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Chinese aim to be No. 1 supplier of No. 2 pencils

Wednesday, July 13, 2011

SHELBYVILLE -- There was a time here that if you didn't work for a pencil manufacturer, you were related to someone who did. Empire, Musgrave, Shelbyville Pencil Company ... their numbers were legion and their No. 2s were legend.

And now, most of those No. 2s are coming from China, in one form or another.

Supply and labor costs have sent many manufacturers overseas, where the pencils can be produced much more cheaply. So much more, in fact, that the "anti-dumping" tariffs imposed against the Chinese since 1993 aren't working. According to the U.S. International Trade Commission and the U.S. Department of Commerce, as reported by Eric Martin of Bloomberg.com, China accounted for almost $60 million of the value of pencils imported by the U.S. last year -- about 37 percent of the market, compared to the estimated 14 percent from American manufacturers.

"You don't compete with them -- you can't," said Henry Hulan, president of Musgrave Pencil Company, celebrating its 95th year. "They're paying their workers something like 25 cents an hour and we don't do that. We pay insurance and taxes and they don't. It's part of the American economic system."

While the anti-dumping duties may have helped American manufacturers some, Hulan believes the Chinese exporters have ways of getting around them, usually by shipping through other countries such as Taiwan or Vietnam. The result is a flood of yellow No. 2s.

"They're really easy to get now. They're readily available and still fairly inexpensive. It's affected everyone who has anything to do with pencils," said Hulan. "Everybody who had a small market share as far as pencil manufacturing is concerned."

Even though the tariff was re-issued recently for another five years, some experts doubt it will work. In Martin's report, he quoted Douglas Irwin, an economics professor at Dartmouth, who said duties usually fail because they are "applied to specific countries and simply force production from one low-cost market to another."