Where Industry and Security Intersect
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An Economic Assessment of the U.S. Fastener Industry
In February 1983, the U.S. Department of Commerce determined that imports of nuts, bolts and large screws were not entering the United States in such quantities or in such a manner that threatened the national security. This determination followed a one year investigation that found imports of these fasteners to be reliable and domestic production capacity adequate to meet defense requirements. The assessment that follows reviews the macroeconomic variables that affect the entire metal fastener industry including the categories covered in the 1983 investigation.
Over the past several years, the U.S. fastener industry has experienced a mixed set of economic trends. Shipments by the industry peaked in 1979, but were generally depressed in the early 1980's, largely due to poor performances in the end-user markets such as automobiles. The most recent years have shown modest improvement as the general economy rebounded. Employment fell sharply in the early 1980's but since then has recovered somewhat and expanded by over 15 percent. Investment in new plant and equipment in the fastener industry has been highly variable but increasing in recent years.
Overall import penetration in this industry has increased from 14.5 percent (in value) in 1979 to a high of 19.4 percent in 1984, but with the declining value of the dollar, imports appear to have stabilized at around 19 percent of the market. With regard to the specific product lines investigated in the 1983 Section 232 case, estimate that import penetration (in value) increased from about 27 percent in 1981 to about 34 percent in 1986.
Imports come mainly from the Pacific Rim Countries. Japan, although still the largest supplier of imports, has lost market share to Taiwan and South Korea, which have lower labor costs and more favorable exchange rates relative to the dollar. Further increases in import penetration are expected to be more gradual since gains would have to be in specialty fastener markets where price is less important than quality, delivery time, customer specific requirements, and in some cases advanced production capabilities. U.S. firms remain highly competitive in these specialty markets and have the advantage of proximity to end-users. One important trend over the 1979 to 1986 period is the fact that the number of fastener producing plants in the United States has increased.
This increase, however, is due to a large crop of new small (under 100 employees) plants which counterbalanced decreases in the number of large facilities. This trend demonstrates the effect imports have had on the industry. U.S. producers have been pushed into specialty niches with relatively small volume production requirements. Recent technical innovations and declines in the value of the dollar have made the competitive outlook for the domestic industry more promising. The first U.S. plant in 25 years to produce standard fasteners (which are 90 percent dominated by imports) opened in 1986.
With the erosion of key elements of the manufacturing sector the U.S. (such as automobiles, oil field machinery, farm equipment, and construction machinery), and the rise of imported finished products into the domestic marketplace, lower tier industries such as fasteners are confronted with a declining customer base. This may be a greater threat to the long-term viability of the domestic fastener industry than further incursions of imported fasteners.