If you've noticed that nails suddenly cost more than they used to, you aren't alone. A mid-January ruling by the Department of Commerce imposing taxes on certain nails imported from China and the United Arab Emirates (U.A.E.) led to the abrupt price increase nationwide. According to a fact sheet from Paslode, one of scores of manufacturers subject to the duties, the affected products are bright and galvanized bulk nails, paper collated nails, plastic collated nails, coil nails, and finish nails. Collated finish nails, collated staples, and roofing nails of all kinds are exempt.
ANTIDUMPING PETITION The tariffs came in response to a petition filed by the United Steelworkers (USW) and five U.S.-based fastener manufacturers — Davis Wire Corp. (Irwindale, Calif.); Gerdau Ameristeel Corp. (Tampa, Fla.); Maze Nails (Peru, Ill.); Mid Continent Nail Corp. (Poplar Bluff, Mo.); and Treasure Coast Fasteners (Fort Pierce, Fla.). The petition alleged that manufacturers in China and the U.A.E. were dumping nails on the U.S. market; that is, importing them and selling them at unfairly low prices.
(There are several stages to an antidumping investigation. Once the petition was filed, the U.S. International Trade Commission [ITC] investigated whether domestic nail manufacturers had been “injured” by lower-priced products from China and the U.A.E. Finding in the affirmative, ITC passed the case on to the Department of Commerce on July 20, 2007. The department is responsible for determining if the lower pricing is unfair — if the nails were being sold in the U.S. below production costs.)
The Department of Commerce issued preliminary findings that dumping had occurred, and effective January 23, 2008, imposed preliminary duties of between 4.47% and 118.04% on the products, depending on the specific manufacturer. The great majority of affected importers were taxed at a “separate rate” of 29.36%, which was lowered to 19.12% a week later as various mathematical and clerical errors in the department's initial investigation were discovered and corrected. These duties are subject to change when the Department of Commerce issues its final determination on the issue, which is scheduled for June.
PRICE INCREASE The impact on the building industry was immediate, but rather minor. “Nails are a necessity in the construction business,” says Garry Tabor, president and CEO of Building Materials Distributors (BMD), a wholesaler based in Galt, Calif. “The price of nails doesn't deter people from using them.”
The increased cost, then, is simply passed down the supply chain. Tabor says BMD raised its prices 20%, and Mike Moore, vice president of materials management at Maryland lumberyard T.W. Perry, reports a similar increase in its prices to its customers. As with any increase in materials prices, builders and remodelers should and are passing that added cost on to their clients. These tariffs came on top of increases related to the cost of raw materials toward the end of 2007, which Moore says were 12%.
Even in a flagging economy when homeowners are watching every penny, that cost isn't too burdensome. Andy Hannan, production manager for Mark IV Builders, in Bethesda, Md., says that his crews might use a couple of boxes of nails on a $300,000 or $400,000 remodel. In that case, the additional cost is at most a few hundred dollars on the largest remodeling projects — maybe one-tenth of 1% of the job's price tag. If anything, carpenters might take pains to save partially used strips of nails rather than throwing them away at the end of a job, a practice accepted as industry standard.
INTERNATIONAL NEWS Regardless, it's an interesting issue with geopolitical consequences rooted in international trade. An article that appeared in the January 29 issue of The Wall Street Journal was critical of the petitioning nail manufacturers as well as the government agencies involved in the findings. The article, written by Greg Rushford — author and founder of The Rushford Report, an online journal that covers international trade politics — mocked some of the government's methodology during the investigation, such as the exclusion of certain manufacturers from the ITC's evaluation of the domestic nail industry, and the Department of Commerce's use of labor statistics that were too general to be meaningful.
As for the petitioning manufacturers, Rushford wrote that they are “seeking to use available legal tools to give them a leg up against their competitors.” But he was skeptical that it would work: “Even if a few hundred American jobs in the five U.S. nail companies that filed the antidumping petition are saved in the short term, it won't last. More jobs will end up being created in China and other Asian countries ... which are poised to pick up any business that China may lose.”
ANY REAL EFFECT? The lawyer representing the petitioners says that the manufacturers' motivation was to create a more level playing field. “Chinese producers were selling [nails] at unbelievably low, unfair, and dumped prices,” says Paul Rosenthal, a lawyer representing the petitioners. The effect of this, he adds, is that domestic producers were forced to get out of the business or reduce their manufacturing capacity. These tariffs, he continues, “will allow U.S. producers to sell at prices that will give them a decent return on their investment.”
Tabor, however, thinks it's a lot of activity over nothing. “It's an astonishing coup [for the petitioning manufacturers], but it's without benefit,” he says, adding that it isn't going to make him buy his nails from U.S. suppliers. “The five petitioners don't have the collective capacity to meet my needs,” he says, “and I'm not the biggest distributor of nails in the country.” Tabor says that he hadn't even heard of three of the petitioning manufacturers prior to the filing.
Rosenthal dismisses the notion that domestic producers are incapable of manufacturing the inventory necessary to serve the building materials distribution industry. “There's plenty of unused capacity in the U.S. to supply the market,” he says. “That's an excuse importers use to go offshore.” Rosenthal says that the tariffs could be the catalyst for that production capacity coming online.
Tabor insists, though, that his company has no plans to change its purchasing to buy even a single pound of nails from a U.S. manufacturer. And, he says, others feel the same way. “I can only take their word for it,” Tabor says of his peers and competitors in the supply industry, “but they've all said the same thing to me.”
However, at least one of the manufacturers claims to already be seeing positive results. John Dees, president of Treasure Coast Fasteners — admittedly the smallest of the five petitioners — estimates that he received four times the normal amount of orders in the weeks after the Department of Commerce's ruling. Historically only a local supplier, Dees says he has received orders from as far away as the Midwest.
Moore, like Tabor, is skeptical that there will be a long-term effect. “Whether [the struggling U.S. manufacturers] can get into the market in a cost-effective fashion remains to be seen,” he says, “because China still owns the majority of the raw steel. [Chinese manufacturers] will either increase the cost of the material or will continue producing the product themselves.”