What does Hurricane Charley’s destructive wake have to do with the price of cement from Mexico? Quite a bit, it turns out.
Most Americans are all too aware of the historically high prices they are now paying at the gas pump. Unfortunately, gasoline is not the only commodity for which prices have increased dramatically in the past several months. Cement is also an important “building block” of economic growth, but the recent 20 percent run-up in cement prices has only just begun to receive proper attention in the mainstream media. Industry analysts and economists have become increasingly concerned that the nationwide cement shortage could undermine the health of the housing and construction industries, not to mention the nation’s economy as a whole.
Rapid economic growth in China has spawned a cement-intensive building boom that is devouring that nation’s domestic production. The continued strength of the U.S. housing market (housing starts rose 8.3 percent in July) has also increased demand domestically. Previously, when U.S. demand has outstripped supply, consumers have turned to China, the world’s largest cement producer. But today the tables are turned — China’s economic upswing is not only using up most of the cement it produces at home, it has also caused shipping prices from Asia to rise from less than $20 per ton to nearly $50. The increased shipping costs from Asia are doubly harmful because they raise prices for cement from Thailand — another important supplier to the U.S. market.
According to the National Association of Home Builders (NAHB), rising costs of basic materials — including cement — have added between $5,000 and $7,000 to the cost of building an average new home. Worse, construction delays caused by supply shortages could further contribute to the spiral upward. Although concrete is not the only building material in short supply, NAHB has found that the scarcity of cement is the most acute. In fact, 41 percent of builders now say they are experiencing a cement shortage, compared to only 11 percent in May and a mere 3 percent in March.
The good news is that the Bush administration can largely resolve the nation’s cement shortage and price-spike problem. Since 1990, the U.S. government has levied a punitive tariff against the Mexican cement industry due to the alleged “dumping” of cement into the U.S. market at prices lower than it costs to produce. Since that time, $500 million in duties have been paid by U.S. consumers for the “privilege” of importing cement from Mexico. These costs amount to a 40 percent addition to the price of Mexican cement. Although, in the past, domestic cement consumers have had the luxury of relying on China for additional supply, that option is now less viable than ever and repeal of the tariff needs to seriously be considered.
The case for repeal is all the more urgent in the aftermath of Hurricane Charley. Unless the president acts quickly to remove this tariff, the rebuilding effort will be hampered by unnecessarily steep overhead costs. After all, Florida relied on imports for nearly 40 percent of its cement before the state was battered by Charley (double the national average). If, on the other hand, the president takes the initiative to remove the tariff, he would not only be striking a blow for free trade, he could be pushing Florida into his column this Election Day.
What Floridians need (and will remember in November) is a way to put their communities back together as soon as possible. While governments can provide much-needed emergency assistance, the key to recovery relies on a timely response from private firms that can reconstruct the necessary infrastructure to help Floridians return to their normal economic lives. An ample and affordable flow of cement, unimpeded by the tariff, would be a great start in helping to get people out of unemployment lines. Even better, this relief would be put to work right away without all the costly red tape that snarls traditional government assistance programs.
Hopefully President Bush will realize that free trade makes both economic and political sense. Decisive action on the cement issue could create a win-win situation for everyone between now and November.
– Paul Gessing is director of government affairs for the National Taxpayers Union. Write to him at 108 N. Alfred St., Alexandria, Va. 22314, or visit www.ntu.org.