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Trading places: David Phelps

Keywords: Tags  Steel, international trade, steel imports, steel exports, David Phelps, retirement, American Institute for International Steel, American Iron and Steel Institute John Foster


Whatever the venue, on stage or off, David Phelps rarely, if ever, turned his back on an opportunity to spar with domestic steel interests over the merits, minuses and minutiae of steel trade. 

“I’m a troublemaker with my mouth,” Phelps, who recently retired as president of the Washington-based American Institute for International Steel (AIIS), acknowledged on the sidelines of the Port of Tampa Steel Conference in Florida. And over his 17-plus-year tenure at the reins of the AIIS, he had ample opportunity to open his mouth and make friends, ideological enemies and mischief on the steel trade front. “I was never a shrinking violet,” he said.

Phelps, who joined the AIIS after a brief stint running his own “little”—and highly successful—consultancy on customs issues, arrived at the trade association armed with a master’s degree in economics and firsthand knowledge of the American steel industry, compliments of the American Iron and Steel Institute (AISI), where he spent 15 years of his early career.

“I was sort of the policy guy who got his hands dirty on the tariff schedule things and the data,” he said of his time at the AISI. “For some reason or other, I ended up with a real mishmash of areas. I was the traffic guy, the transportation person, the buyers’ committee person and somehow or other I wound up with customs.”

It didn’t take long for Phelps to get a taste of the practice-vs.-preach dichotomy among AISI’s membership when it came to international trade and their customers’ purchase of imported steel vs the mills’ purchase of foreign steelmaking equipment and technology. “I was a brand-new employee at AISI and the (Mesta Machine Co.) steel equipment people came in to visit,” he recalled. “There was steam coming out of their ears. They said, ‘These steel guys are buying subsidized and dumped equipment from the Italians and the Japanese and they are driving us out of business. They are a bunch of hypocrites.’ Clearly, they spoke the truth.”

Phelps, who describes himself as schooled and trained in Milton Friedman-style economics from a monetarist, pro-market—particularly free-trade oriented—background, is a native of Boston but grew up mostly in Cincinnati. “My dad worked for Proctor & Gamble,” he said. “He was a production/equipment guy. He didn’t have a day of college but he had people with degrees in engineering working for him. 

“He was a natural mechanic. I wasn’t an engineer. I was a mathematician,” Phelps said, adding that he left the U.S. Naval Academy after a year and a half when he realized “I didn’t have my father’s ability.”

While Phelps may not have been cut out for Annapolis, he was virtually custom-made for the AIIS and a position advertised in the Wall Street Journal in 1996. His experience at the AISI and acquired knowledge of customs matters were major pluses, and the fact that the AIIS was contemplating moving its headquarters from New York to Washington, where he was based, didn’t hurt. “I was a square peg for a square hole,” he said.

Although he was doing “really well” as an independent consultant, Phelps said the AIIS position was simply “too delicious an opportunity” to pass up. “The thing that really grabbed me was the entrepreneurial spirit of the AIIS members, especially the trading companies. And that same spirit was shared among a lot of the associate members, who run their own family warehouse operations, as well as the stevedoring companies, and others. The core of AIIS’ membership is so profoundly entrepreneurial. It’s infectious. And there’s this camaraderie. There are so many shared experiences and back stories about dumping cases being filed.”

One of Phelps’ favorite anecdotes revolves around an anti-dumping and countervailing case on cold-rolled sheet filed by domestic mills against nine nations—and one wily trader’s ability to negotiate a profitable path through the land mines laid as part of the legal process. “The domestics really threw the net out and it got difficult. But this particular trader had developed a supplier from Macedonia—who the hell knew that Macedonia made cold-rolled steel?—and Macedonia wasn’t named in the case,” he said.

“Fred (Lamesch) was making money hand over fist,” Phelps recalled, “but he was also going out speaking against the dumping cases. So there is a real camaraderie there.”

Another of Phelps’ favorite all-for-one, one-for-all AIIS anecdotes involved rallying support of Japan’s steel industry at a time when “the Japanese were evil incarnate in the Asian financial crisis and they were eating some of the other members’ lunches. They were eating a lot of people’s lunches,” he said. “The association banded with the Japanese. We did joint presentations and press conferences. Our members—even those who had nothing to do with Japanese steel—showed up and supported the Japanese, because it was all free trade. It was that old adage: It’s you today; it’s going to be me tomorrow. And we all know that. There have been bumps and bruises along the way. There are some hard feelings I am sure, but there is a solidarity in AIIS that is really, really important.”

Ask Phelps how his decade-and-a-half-plus tenure at the AIIS changed him and he points to his nose. “I have grown and seen various members—board members in particular, but others as well—who have this nose for the market,” he said. “I knew a lot about the steel industry when I came over. I learned a lot more about the market, how it works, and a whole lot more about how the strong survive.”

The art of—and skill set required for—survival in the international steel trade arena has taken on a different dimension in the wake of the deep economic downturn in 2008 and subsequent rise and frequency of short, buy-and-bust steel cycles. At the same time, and seeing an opportunity in bargain-basement interest rates, savvy steel traders have adjusted accordingly. “Twenty years ago, the cost of carrying money was 6 to 8 percent,” Phelps said of the transition. “Now it is almost nothing, so the opportunity costs on the money are de minimus. During this timeframe, people in the import business started figuring this stuff out.”

The upshot? “The importer buys it on the dip, grabs it and says to his customer, ‘we’ll hold it for you for a carrying charge and deliver it on a just-in-time basis,’” Phelps said. “All of a sudden they are acting like a domestic mill. These guys are smart.”

After 17-plus years in the saddle at the AIIS, countless roundtables, presentations, position papers and legal briefs, Phelps has a finely honed view on the use and abuse of the nation’s trade laws and the international steel scene. And he doesn’t mince words.

“The domestic steel industry uses the trade laws as a commercial weapon,” he stated flatly. “They have manipulated the laws into a Byzantine black box that is the province of trade lawyers and bureaucrats. The trade lawyers and the Commerce Department have a symbiotic relationship.”

Phelps sees that relationship adding up to a veritable win-win proposition for domestic mills filing a case. “The domestic lawyers have been pretty open about it,” he said. “They go to the domestic industry guys and say if this, this and this happens, you are going to get a one-year bounce even if we lose. In other words, if you spend $2 million on lawyers, you are going to get $X million more back in commercial benefit.”

Phelps, an avid reader and student of history—one of his favorite books is 1453, which traces the fall of Constantinople and how that impacted events—insists that anyone who looks at the history of U.S. trade laws and says they have helped the domestic steel industry is ignoring the facts. “They had decades and decades of trade protection and everybody—Bethlehem, LTV, National, Geneva Steel—are all gone,” Phelps said. “Trade protection is not the answer. Ken Iverson was 100-percent right.

“Trade protection has helped who?” he asked rhetorically. “The bureaucrats, the lawyers and the weak companies, which survived a little longer. Trade protection is not the answer. It will never be the answer. There, I’ve finished my rant.”

Although the subject of steel trade is never far from his mind, these days you’re more likely to find Phelps contemplating the finer points of his golf game or punching a new set of coordinates into his GPS device. “My wife and I are going to become road warriors,” he said. “We are going to do the snow bird thing,” periodically cruising back and forth in a Ford Fusion from their home in northern Virginia to The Villages in central Florida.

A competitive swimmer in high school and college, Phelps still hits the pool daily, whether up north or down south. “I have always been a swimmer,” he said. “For over 30-plus years now, I get up at 5:00 in the morning, I’m in the pool at 5:30, do my mile-plus, and come home. I’m a creature of habit.”

He has not always been a golfer. “I started golfing as an adult. I love golf but I have never had time to practice, so I want to go and see if I can improve my golf game. But that’s not a full time job,” he smiled. “Because if it becomes a full time job, then it’s a job. And frankly, I’m not looking for a job, I’m looking for fun.” 


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