay competitive), says that if the playing field was fair between the United States and other countries, more or less equal, importing would not bother him at all.
“I think it is horribly wrong when other countries export their products into the United States and pay no tariffs and then turn around and charge companies from the United States a tariff when we try to export into their country,” said Allen. “The issue with the difference in expenses starts at the very beginning. Even the stumpage in a foreign country is cheaper, and when they manufacture a product, their rates are much cheaper. We simply can’t compete very well with that.”
Allen added, “There will be people out there that will argue that Chile or China (or one of these other countries), that are decimating the wood-products industry in the United States as we know it, have high employee expenses as well—they are just different than ours. I would offer up as proof that this is not correct, the very fact that they’re able to undercut us by 20 or 25 percent on what they sell their products for after paying overseas freight.”
Focusing on Good Qualities
To stay competitive with imports, domestic manufacturers focus on what they do well.
“We are probably different than most of the millwork companies in that we are extremely diversified as far as the types of products we manufacture. We aren’t just a traditional moulding company. We manufacture a lot of different parts … where we can still use radiata as a substrate, but then we are wrapping with softwood or mostly hardwood veneers to do different profiles,” said Snodgrass. “So instead of selling just a door frame where we have to compete with off-shore door frames, we sell products that we pay to rewrap vinyl or wrap veneers over or we treat. A lot of value-added-type products—I guess that’s where we’ve tried to be different than just a commodity or standard off-shore product.”
Pacific MDF Focuses on its Pac Trim Product.
“For us, emphasis is placed on our Pac Trim advantages. The customer is backed by field representatives and corporate sales/service personnel prepared to give all the support and assistance required to help our customers grow their businesses,” said Morinelli. “We provide them with many marketing tools, and our four North American production facilities allow us to quickly and efficiently meet their inventory needs.”
Mt. Taylor Millwork has added species and products to its product line to stay competitive against importers.
“We are a full-service moulding plant where a customer can order a truckload of mouldings and combine four different species of wood in their order. We not only provide some of the species that these foreign manufacturers are providing but also species most commonly found in the United States. Our company was originally started out as a solid-lineal-pine small mouldings specialist. We now manufacture a variety of species, such as pine, red oak, banak [and] soft maple, and we are looking for others,” Allen said.
Proponents of free trade argue that the importing of products “would create high-paying export-related jobs in the United States, would bring prosperity to developing countries and would spur economic growth and political stability worldwide,” according to TomPaine.com, a online public interest journal.
It’s probably safe to say that the idea of importing isn’t going to go away. It’s also important to note that the United States exports products, including building materials, to other countries.
Craig Larsen, president of the Softwood Export Council of Portland, Ore., says that Canada, Mexico and the United Kingdom are the best markets for U.S.-produced mouldings and millwork products currently, and that U.S. exports rose slightly in 2003 after declining the previous few years.
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