Requiring 68% more costly steel is waste, not patriotism
With the aim of patriotism, Miami-Dade commissioners just signed a blank check to raise costs to taxpayers on an unknown number of infrastructure projects by an unknown percentage with an unknown total price. They missed their target.
Their unanimous vote requires that the county use iron and steel products that are made in the USA. Only if suppliers couldn’t get American-made materials or if a higher US price would increase a project’s total cost by 20% or more could we get iron or steel from abroad.
What terrible timing. Steel now is in such short supply that prices are surging across the nation. Ruling out foreign steel purchases for county projects could bar cheaper steel from abroad and force use of domestic steel, whose prices have jumped more than 160% since August.
Yes, the 20% total cost increase cap in the legislation could permit buying iron and steel from abroad. Yet the county might still have to use far costlier US steel, because steel might be just a fraction of the project, so its price might be two-thirds higher than foreign steel costs and still not push up the entire cost of a project more than 20%.
When governments limit competition in contracts, prices of what they buy rise.
In a memo accompanying the iron and steel rules that commissioners OK’d March 2 without dissent, county Chief Financial Officer Ed Marquez noted that the legislation is likely to cost the county more “as vendors will most likely pass any additional expense to the county by including any additional cost in newly established contracts impacted by this change.”
That warning is totally valid but unfortunately very incomplete guidance. It didn’t say how much more expensive US steel and iron products are now than those from abroad. Nor did it indicate the county’s average annual expense on iron and steel in infrastructure projects.
Without cost difference and volume of purchase, there was no way commissioners could examine the bottom-line increase to taxpayers of an order to buy from a single nation rather than be able to source products from around the globe.
The new purchasing requirements on iron and steel are “a patriotic way to take care of your own backyard,” legislation sponsor Joe Martinez told Miami Today. “I hope we protect our people, our own jobs, and we can make us better.”
That shows the best of intentions. But at what costs?
First is the cost of making sure that iron and steel that’s used is truly made in the USA. Unless the county simply accepts the claim of each supplier that it is buying at home rather than much more cheaply abroad, the county will need to audit suppliers’ purchase orders and delivery records plus examine carefully all iron and steel before it is used on a job. That verification could require hiring multiple county employees.
Second, the more limited a pool of possible suppliers, the higher the cost. Steel tariffs of 8% to 30% that the US added in 2018 on products from some other nations saw prices of domestic hot rolled steel rise 17.9% in the ensuing nine months, according to the US Bureau of Labor Statistics. This nation subsequently gained 1,000 jobs in the steel industry but lost about 75,000 other manufacturing jobs as the higher cost of steel made manufacturers that use steel in products less competitive globally. How much will county costs actually rise?
Third is a potential cost to Miami-Dade’s positioning as a global trade and business community. That trade and business is an economic driver for the Port of Miami and Miami International Airport, both of which the county owns.
It’s hard to advertise that we want business from around the globe to flow through this county but at the same time we reject key products that aren’t made in the USA. How could our market position as a trade hub be impacted by protectionism in our own buying?
Beyond those three factors, however, is the question of whether the steel industry really needs protection in legislation that would shelter it from competing with steel producers abroad?
“Record-high prices … are turning out to be a bonanza for steel producers,” Reuters news service reported a week before the county’s vote. “Shares of American steelmakers have gained 65% since last August. An analysis by rating agency Fitch shows US steelmakers enjoyed a profit margin of 45% in January.”
Surely this legislation was not intended to protect 45% profit margins at the expense of untold additional millions paid by Miami-Dade taxpayers.
As Reuters went on to note, “US steel prices are 68% higher than the global market price and almost double China’s, even with the prices in both China and Europe up over 80% from their pandemic-induced lows.” Why in heaven’s name would we protect that kind of a profit margin in law – especially when none of those steelmakers is based here? That kind of protectionism is understandable – if not wise – in a steelmaking region, but why in South Florida?
So, is paying 68% extra for steel patriotic or just poor economics? And, doesn’t this beg for a veto by Mayor Daniella Levine Cava? Even if the motivation for the legislation is right from the heart, it misses the target by a mile.