As the global, finance-led recession winds its way through world markets, some particularly exposed sectors have been construction, durable goods and their suppliers – notably steel. As a consequence, one SM favorite, Lakshmi Mittal, has seen his fortunes take quite a hit of late –
Over the past eight months, Lakshmi Mittal, Britain’s wealthiest man, has lost around $51bn (Â£35bn). Mittal, who controls steel producer Arcelor Mittal, has profited from the construction boom of the past decade, driven by the emerging economies of China and India. His stake in the business in June was worth $65bn. But, as demand for steel has crashed, so has the Arcelor Mittal share price. His holding is now worth $14bn – a staggering loss, although he is not exactly on the streets yet.
And, as if punishment from the market wasn’t enough, a strongly Democratic Congress, empowered by a frenzied effort to pass a hastily-conceived stimulus may be ushering in new protectionist winds –
The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.
A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods….
p>As the world’s largest steel producer, with an annual output nearly 3x its closest rival, ArcelorMittal will be disproportionately affected by any effort to to place origin restrictions on steel – despite the company’s US operations. One of India’s true world-class manufacturing sector co’s – Tata Steel – is the number 6 producer globally with over 20% more annual production than the first American firm on the list.
p>Unfortunately, in a world where political pull may determine a steel company’s fate more than product engineering or the laws of supply & demand, a foreign firm headed by an Indian family doesn’t exactly get much sympathy on the Hill. Thankfully, however, Arcelor does have some local allies as US-based steel-consuming firms rally against the provisions. They recognize that de facto import restrictions both increase in their prices and set horrible global precedents -
Proponents of expanding the “Buy American” provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.
Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.
U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents. The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization.
p>These quotes from a Caterpillar rep were particularly noteworthy -
“There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas,” said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar’s sales — including big-ticket items like construction cranes and land movers — are sold overseas.
“Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism,” Lane said. “It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression.”
Given strong Democrat majorities in both houses of Congress, our best Hope may end up being that Dear Leader uses a veto against his own party, against his own campaign rhetoric, and aligned with the common sense of his stellar economic advisors. Unfortunately, given how much political capital Obama’s invested in rapid adoption of a massive stimulus bill, this “win” might be a loss for us all.
Update – Looks like pressure from the Great White North is making Obama administration take this issue seriously –
DAVOS, Switzerland — The Canadian government expressed optimism Saturday that the U.S. might climb down from a so-called “Buy American” trade policy that several countries have warned could start a trade war.
Conciliatory signals from the White House and from American officials at the World Economic Forum in Davos, Switzerland, have fuelled hopes for a resolution.
…”I’m going to say this for, like, the fourth time: The administration is reviewing that provision,” Mr. Gibbs said.
…If the wording of the legislation can’t be changed before the U.S. Senate votes on the stimulus bill, Mr. Day suggested Canada or other countries could still be exempted afterward.
…”I want to be clear: I’m not saying [Mr. Obama] is going to do that. But that is within their legal framework, for him to do that, if he makes that determination,” Mr. Day said.