June 28 (Bloomberg) -- Jim Weissenborn’s family has been making pencils in New Jersey for 150 years.
In a three-story factory in Jersey City overlooking the Hudson River, 60 employees of General Pencil Co. use a century-old process to pound graphite and clay into a powder that is heated, wrapped in cedar wood, capped with an eraser and sent to customers around the world.
General Pencil now focuses on colored and drawing pencils rather than the yellow No. 2s used by generations of U.S. schoolchildren. Chinese rivals dominate those sales, even after U.S. producers in 1993 got the government to impose anti-dumping duties on pencils exported by China at a fraction of the American cost, and after those fees were renewed this month for the third time.
“The yellow pencil basically became a Chinese commodity,” Weissenborn, 72, the company’s owner and chief executive officer, said in an interview. “We’ve had to become a very boutique type of business in order to survive. Anti-dumping helps the companies that are left get some relief from this onslaught.”
Pencils are an example of American-made goods, from honey to bedroom furniture, that the U.S. shields from global competition it deems unfair and damaging to American industry, using more than 300 anti-dumping and countervailing duty orders. About half of those orders are imposed on iron and steel products. China accounts for one third of all U.S. cases, the most of any country, according to the trade commission.
China accounted for $59.7 million, or 37 percent, of the value of pencils imported by the U.S. last year, more than three times Brazil, the next-biggest exporter to the U.S., according to the U.S. International Trade Commission and U.S. Department of Commerce. That compares with $32 billion in laptop computers, the biggest Chinese export to the U.S.
The U.S. collected more than $32 billion in tariffs in the 2010 fiscal year, with anti-dumping and countervailing duties accounting for $314 million and China pencil levies for $4 million, according to U.S. Customs and Border Protection.
Duties usually fail to protect U.S. industries because they’re applied to specific countries and simply force production from one low-cost market to another, according to Douglas Irwin, an economics professor at Dartmouth College in Hanover, New Hampshire.
“It’s sort of a Whac-a-Mole process where you can only hit one place at a time,” Irwin said in an interview.
In the case of pencils, China manages to “undersell U.S. producers by a significant amount, even with the restraining effects of the anti-dumping order,” Charles Anderson, a Washington-based consultant for Dixon Ticonderoga Co., the Heathrow, Florida-based maker of yellow pencils identified by their green bands, said in a December letter to the trade commission.
The U.S. reviews anti-dumping orders every five years and is obligated by trade agreements to remove them unless doing so is likely to lead to recurrence or continuation of dumping that hurts American producers. The six-member trade commission voted unanimously on June 13 to extend the order after four pencil producers, including Dixon Ticonderoga and General Pencil, said removal would lead to increased Chinese dumping.
“The dumping order has not kept Chinese pencils out,” Anderson said in an interview. “Specialty products or higher-value products are what the U.S. producers really concentrate on.”
American producers accounted for 14 percent of pencil sales in the U.S. in 2008, down from 28 percent in 2004, Dixon said in its letter, citing Writing Instrument Manufacturers Association and Commerce Department data.
David Baker, executive director of the manufacturers association, declined to disclose sales for individual U.S. companies, and the information was withheld from the trade commission’s documents. The companies also declined to provide the data.
U.S. demand has been steady at about 3.6 billion pencils sold each year since the last review of the anti-dumping order in 2005, according to the letter. Chinese pencil imports have surged fivefold since 1996, and imports from all sources worldwide have more than tripled, according to trade commission and Commerce Department data.
The growth in pencil imports from China shows that the anti-dumping order has been a failure, according to Michael Moore, a professor at George Washington University in Washington and an economist with the Council of Economic Advisers under President George W. Bush.
“The question I always ask is, ‘If a pencil manufacturer didn’t exist in the U.S., would you set it up now?’” Moore said in an interview. “If the answer is no, it probably means the one that is here today won’t be here in 20 years.”
Pencil makers in the U.S. boast among their ranks Henry David Thoreau, the 19th century philosopher and writer, who worked for a time in his father’s pencil factory, according to the website of the Thoreau Society in Concord, Massachusetts.
Musgrave Pencil Co. still produces yellow No. 2 pencils along with specialty products at a factory in Shelbyville, Tennessee, according to Henry Hulan III, the company president whose grandfather started the business in 1916. Shelbyville calls itself “the Pencil City,” a remnant of an era when a number of pencil factories operated there, according to Hulan.
Sanford Corp. continues to make yellow No. 2 pencils in Lewisburg, Tennessee, said David Doolittle, a spokesman for Newell Rubbermaid Inc., which bought the company in 1992. Sanford reduced production in 2008, he said in an e-mail.
Dixon Ticonderoga was bought by Fila-Fabbrica Italiana Lapis ed Affini SpA of Milan in 2005 for about $22 million after more than 200 years in business. While the company makes pencils at facilities in the U.S., it also produces them in China, Anderson said.
‘Another 100 Years’
Yellow No. 2s produced by General Pencil have continued to decline under the anti-dumping orders, and the number of workers at its factory dropped about 30 percent by attrition since the early 1990s, Weissenborn said.
Weissenborn credits anti-dumping duties for helping to keep his family’s business going for a sixth generation. His granddaughter joined the company in sales and marketing two years ago after graduating from college, he said.
“As long as there’s a niche, we’ll be in business,” Weissenborn said. “We’ve done this for 100 years and hopefully can do it for another 100 years.”
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