Jackson Free Press

America is a wasteful society. Think of the last time your coffee maker broke. Did you fix it, or toss it and get another one? Chances are, you set it on the side of the road and spent another $30 on a sparkly new brewer with a digital clock on it. It's the American way. We don't fix our toasters anymore. We chuck 'em and get another.

This kind of living is rapidly filling up our landfills, and more and more Americans are moving onto land that they're learning has garbage buried under it.

Nucor Steel, in Flowood, manages to carve out a market amid the waste. The company puts out a half million tons of recycled steel in any given year—while providing jobs for 240 people and generating $200 million annually for the Jackson metropolitan area. Like Greenwood's Viking Range, Nucor has managed to keep its corporate head above water and even make a little money despite international markets hammering American goods like a sledgehammer on a soufflé.

It's that soufflé thing that Nucor CEO head Dan DiMicco was in town speaking about at a recent town hall meeting at the Mississippi Trade Mart.

"Nucor has been a leader in the steel industry by trying to stay small, but the international market has been working against American manufacturing for years, and now I hope people are starting to catch on," DiMicco explained to a crowd of local politicians and business leaders.

Say Yes to Competition

While armies of other manufacturing jobs flee to Asian sweatshops, Charlotte, N.C.-based Nucor has carved out an economic niche making steel from recycled scrap (saving 5,400 BTUs of energy for every pound of steel recycled) and making itself the nation's largest steel producer and the world's biggest steel recycler in the process. Nucor bought the old Birmingham Steel facility on Lakeland Drive in 2002 for $615 million. The company produces reinforcement bars for concrete, as well as a varied assortment of other steel building materials.

In 2005 the national company brought in $12.7 billion.

Nucor breeds success, owners say, by decentralizing its operations—a tiny fraction of their overall work force works in their headquarters—and through careful investments. They have also managed to capitalize on the countless tons of scrap metal the industrial revolution continues to dump into landfills.

Still, the company is facing tremendous obstacles—obstacles that are driving much industry, and many jobs, outside the U.S.

"There's this thing that few American buyers know about. It's called border adjusted value added taxes (VATs)," says Bob Johns, director of Nucor's marketing and government affairs. "It's a tariff, and other countries get to use it. American companies don't, but they do, and it's killing us."

Johns explains that the U.S. is actually the exception to the rule when it comes to border taxes. Most developed nations rely either heavily upon border taxes for their governmental income, or an amalgam of border taxes and income taxes. The U.S., on the other hand, relies almost solely on income taxes as a source of revenue, and Johns says it's giving the competition a very serious advantage.

'What Kind of Sense Does That Make?'

U.S. manufacturing has been suffering for decades, but reached crisis level after foreign competition replaced their tariffs with VATs on U.S. goods. Starting with France and the European Union, much of the foreign competition got the benefit of an average 18 percent tax upon U.S. imports. To further sweeten the deal, foreign governments using VATs also give their manufacturers an 18 percent rebate on all their exports to the U.S.

David Hartman, chairman of the Lone Star Foundation, a Texas-based think-tank concentrated on trade policy, explains in his report "The Case for Border Adjusted Tax Reform" that the transition from U.S. trade surpluses in goods to huge deficits coincides with the adoption of border adjusted VATs by foreign competitors.

Johns wholeheartedly agrees. "The bottom line is there is no taxes paid by a foreign company shipping into the United States and when it arrives here it's competing with a U.S. company that is actually paying an income tax on its own goods," he said. "They face no border taxes coming into the U.S. In essence, we're a tax-free zone to them. We import about $2 trillion worth of goods annually and none of that is taxed.

"What kind of sense does that make?"

A third issue facing Nucor is that the Chinese government owns the Chinese steel industry. In almost every given scenario, private industry gets its butt kicked whenever competing against a government entity with trillions of dollars in investment capital from taxpayers.

Having ownership of both banks and industry gives the Chinese government a devastating advantage. The government frequently provides its own steel producers with cash grants to soften costs for raw materials, provides steel producers with land at a laughable fraction of its market value, and the state-owned banks can loan the Chinese steel industry billions of dollars at the kind of enviable rates for which a U.S. manufacturer would sell his own daughter.

Advantage: China

Having the power of the purse strings, the Chinese government also hands out debt forgiveness with a punch of the "enter" button and frequently ignores business loans, essentially writing off billions of dollars worth of loans to the steel industry.

The pay-off is obvious: China has the world's largest steel industry. In 2005, the country made more steel than the next four largest producers combined, and the years between 2000 to 2005 saw China's steel production increase by more than 170 percent.

"When we bought the Flowood steel mill from Birmingham Steel for about $500 million, we either have to make a cash purchase or somebody's got to have enough faith in us that we can borrow the money, but somehow we've got to pay for it," says Jim Sheble, vice president and general manager of Nucor Steel-Jackson. "I can't imagine what kind of advantage we would have if we didn't have to pay for it."

Still, Nucor is staying alive and doing good business. The argument could even be made that the China advantage isn't exactly killing them. Johns disagrees. Vehemently.

"Don't think the U.S. steel industry isn't suffering," he said. "We were able to buy the plant in Flowood because Birmingham Steel, like about 50 percent of other steel manufacturers, were either in bankruptcy or in some version of it. Look, the growth of steel consumption by consumer goods has basically been to the benefit of foreign goods producers. We've been shipping about the same number of tons give or take, within NAFTA, for the past 10 years. You'd think with GDP growth, population growth, there would be a growth in steel consumption, but a lot of that hasn't happened—not in America."

NAFTA, which was signed by President Bill Clinton and supported by Sens. Trent Lott and Thad Cochran, among others, dropped tariffs between the U.S. and Mexico.
Competition with foreign producers and manufacturers gets extra touchy when the competition can knock off a product that's a fraction of the cost of its U.S. counterpart because of cheaper labor and loose regard for costly environmental violations.

The American Iron and Steel Institute reported in April this year that the U.S. steel industry reduced its energy intensity per ton of steel shipped by 13.2 percent since 2002.

Thinking Green Ain't Cheap

Steve Rowlan, chairman of AISI Committee on Environment, points out that efficiency isn't cheap. "The industry has invested over $60 billion in new technologies to improve energy efficiency and productivity," he said, adding that the achievement translates into a 28 percent improvement in energy intensity since 1990 and a 17 percent reduction in greenhouse gases, surpassing the Kyoto Protocol's 7 percent target by 240 percent.

China, meanwhile, is the home of 16 of the world's 20 most polluted cities, according to the World Bank. China has the world's highest emissions of sulphur dioxide and a quarter of the country suffers crop-killing acid rain.

In 2002, SEPA (State Environmental Protection Administration) found that the air quality in more than half of its cities failed World Health Organization (WHO) standards. The World Bank even concludes that pollution is already costing the powerhouse nation 8 to 12 percent of its $1.4 trillion GDP in damage, including medical bills, crop failure from acid rain, work absenteeism from illness and money wasted on disaster relief from floods and mud slides.

Elizabeth Economy, author of the book "The River Runs Black," explains that the growing prevalence of cancer in Chinese hospitals gives a nasty hint to what the country faces in the near future and wrote that China's environmental problems could eventually "bring the country to its knees."

In the meantime, though, the country's indifference to environmental concerns makes building a widget very cheap, and driving down production costs even further is the meager compensation a Chinese factory worker makes compared to an American.

"Workers in a Chinese factory or Vietnamese factory make nothing compared to us," said Rep. Bennie Thompson in a recent interview. "Sometimes they average just a few dollars a week. That's nothing to us, and it puts the pressure on American companies to drive down their own costs by cutting pay and benefits. In short, it spreads the poverty."

Spreading Wealth, Not Poverty

Nucor, unlike much of its foreign competition, offers profit sharing, a 401(k), medical and dental coverage, as well as tuition reimbursement and scholarships to employees and their family members.

"Benefits are a shrinking resource in this country if international trade stays like this," said Robert Schaffer, president of the Mississippi AFL-CIO. "We're not keeping up with inflation, so the average worker can't afford what his father could, and with fewer job benefits, that same person's expenses go up."

China's disruption of fair trade impacts the nation in more ways than just the country of origin tag on our clothes, according to Professor Peter Morici, economist and professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.

"We're headed into catastrophe for the debt we owe," Morici said. "The debt right now coming into this year was $5 trillion, and near the end of the year it'll be $6 trillion. Before long our debt will be 50 percent of our GNP, which is $13 trillion."

China has amassed about a trillion in foreign currency reserves as part of keeping the Chinese currency undervalued. Meanwhile, the average American has been in negative territory savings-wise for years.

"The bottom line is the money coming into this country from China, somewhere north of 8 percent, is used to buy our debt to feed our spending habits," he said.

Awareness is beginning to catch on at the federal level. HR bill 1498, authored by Rep. Duncan Hunter, R-Calif., and Tim Ryan, D-Ohio, allows U.S. industries harmed by currency manipulation to seek relief under existing U.S. trade statues by authorizing the U.S. to put a tariff on goods coming in from China. Despite its popularity among union members, and mounting attention from manufacturing associations like the National Association of Manufacturers, known as NAM, House leadership has yet to take up the bill

"The Republican leadership right now doesn't want to have hearings on this bill," Ryan told the Jackson Free Press.

Ryan links Republican opposition to the bill to a rift between big and small businesses, pointing out that NAM is suffering a small civil war among its members over whether or not to endorse the Ryan-Hunter bill. Small business members within NAM recently outvoted a well-organized national effort by big business owners to quash the endorsement.

"In our system it comes down to money. The bigger members of NAM, the trans-national corporations, like things the way they are because they have the wherewithal to pick up and build factories in China or wherever and ship the goods back here, so it's actually benefiting them. … Eighty percent of (NAM's) members want to back this legislation, but there's this other 20 percent, the big business owners who pay 80 percent of the dues, that want NAM to put the kibosh on this thing."

Bush: Part of the Problem

NAM has been able to successfully push many major pieces of legislation through the Republican-dominated Congress under both the Bush and Clinton administrations. NAM endorsed the controversial estate tax bill, which phases out the estate tax between now and 2011, as well as every wealthy-favoring tax cut since 2000, and recent trade agreements painting red targets on U.S. manufacturers.

"NAM's gotten everything they wanted," Ryan said. "It would be nice if they would support the small and medium-sized manufacturer and bring some equity."

Johns said Congress couldn't have passed many of NAM's other endorsements without the help of the president, who he describes as indifferent to the plight of small businesses.

"This administration is not the solution. They're part of the problem," Johns said. "If you're a small American manufacturer dealing in this game, the Bush administration is not your friend. Small to medium companies have woken up that their customer base is leaving this country. We've lost 3 million manufacturing jobs over the last five years."

Morici agrees: "The Bush administration's policy of trying to persuade the Chinese to do something is like trying to convince a burglar to stop robbing houses but not giving the police any guns. It has not been willing to take on the Chinese on any issue. It's looking for China's support on the war on terrorism, but more than that, I think they've got some ideological blind spot and will not do anything meaningful. We're not going to get resolution, I believe, until we get a new president."

"That doesn't mean a Democrat or Republican specifically—just not this guy. This guy, on economic issues, has been a zero."

Previous Comments

ID

66751

Comment

Thank you so much for this article. I first heard about Nucor at the City Council meeting right after the State of Emergency was declared. The representative from Nucor mentioned the Town Hall meeting but i was unable to attend. It is truly sickening how our Federal Government has become a policy machine for trans-national corporations. It is quickly becoming a world where every move you make takes money out of your community and puts it into the pockets of an infintesmal percent of the worlds citizens. Thanks Nucor for making the right decisions for our environment and the people of the communities you locate within.

Author

daniel johnson

Date

2006-08-20T14:39:31-06:00

ID

66752

Comment

Nucor is one of the best run companies in America. Unions hate him and other major corporations like USX do as well. CEO is a former marine and runs the company with military efficiency and practicality. He answers his own phone. Everyone flies coach. No sandbagging or upper managers living high on the hog. His shops are not unionized but they hire almost anyone. Teachers, store clerks, etc and teach them how to be steelworkers. He's not unionized but is not bound by the limitations so his workers wind up making more than shop mills and also don't have the layoff problems in the past that USX and others have had. The steel industry laughed at his minimills when he started them now he is an industry leader while USX and the others are dinosaurs.

Author

Kingfish

Date

2006-08-20T17:23:09-06:00

ID

66753

Comment

Great information, Daniel Johnson. In defense of throwing away the broken coffee pots and toasters, the cost of repair is far greater than that of replacing these items. The only time repair is reasonable is when you give kthese items to Good Will. Your items are then sold for a much cheaper price and you can use the few dollars as a tax deduction. Don't laugh, every penny helps.

Author

justjess

Date

2006-08-23T10:49:34-06:00

ID

66754

Comment

“There’s this thing that few American buyers know about. It’s called border adjusted value added taxes (VATs),” says Bob Johns, director of Nucor’s marketing and government affairs. “It’s a tariff, and other countries get to use it. American companies don’t, but they do, and it’s killing us.” Johns explains that the U.S. is actually the exception to the rule when it comes to border taxes. Most developed nations rely either heavily upon border taxes for their governmental income, or an amalgam of border taxes and income taxes. The U.S., on the other hand, relies almost solely on income taxes as a source of revenue, and Johns says it’s giving the competition a very serious advantage. It's not "border taxes," it's VAT, and it applies to essentially all goods and services sold within a country's borders. Because of the way a VAT works, there is ample justification for applying it to goods entering a country as well as to those produced within a country. This is not legally a tariff; the country is simply applying its VAT rules to goods produced outside that country. And yes, the U.S. should have gone to a VAT decades ago.

Author

Tim Kynerd

Date

2006-08-29T11:09:06-06:00