Archive: Mar 2018
Understanding the New Aluminum and Steel Tariffs
With President Donald Trump’s new aluminum and steel tariffs about to take effect, many industrial and manufacturing companies are wondering how they may be affected and what to do to ensure operations remain as smooth and cost-efficient as possible. While the tariffs will not be not as drastic as some feared, the new regulations will inevitably still have a substantial impact; it’s critical to have a full understanding of the details.
The Ins and Outs of the New Aluminum and Steel Tariffs
Under these tariffs, any steel manufactured in another country will be subject to a 25% tax, while imported aluminum will incur a 10% tax at the U.S. border. President Trump has said that these changes will incentivize U.S. businesses to purchase materials from domestic manufacturers, allowing for a stronger industry and new job creation. A temporary exemption for Canada and Mexico is in the works, a reversal of his original position to apply the tariffs to all foreign countries.
These changes are the result of a Commerce Department investigation which concluded that imported metals pose a threat to national security, as such imports may stunt U.S. manufacturing. Specifically, the administration has said they’re aiming to curb the amount of cheap metals coming into the United States from China. But the tariffs would also greatly affect key American allies, like the European Union.
Many U.S. industrial companies are railing against the aluminum and steel tariffs, saying the new regulations would hurt business and set back production, while foreign officials have warned of strained international relations and the potential for retaliatory trade restrictions. Stocks have fallen in response the announcement of the new tariffs; declines in the industrial sector have outpaced the overall market, and shares of Boeing and U.S. auto manufacturers have dipped.
How the Tariffs Will Affect the Economy and the U.S. Manufacturing Sector
Over the past few weeks, experts have been weighing in on how these new tariffs will affect the U.S. economy and manufacturing sector. Generally, it’s expected that the tariffs will bring in some new American jobs, but other areas, like the downstream sectors of the U.S. auto industry, will see losses. Any industry making use of these materials, from canned soup providers to pickup truck manufacturers, will likely see reduced profits.
U.S. steel and aluminum producers will, of course, have higher profits, while consumers of the materials will see losses. This means materials manufacturers will have more “pricing power” over their products. American automakers — who make use of higher-quality, higher-priced steel — are likely to feel the impact acutely, as the industry accounted for 26% of total steel demand in 2017. By comparison, the construction industry accounted for 40%, according to the data provider Statistica.
Packaging costs will also likely rise for food and beverage producers, such as beer companies, boat makers, and any businesses that package their products in steel and aluminum encasements.
These rising costs may increase inflation, which was already a concern for many U.S. manufacturing companies. Higher inflation rates may prompt the Federal Reserve to raise interest rates, and may make bonds more attractive than stocks, thereby discouraging borrowing and hampering corporate earnings.
While the new tariffs have yet to implemented, right now it’s a safe bet that foreign companies in the metal industry will pass on the higher price of materials to U.S. companies making use of their products, while American consumers are likely to feel the effects at the cash register.