Sen. George Voinovich, R-Ohio, visited toy maker Step2 Co. in Streetsboro on June 30 to discuss the implications of a tariff levied on U.S. exports and what he called the unfair trade practices of China.
Tom Murdough, founder and chief executive officer of the rotational molder, said his company lost $2 million in sales this year and is expecting losses of $4 million to $5 million next year because of the tariff. Step2 might be forced to eliminate 40-50 jobs if the tariff is not repealed, officials said.
``Europe was a growth point for us, but the tariff stopped everything dead in its tracks,'' said Brian McDonald, Step2 vice president of international sales.
U.S. companies that export get federal tax breaks totaling $4.5 billion to $5 billion per year. After the World Trade Organization ruled that those breaks amount to unfair trade practices, the European Union began imposing a 5 percent tariff on U.S. products in March. The tariff increases by 1 percent every month until March 2005, when it will be fixed at 17 percent, unless the United States repeals its subsidies.
Even more damaging, Murdough said, is the effect of China's trade practices.
``I'm all for free trade and fair trade, and this is not fair trade,'' Murdough said, adding that Voinovich is ``one of those fighting in Congress to ... level the playing field.''
Voinovich said the Chinese government's refusal to float its currency, the yuan, is unacceptable. The yuan has been fixed at the rate of 8.3 to the dollar for 10 years, which Murdough said allows Chinese companies to sell their goods for 30-40 percent less than U.S. firms. Voinovich said the Bush administration needs to take action to stop the Chinese from undervaluing the yuan.
``I feel like we're waltzing with the Chinese and we're afraid to step on their toes because they might get mad at us,'' Voinovich said.
Voinovich said the Bush administration understands the importance of the manufacturing sector, but does not understand the urgency of the problem. Voinovich did express approval of the newly created Manufacturing Council.
``I'm hoping that we're going to see some changes soon,'' he said.
Voinovich is running for re-election to Congress this year against state Sen. Eric Fingerhut, D-Shaker Heights.
Murdough repeatedly stressed the importance of buying American. ``Many companies are going to China, but when you look at the implication, people here are losing jobs,'' he said.
Differing bills have passed the U.S. House and Senate that would bring the U.S. into compliance with the WTO ruling while offsetting the increase in export taxes that would result from eliminating the tax breaks. The Jumpstart Our Business Strength Act will reduce the tax on manufacturing income from 35 percent to 32 percent if passed.
The EU is Ohio's second-largest trade partner, next to Canada, and is responsible for 17.8 percent of Ohio's total exports. EU exports accounted for $27.7 billion dollars for Ohio in 2002.
Step2 leased a plant in Northern Ireland in 1997, but closed it in 2002, citing the consolidation of retail markets. Even with the stiff EU tariffs, Murdough said Step2 will not establish another plant in Europe.
``We're more cost-efficient here,'' he said. ``You need a good chunk of volume to start a plant over there.''
Murdough founded Step2 in 1991. Before starting Step2, he founded Hudson, Ohio-based Little Tikes Co. in 1970. The two companies represent the top two North American rotational molders in Plastics News' annual sales-based rankings. Step2 posted sales of $100 million for 2002. Little Tikes' 2002 sales were estimated at $206 million, a steep decline from its peak in 1989 at $270 million. Step2 has 1,000 full-time employees.