China has been at it again: cheating Americans. Its latest treachery? The Chinese government has been subsidizing its native manufacturers of rubber bands, allowing them to “dump” their stretchy wares on Americans at prices nearly 30% below fair market value.
This revelation—the result of a months-long investigation (pdf) by the US commerce department—is the latest in the Trump administration’s crusade for fair trade. The report found the Chinese government has been giving financial assistance to Graceful Imp. & Exp., Ningbo Syloon, Mouyang Trading Co, and other elastic makers. To level the playing field for American firms, the administration may soon require US buyers to pay a combined import tax of more than 150% on these sneakily cheap Chinese rubber bands, pending a final decision by an independent commission in late December.
This is worth paying attention to not because the risk of an imminent climb in rubber band prices, which, although indeed likely, will have a minuscule impact on the economy (only about a quarter of the $19.7 million worth of rubber bands the US imported in 2017 came from China, suggesting that no market is too small for the Trump administration’s America First vigilance). Rather, it’s the story behind the White House’s trade actions, the rise and fall of a US rubber band pioneer, and what this tiny market reveals about the evolution of American manufacturing competitiveness.
The determination of whether Chinese rubber bands hurt or threaten to hurt American manufacturers falls to the US international trade commission (ITC), an independent and bipartisan agency of the US government. If it finds that’s the case, US customs will start collecting duties worth 27.3% and 125.8%—to offset, respectively, the underpricing of Chinese rubber bands and the value of government subsidies. Taken together, the two duties “provide American businesses and workers with an internationally accepted mechanism to seek relief from the harmful effects of unfair pricing of imports,” says the commerce department in its announcement.
But are there any American businesses to protect? It’s a reasonable question. Rubber bands seem like exactly the kind of price-driven, low-margin manufactured good that long ago would have shifted to factories in poorer countries.
There are, and one of them, Alliance Rubber Company of Hot Springs, Arkansas, is not just the biggest US rubber-band maker but the company that set the Trump administration’s trade actions in motion, when it petitioned for an investigation in Jan. 2018.
Alliance is no ordinary manufacturer. It is to the rubber band what Ford was to cars, or Harley-Davidson was to motorcycles—a pioneer in translating industrial technology into products for the consuming masses.
Rubber comes from latex, the milky sap that oozes from cuts in rubber trees in the same way we get maple syrup. In the innovation heyday of the early 1800s, inventors began tinkering with using rubber to waterproof cloth. That was great for when it rained but when temperatures climbed, the rubber melted. Rubber remained mostly useless until 1839, when Charles Goodyear accidentally stumbled upon vulcanization, a way to temper rubber so that it withstood heat without losing its stretchiness. (Note that Goodyear wasn’t the first: More than 3,000 years ago, the Olmec of Mesoamerica pioneered a similar technology to create, among other things, mankind’s first waterproof sandals and bouncy rubber balls.)
The official invention of the industrial rubber band in 1845 came with the explosion of rubber applications that followed Goodyear’s discovery. However, these were footnotes in rubber history compared with the truly revolutionary application: tires, first for bicycles, and then, in the early 1900s, for automobiles.
There’s some evidence that factories in the northeast US were mass producing rubber bands, for both domestic sale and export, as early as 1901 (pdf). However, according to rubber band industrial lore, the true genesis of the modern rubber band—the sort that binds everything from cilantro bunches to lobster claws—dates back to Alliance, Ohio, in 1923. That’s when a railroad worker named William Spencer got fed up with chasing his local newspaper across his neighbor’s lawn on blustery days. His job gave him access to discarded Goodyear inner tubes. Slicing these into circular strips created bands to secure otherwise windblown leaves, Spencer discovered. Soon thereafter, he set up a rubber band production factory in Ohio, with another in Hot Springs soon to follow. The Akron Beacon Journal and the Tulsa World were his first customers.
Nearly a century later, Alliance is still family run, and still cranking out rubber bands in Hot Springs, where Spencer relocated the company in 1944. Alliance now makes 2,200 products sold in 55 countries worldwide and as of 2015, Alliance was the planet’s biggest rubber band manufacturers.
Back in the early 1980s, nine-tenths of rubber bands bought in the US were made there too—and Alliance was among a handful of companies supplying what was then the steadily rising American demand for rubber bands. Times have gotten much tougher, though, as digitization and the implosion of the newspaper business dealt a blow. While that was largely offset by exploding demand for fresh produce, a much bigger hit came from Asian competition.
Alliance has long struggled with overseas competition. Cheap labor is a factor but not the only one. Of the costs that go into making a rubber band, the raw material is the biggest. And that, naturally, comes from rubber trees. Though the trees were native to the Amazon areas of South America, they were brought to Southeast Asia in the late 1800s and grown in plantations throughout the British Empire. To this day, most commercial rubber comes from Malaysia, Indonesia, Thailand, and Sri Lanka and producers in Thailand—and, to a lesser extent, Sri Lanka—benefit from cheap access to rubber supplies.
Alliance is now the only major US rubber band maker still standing, explained the company in its Jan. 2018 petition (pdf). By its estimate, it now makes at least 90% of US-made rubber bands, though it claims only about 40% of the US market, according to Jason Risner, Alliance’s business director in a radio interview with NPR’s All Things Considered. While alliance says it differentiates its products through superior quality—the softness and reliability that comes from a higher rubber content—the rubber band business is still driven by prices.
“We lost a significant customer and they let us know that we had lost their bid to a company in Thailand that had quoted half of our price,” Risner said. “It didn’t make sense for them to be able to produce a pound of rubber bands at that price.”
He’s talking about Staples, the office-supply retailer. In 2015, Alliance won the account to supply the chain’s private label rubber bands and Staples instantly became its biggest customer. To keep up with this huge bump in demand, Alliance built a massive warehouse to house the extra rubber it would need.
Then in early 2017, Staples informed Alliance that it was killing the contract, switching to the super-cheap Thai rubber bands instead, according to Risner. As its new warehouse sits unused, the company now fears that Staples’ defection will prove to be the “tip of the iceberg,” it says, as Office Depot and other big rubber band buyers ditch American rubber bands for cheaper foreign versions. Office superstores are only part of the worry; Alliance says it’s already lost considerable business to Thai competition for the asparagus, broccoli, and green-onion band businesses.
Alliance says that its Asian competitors’ market dominance is due not to their proximity to raw materials—a competitive advantage but not an unfair one—but to government financial support so generous that many of these companies can afford to sell rubber bands for less than it costs to make them.
In its petition, Alliance alleged dumping margins of up to 133% for Sri Lankan rubber bands, and up to 78% for those from Thailand, according to a February statement from the commerce department.
“We could be doing so much better if we weren’t up against this unfair competition,” Risner said. “We could be employing 250 employees, you know, here in Arkansas.”
So in January, Alliance took its concerns to the Trump administration, filing a petition for an investigation into dumping and countervailing duties.
There was reason for optimism. While past administrations have tended to balance trade investigations with larger geopolitical priorities, the Trump administration has made the “strict enforcement of US trade law [its] primary focus.” And it seems to be following through: the commerce department says the 137 new investigations into unfair trade practices are a more than threefold increase from the same period during the Obama administration. Plus, there’s precedent: a 127% anti-dumping duty on Chinese paper clips initiated in 1994 remains in place still today (pdf).
Last week, the Trump administration increased the likelihood of actions—but only against Chinese companies. The commerce department dismissed allegations of dumping and unfair subsidies against Sri Lankan companies, while it’s withholding judgment on Thailand until next year. However, preliminary investigation reports suggest the maximum duty on imports from Thai factories is a wee 5.9% for dumping. Meanwhile, the commerce department has so far found minimal signs of subsidies benefiting Thai factories.
In other words, though the administration’s trade enforcement is another sign of its getting tough on China, Alliance may not get the relief it’s seeking. Foreign competition is likely to keep stretching America’s rubber band industry closer to its breaking point.