Monday, October 24, 2011

Senators want DOD to buy Steel in the US

Several Senators have written a letter to the Department of Defense asking that they buy the steel used in the manufacture of military equipment and vehicles from American companies.

The Defense Department is already required, by law, to purchase steel produced in the United States exclusively. However, the term “produced” has been used as a way of circumventing the purpose of that law. Congress has previously expressed concerns to the department regarding the definition of “produced.” The definition allows armor steel plate melted in foreign countries to comply with the Specialty Metals Amendment simply by the performance of low-value secondary finishing processes in the United States. This interpretation is contrary to decades of administrative practice requiring melting in the United States. Without question, melting is the most critical stage in the production of armor steel plate, accounting for over two-thirds of the product’s capital and labor costs. Consequently, the department’s approach will allow capital and resource intensive processes to be conducted overseas, costing jobs and technology, harming our economy and allowing these products to be brought back into our country and considered “domestic.”

Of course, what the senators don’t address is that foreign steel may be cheaper than metals produced stateside, and more basically, that there may not be enough plants inside the U.S. that can even do the work. People got upset when DoD wanted to spike production of its ambush-protected trucks, only to find there wasn’t enough domestically produced steel to meet the demand quickly enough. In fact, by one measure, the U.S. steel industry today can only meet about two-thirds of the domestic demand every year.

So — we keep coming back to these questions about an “industrial strategy,” and this is a classic case study. Should the United States protect its domestic steel industry with this proposed policy for its military vehicles, even though it could make them cost more at a time of reduced DoD budget growth? Or should it save money — and possibly save entire programs — but sacrifice the jobs of steelworkers and coal miners, and continue to rely on “globally sourced” steel?

My answer is to use US products exclusively. First it keeps us from being reliant of foreign products (which is especially stupid when it comes to item required for defense). Second, one reason the higher costs here and the inability to produce the required quantities can be blamed to a great extent on the practice of buying from foreign sources. If the steel industry suddenly got all of DoD’s business, the increased demand would mean prices would come down, manufacturing plants would have enough business to reopen and a lot of people would have jobs…. A win – win secenerio…

Live Long and Prosper....

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