President Donald Trump’s trade skirmish with China may pose a billion-dollar threat to Arkansas’ economy, or may be just a blip, a negotiating tactic.
But regardless of where trade policy lands after the next 60 days of appeals and negotiations, steel prices are rising for contractors, and builder Thomas B. Schueck sums up all the turmoil stirred by Trump’s 25 percent steel tariff in four little words: “It’s a good thing.”
Schueck, an Arkansas leader in steel fabrication and construction for a half-century, was one of several contracting executives who told Arkansas Business that steel building costs are rising, at least in the short term. Those costs will be passed along in bids for projects — but again, to Schueck, that’s not a terrible thing.
In a blunt interview in the spacious office he occupies as chairman of Lexicon Inc. on Fourche Dam Pike in Little Rock, Schueck said the president is right to fight trends he says have devastated American manufacturing for decades.
“One of the smartest things Trump has said is that there really is no trade war,” Schueck said. “We lost it years ago. China started dumping steel on the market in 2000 or earlier, and they did it with the goal of destroying competition. They’ve succeeded in disrupting American manufacturing while keeping their own workforce on the job. It’s the old ‘busy hands are happy hands’ routine.”
Not everyone shares Schueck’s confidence in Trump, and even the president’s supporters are unnerved by the tweet-driven chaos in the tariff policy rollout. But Schueck, a 2017 inductee into the Arkansas Business Hall of Fame, takes a long view. He knows history, and steel, and the intricacies of building with it.
Lexicon helped construct the state’s three major steel mills in Mississippi County, including the $1.3 billion Big River Steel facility completed last year. The company has also built paper mills, concrete mills and major petrochemical terminals, all with thousands of tons of steel. But he thinks steel has been underpriced, and that China, which supplies nearly half of the world’s export market, had to be confronted.
“I believe in free trade, but I also believe in fair trade,” he said. “The Chinese have used many unfair tactics. They used currency manipulation, they stole intellectual property, and then they just brought product in here and dumped it, without caring about profit.”
Scott Copas, president and CEO of Baldwin & Shell Construction Co. in Little Rock, told Arkansas Business in an email that uncertainty clouds prediction-making for now.
“No one can accurately project the impact until we can understand what the president is trying to do,” he wrote. “Right now, the suppliers are reacting to the futures market and taking advantage of the situation.”
Early Price Bump
Construction firms saw an initial 5 to 7 percent price bump as Trump began trade saber-rattling, according to Mike Meadors, executive vice president for preconstruction at Nabholz of Conway. “That was the first initial impact, and everybody’s waiting to see what’s next.”
Meadors and Schueck said that steel pricing could impact up to 15 percent of full-project costs. So in a $104 million job like Nabholz’s Arkansas Children’s Northwest in Springdale, if steel costs of about $10 million had been subject to a tariff-fueled rise of 10 percent, the project would have cost $1 million more.
Meadors said Nabholz is in close contact with suppliers and has factored “an extra element of volatility” into its pricing. He also predicted some price effects on building materials, like masonry, that might be used in lieu of steel.
Trade-war worries have roiled the stock market over the past few weeks, and raised alarms from Arkansas farmers as China retaliates against American agricultural products.
Some observers said Trump’s tough tariffs may be just a starting point to working out a deal with China. “First, realize that this is the way President Trump negotiates,” Arkansas economist Charles Venus said on AETN’s “Arkansas Week.” “We’ve got a 60-day or so cooling-off period. … Things could get worse, but by and large I think it’s going to go away.”
The state has billions at stake as trade talks echo in Washington, Beijing and Geneva, home of the World Trade Organization, not to mention Mexico City and Ottawa. Canada and Mexico are exempt from the tariffs amid renegotiation of the North American Free Trade Agreement, another issue that Schueck insists must be addressed. South American and European countries are also exempted, for now.
Tom Schueck
“The gorilla in the room is China,” Meadors said. “The spirit and intent of his action was to bring America’s 73 percent steel mill capacity up to about 80 percent. That’s the driving force. And what we’ve seen so far has been a classic market reaction. Since prices on imported steel will increase, all steel prices will increase.”
To underscore his points, Schueck came ready with numbers. “We’ve got an $810 billion trade deficit, so that’s pretty hard to believe. A hundred billion of that is with Mexico and Canada — thank you, NAFTA. In 1985, we had a $6 million trade deficit with China. In 2017 it was $375 billion.”
Although other factors weighed in, Schueck largely blames the trade imbalance for the loss of 5.8 million American manufacturing jobs from 2000-10, when 57,000 U.S. manufacturing firms shut down. “The American Manufacturing Association, for whatever reason, is against these tariffs,” Schueck said. “Farmers are against them. But if you go back and study, we’re just trying to regain what we’ve lost, and Trump, to my mind, is correct in trying to get manufacturing back into the American mix.”
Nucor and Big River Steel have both lobbied for trade action against China, and Nucor applauded the administration after its steel tariff announcement early last month (see timeline). “For too many years, Nucor and other American steelmakers have dealt with this chronic problem,” said John Ferriola, chairman and CEO of Nucor Corp., which has close ties to Peter Navarro, one of Trump’s senior trade advisers.
Nucor has several Mississippi County facilities: Nucor Steel in Blytheville and Nucor-Yamato in Armorel, along with Castrip Arkansas and Skyline Steel, a subsidiary. Nucor, with some 1,800 total workers in Arkansas, held a ribbon-cutting Thursday for a $230 million cold mill complex expected to bring 100 new jobs.
Big River, whose $1.3 billion plant in Osceola employs over 500 and is the biggest economic development project ever in Arkansas, had no comment on trade policy. Another major player, Bekaert Steel, has 400 employees making steel wiring at its plant in Van Buren.
“Arkansas companies are actively examining their supply chains to best understand the potential impacts, including product availability and costs,” said Melvin Torres, director of Western Hemisphere Trade for World Trade Center Arkansas in Rogers, affiliated with the University of Arkansas. “It’s too soon to tell exactly what the impact will be on Arkansas,” he said, but he warned that a full-scale trade war could decimate hundreds of millions in Arkansas soybean, corn and rice sales.
Arkansas’ Bread and Butter
Mark J. Cochran, vice president for agriculture at UA, emphasized the risks 10 days ago on “Arkansas Week.”
“Agriculture’s about a $21 billion or $22 billion operation. When you put that on a gross state product basis and include the retail food side of things, it’s about 20 to 22 percent of the total gross state product. It accounts for about one in every six jobs in the state, about 260,000 people.”
Soybean exports yield about $800 million to $900 million a year, rice about $600 million, Cochran said. Corn and cotton are also in the hundreds of millions of dollars, he added, and all those exports are at risk in the steel dispute. “So that’s something to be concerned about … Arkansas agriculture depends heavily on our global markets.”
Last Monday, Trump vowed to “make it up” to farmers who suffer, saying “there’s a little work to be done, but the farmers will be better off than they ever were.” Even before the tariffs, the U.S. Department of Agriculture projected that farm profits could hit a 12-year low this year. U.S. farmers sell about $14 billion in soybeans to China annually.
Former Lt. Gov. Bill Halter, who now runs Scenic Hill Solar of Little Rock, a builder of sun farms, told Arkansas Business on Tuesday that tariffs imposed in January on imported photovoltaic modules have already brought pain.
“At the end of last year we saw module prices jump, and that meant some projects were delayed or put off, and others were ended. We had prepared for that, and Scenic Hill didn’t lose any projects, but others did.”
He said Trump’s trade tweets sow instability in a market where investors in assets with a 30 or 35-year lifespan crave certainty. “No one supports all U.S. industries having fair trade opportunities more than I do, period,” Halter said. “And there’s no question China has stolen intellectual property and engaged in unfair practices. But we need action that’s helpful for the U.S. economy.”
Tweets do not make a coherent strategy, and chaos is no organizing principle, he said. “You want a strong, disciplined economic approach.”
Tariffs and Chinese retaliation could put many sectors of the economy at risk, Cochran said. “It’s a bundle of things, not just agriculture, not just steel or solar panels or washing machines or television sets,” he said. “When you end up with a trade agreement, there are different sectors that will win and lose off of it.”
Rebar Meets the Road
One winner could be U.S. rebar manufacturers, who have been operating at close to capacity and facing little import competition, according to Kenneth D. Simonson, chief economist for the Associated General Contractors of America, a trade group. Makers of rebar, a steel reinforcing rod in concrete, “have been able to raise prices sharply several times since December,” Simonson told Arkansas Business in an email.
“The immediate impact of an unanticipated price increase [on steel] falls on contractors that have projects under way for which they have not yet ordered steel,” he said. “Going forward, contractors will try to protect themselves from possible price shocks either by increasing their bid prices or asking owners to allow pass-through of part or all of any price increase for a particular product. Such price adjustment clauses are common in many states for highway projects.” He said owners lacking budget flexibility may cancel or scale back projects.
Still, Tom Schueck believes any short-term pain must be endured. “The steel world is just trying to get back to some reasonable normal, because it has been notoriously underpriced,” he said. “And we’ve pulled all the rabbits out of the hat that we can, by improving production and having modern equipment. America’s man-hours per ton, which everything is measured by, are competitive with anybody in the world. But when China just makes it and dumps it, there’s no way to compete.”
In the end, tariffs are just another factor to watch, Nabholz’s Meadors said. “There’s no panic. This is what we do. It’s a moving part that’s moving a little more these days, and we have to watch it.”
A Trump Tariff Timeline
Donald Trump
Xi Jinping
Donald Trump seized on “bad and stupid” trade negotiations as a part of the “America First” focus of his presidential campaign. He vowed to make trade deals more favorable to American industry, even as China continued to assert itself in the global marketplace.
Now the two countries are at loggerheads. Here’s how it all developed, tit for tat:
Jan. 22
Donald Trump announces that the United States is levying a graduated 30 percent tariff on solar panels and 20 percent tariff on washing machines, mostly from China and South Korea.
Feb. 16
The federal Department of Commerce suggests several tactics to counter China’s trade advantage, including a 24 percent tariff proposal for steel imports and a 7.7 percent tariff on aluminum.
March 7
In response to the steel proposal, officials with the European Union say they are considering tariffs on U.S. products if the Trump administration follows through. Shock waves roll through the global stock market, and EU Trade Commissioner, Cecilia Malmstrom, says Brussels is prepared to take the tariff case to the World Trade Organization.
March 8
The United States announces a 25 percent tariff on imported steel, one percentage point higher than the Commerce Department had proposed, along with a 10 percent levy on aluminum imports. Mexico and Canada are exempted amid renegotiation of the North American Free Trade Agreement.
March 22
Trump muses about imposing additional tariffs on Chinese products, affecting some $50 billion in trade. Hours later, China says it will attach tariffs on $3 billion worth of American goods, a seemingly direct response to U.S. actions. On the same day, the U.S. offers temporary steel tariff exemptions to the European Union, South Korea and certain other nations.
April 2
China levies tariffs on 128 American products, including wine and pork, in response to the steel levies. The Chinese penalties are up to 25 percent.
April 3
The United States follows through with tariffs on the $50 billion in Chinese products that Trump had singled out after denouncing China’s theft of American companies’ intellectual property. Goods involved include flat-screen TVs, medical equipment, airplane parts and batteries.
April 4
China hits at the heart of Trump’s rural voter base by targeting $50 billion in tariffs on soybeans, automobiles and chemicals. Sales to China make up 61 percent of Arkansas’ export market on soybeans, and the threat took a punishing toll on the soybean futures market, according to Matt King, director of market information and economics for the Arkansas Farm Bureau.
April 5
Trump digs in deeper, saying that he’s open to an additional $100 billion in tariffs on China in retaliation for Beijing’s retaliation. Last week was largely quiet.
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