Appliance makers are a fiercely competitive group. Their individual strengths and strategies to outdo each other always end up with a win for consumers. Their opinions can differ on how to please the consumer from product to product and quarter to quarter, but they are in agreement that 2003 is a very important year. Its importance relates to whether our economy can achieve momentum to sustain consumer confidence.
Manufacturers and their suppliers have been careful since 2001 to balance their production and investment priorities to remain competitive and to be prepared for stronger national and global economic signals. As an industry, our members are anxious to focus in 2003 on what they do best - serving the consumer. One global factor that can impact this goal is the U.S. tariff on imported steel. The full force of this unwise policy has not been fully realized, as many steel consuming companies have not come to the end of current steel contracts. But there have already been many steel users hit with significant increases in their cost of steel and its availability. My colleagues at the Air-Conditioning and Refrigeration Institute, the Gas Appliance Manufacturers Association, and the National Electrical Manufacturers Association and I wrote President Bush last year urging him to reconsider the steel tariff decision.
The primary steel used in the manufacture of U.S. household and large appliances, components, and electric motors - cold-rolled flat - is now subject to a 30-percent tariff on imports. These tariffs can remain in place until March 2005. The President is required to review tariffs after they have been in place for 18 months to determine if they should continue or not.
U.S. appliance and electrical manufacturers consume more than 2 million tons of steel annually. The majority of this steel is purchased from domestic steel companies. With the imposition of tariffs, our member companies have begun to experience significant increases in steel costs. In addition, manufacturers are experiencing supply constraints from domestic steel producers in a number of product and component categories. When a product, such as a kitchen range or an air-conditioner, is nearly 85-percent steel, double-digit increases in steel costs can wreak havoc on a business plan and put enormous pressures on domestic jobs.
Domestic manufacturers in our industries have been able to maintain a significant manufacturing base in the U.S. This has been difficult to do in a highly competitive global industry. Our members are concerned that the cost impact of the steel tariffs on domestic steel as well as the uncertainty they are experiencing over assured supplies of steel will hasten the trend towards offshore manufacturing. The losers will be some of the hundreds of thousands of domestic manufacturing employees in our industries.
Our manufacturers have survived in a very competitive environment by cutting costs, improving productivity, employing advanced manufacturing and inventory management concepts, and by using innovation and technology to improve product performance. Moreover, during the past 5 years, they have increased capital expenditures by 60 percent. These strategies not only have kept our industries competitive, but also have boosted product performance and appeal. Between 1997-2000, the value of major appliances shipments in the U.S. increased 14.4 percent while materials cost rose 21.7 percent, and labor cost increased 16.5 percent. This allowed only a 1-percent increase in the value added by manufacturers in excess of materials and payroll. That may be great news for consumers, but it is brutal competition for manufacturers. The ability of U.S. manufacturers to sustain this performance with such significant cost increases in steel is uncertain. Most likely, the result will be increased pressure on domestic jobs.
Our industries' American manufacturers have adapted to the global economy and are prepared to stay competitive. The question is whether the industry will best be able to meet consumer demand manufacturing products here or offshore. We must take care to ensure that policies designed to protect the jobs of one domestic industry do not sacrifice the jobs of another. The President is required to assess the impact of the steel tariffs in 2003, at the mid point the policy's tenure, and decide whether to end it or continue it for another 18 months. We urge the President to end the tariffs in 2003.