Cement production hits a concrete wall: U.S. businesses and households are feeling the brunt of short-sighted environmental activism as America's supply of cement dries up.

If you couldn't get cement to pour the new patio you had planned in August, or if the increase in the price of concrete added several thousand dollars to the final cost of your new home, you can blame China or the Sierra Club or the federal government or your state government. Or all of the above. As with steel (see story on page 10), concrete is basic to modern society. And like steel, its prices and availability have been see-sawing madly over the past year, causing consumers and contractors enormous headaches and severe pocketbook anxiety.

Where does China enter the cement picture? It is the world's leading cement producer and our main foreign supplier. U.S. consumption of cement is a little over 100 million metric tons annually. We now import about 25 percent of that total, and China, Canada, Thailand, and Greece have become our top suppliers. Until, that is, China launched its latest huge construction spree: dams, roads, Olympic venues, port facilities, military bases, factories. For the past year it has been using about half of the entire world cement output, including all of its own cement production.

China's demand for cement, steel, and other products is also affecting the global shipping fleet that used to carry materials to the United States. "The ships that were being used to transport cement here are being diverted to the Orient, to China," says Jerry Howard, chief executive of the National Association of Home Builders (NAHB). "It's more attractive financially for them to make a run from Southeast Asia ... and from Greece [two big cement exporters] to China than to ship to the United States."

The NAHB's survey of builders in September showed 41 percent of respondents reporting cement shortages. The Portland Cement Association, a trade group representing U.S. and Canadian companies, reported in August that 29 states were experiencing shortages, despite the fact that virtually all U.S. cement plants are working around the clock, seven days a week. The shortages, which for many areas have been unprecedented in scope and duration, have caused major delays and cost overruns in residential, commercial, and infrastructure construction. The situation is not expected to improve in 2005, as China's building binge continues. Over the long term, shortages can be expected to occur with greater frequency and severity, since domestic consumption continues to expand much faster than any gains in domestic production.

Tuning the Tariffs

What can be done to remedy the cement shortage problem before it reaches crisis level? One solution being sought by NAHB and other construction groups is a temporary removal of tariffs on cement from Mexico. The proposal may have merits. The tariffs were imposed in 1990 by President George Bush (the senior) in response to charges by domestic cement producers of dumping by Mexican producers, primarily CEMEX, now the world's second largest producer. The tariff currently adds on about 40 percent to the selling price of cement from Mexican firms. CEMEX and other Mexican producers have cement, and American production is maxed out, so why not selectively lift (or greatly reduce) the tariffs to allow Mexican cement into those areas suffering the greatest short ages, especially during peak construction periods?

Adam Smith provides a thoughtful reflection on the matter, noting that "it may sometimes be a matter of deliberation, how far, or in what manner, it is proper to restore the free importation of foreign goods, after it has been for some time interrupted." He observes in The Wealth of Nations that this is especially so "when particular manufactures, by means of high duties or prohibitions upon all foreign goods which can come into competition with them, have been so far extended as to employ a great multitude of hands." Removal of tariffs, Smith says, should be done deliberately and gradually, so as to minimize disorder and injury to both workers and manufacturers. He writes:

   Humanity may in this case require
   that the freedom of trade should be
   restored only by slow gradations,
   and with a good deal of reserve and
   circumspection. Were those high duties
   and prohibitions taken away all
   at once, cheaper foreign goods of the
   same kind might be poured so fast
   into the home market, as to deprive
   all at once many thousands of our
   people of their ordinary employment
   and means of subsistence.

Noting that lifting of tariffs may cause severe losses to domestic manufacturers "by the home markets being suddenly laid open to the competition of foreigners," Smith recommends that "changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning."

Lifting the tariffs, gradually, as proposed by Smith, could be done in a way to alleviate acute shortages, without immediate harm to domestic producers and workers. A long term solution, however, must focus on increasing U.S. cement production capacity. As with the U.S. steel industry, our domestic cement industry is a world leader, in terms of technology, innovation, and efficiency. So what's the holdup? Why not set up a few more cement mills? In many other countries, that would be no problem. But in the U.S., cement companies run into a row of concrete walls: the federal Environmental Protection Agency (EPA), state EPAs, and a host of foundation-financed radical environmental groups.

On October 24, the Sierra Club and its legal arm, Earthjustice, filed suit in federal court calling on the court to order the federal EPA to impose harsh new emission standards on U.S. cement manufacturers. This is part of an ongoing campaign by the Sierra Club and other environmental extremists to shut down America's cement producers. U.S. cement mills already are the most heavily regulated and cleanest in the world. The new regulations do not address a genuine public health crisis, as the Sierra Club radicals assert. In fact, imposing the new regulations will undoubtedly harm public health and the environment. How? By shutting down more U.S. plants and thereby shifting more production to Mexico and other countries where (as the enviro-activists themselves admit) environmental regulations are far less stringent--or nonexistent.

The U.S. has an abundance of the raw materials needed for cement as well as the technology and know-how to be self-sufficient. However, we have been going backward in production capacity and becoming more dependent on foreign sources because of regulatory controls that are hamstringing domestic producers. Ash Grove Cement Company, the nation's fifth largest, announced plans earlier this year to build a $250 million plant in the Nevada desert, about 40 miles from Las Vegas. It may take years to get through the costly, onerous permit system and into operation, however.

Dealing with the heavy burden of environmental regulation is just one of the handicaps U.S. producers face. Like steel, cement production requires large amounts of energy, which has been made scarce and costly in the U.S., thanks to heavy restrictions on energy production from coal, oil, gas, and nuclear sources. There are now 118 cement plants in 38 states. A few years ago there were 179. Foreign companies now own approximately 81 percent of U.S. cement capacity, up from about 22 percent in 1980.

Kyoto Menace

There is a specter on the near horizon that could make things dramatically worse: the Kyoto Protocol on Climate Change. President Bush has quibbled over details of this pseudo-science UN seam but has moved steadily closet" to supporting adoption of Kyoto in some form. That would mean huge economic hits to U.S. steel, cement, paper, oil refining, and other domestic industries.

A study by the Argonne National Laboratory, entitled "The Impact of Potential Climate Change Commitments on Energy Intensive Industries," reported: "The Kyoto Protocol could easily raise fuel costs by 150 percent raising the price of domestically produced cement by 20 percent, U.S. exports would decline substantially and imports into the U.S. would increase at the expense of domestic output and employment. Imports would increase to 46% of the U.S. market by the year 2010 compared with 20 percent without the fuel price increases."

If we want to have secure, reliable, affordable supplies of cement for America's immediate and future building needs, adoption of Kyoto, obviously, is not the way to go. That would, in fact, take us in the opposite direction, toward more shortages, higher prices, and further dependence on foreign sources. American consumers, builders, and cement producers and suppliers must prevail on Congress to reject the Kyoto Protocol, or any permutation of it that supporters may confect to get the camel's nose inside the tent. Then they must work together to roll back the destructive environmental and energy policies that are at the root of many of our trade and economic problems.