The steel and aluminum tariffs initiated by the Trump administration are making an impact further downstream than one might think. In other words, the tariffs are not just affecting those who do the importing. On March 8, 2018, President Trump imposed a 25% tax on imported steel and a 10% tax on imported aluminum in an effort to boost manufacturing jobs in the United States. He tweeted on August 4, “Tariffs have had a tremendous positive impact on our Steel Industry. Plants are opening all over the U.S., Steelworkers are working again, and big dollars are flowing into our Treasury.” It’s certainly true that we have seen an increase in U.S. steel production and a corresponding decrease in steel imports[1], but the effects of these laws are not all positive; downstream manufacturers are feeling a squeeze.

The Effects of Steel and Aluminum Tariffs

The tariffs created quite a few jobs in the U.S. metals industry, but for every job gained in metals, it is estimated that 18 downstream jobs are lost[2]. We know that tariffs lead to a higher cost of imported raw materials, but what may be surprising is that an increase in imported materials can cause the price of U.S.-sourced materials to jump, as well. Our country’s steel industry is relatively small, and without the raw materials competition from other countries, U.S. producers are raising their prices. Many downstream manufacturers must choose between paying a higher price for their raw materials (either imported or domestic), or purchasing pre-fabricated goods from a foreign country to avoid the additional tax.

The negative effects are most notable in the automobile industry. Automobile manufacturers like Subaru, BMW, and Ford have attributed huge earnings hits to the steel tariffs. They have tried to pass some of the materials price increase onto the consumer, but they cannot raise prices quickly enough to track the rising materials costs. These large automobile companies are adjusting their sourcing and operations as quickly as they can, and even with their vast resources, they are having a difficult time keeping up. It is the small businesses who will be hurt; they will not be able to adjust as quickly to the new regulatory environment, and they may end up as collateral damage.

Outlook

Whether the price increases are related to actual cost differences or are attributable to trade war fears remains uncertain. What we do know is that companies that use steel or aluminum further down the supply chain are feeling the hit. Even companies who do not use steel are noticing the price hike trickle down to their level. All niches of our economy are affected by trade deals like this, so it is difficult to estimate how a change will settle into the system and finally find relief.

And unfortunately, the tariff talks are not over; Trump is considering imposing a 25% tariff on all imported vehicles, similar to the tariff it recently imposed on cars imported from China. Such an imposing regulation has the potential to impact all large markets across the globe, so much so that the European Union offered to reduce their 10% tariffs down to zero if the U.S. did the same. President trump dismissed that idea, and the 25% automobile tariff remains a threat.

Contact Us

All downstream manufacturers, from a food manufacturers to contractors, and from maintenance workers to trucking companies, have the potential to be impacted by the steel and aluminum tariffs. The impact may be difficult or impossible to prepare for fully, but a simple step you can take is to begin researching. Meet with new vendors; explore different pricing strategies; talk to others in your industry about these tariffs. In other words, prepare yourself for what is to come. If you’d like to discuss these tariffs in more detail, feel free to contact us. Our industry leaders can connect you with the resources you need. We look forward to speaking with you soon.

[1] https://www.economist.com/finance-and-economics/2018/08/09/tariffs-on-steel-and-aluminium-are-creating-some-winners

[2] https://www.supplychaindive.com/news/steel-supply-chain-production-manufacturing-tariffs/520018/