What Would A Steel Tariff Mean For Manufacturers?

steelWith President Donald Trump announcing that he will sign an order next week imposing a 25% tariff on steel imports and a 10% tariff on imported aluminum, U.S. manufacturers are contemplating how it could impact their materials sourcing and supply chains.

Secretary of Commerce Wilber Ross told CNBC in late-February that he expects President Trump to take a “surgical approach” to any restriction on steel or aluminum imports. “I’m sure he will do it in a very thoughtful and systematic way,” Ross said.

The Department of Commerce’s recommendations include a 53 percent charge on steel from a dozen nations and a 24 percent global steel tariff.

While this was welcome news for American steel producers, it has been cause for alarm for some American manufacturers who are big consumers of metals. Many, including auto makers, the aerospace industry, shipbuilders and appliance manufacturers, count on competitively-priced steel to manufacture their products. Thousands of other manufacturers that create their components for these companies and their products rely on their competitiveness.

“domestic steel-using manufacturers will lose because of the higher input price, lower profits and the potential for reduced sales and market share.”

Mark Vaughan, president of a small manufacturing company that makes parts for companies such as Carrier and Whirlpool, told NPR.com that while he buys steel domestically, tariffs could impact the whole supply chain.

“All of them concentrate on cost, and if the cost of their products goes up, then that would create the environment where they may go elsewhere as far as how they go about supplying their plants,” Vaughan said.

Mark Perry, a scholar at AEI and professor of economics and finance at the University of Michigan’s Flint Campus, said at the firm’s blog that when the department of commerce imposed duties on imports of cold-rolled steel in 2016, “it was American manufacturers, not Chinese steelmakers, who were slapped with the massive tariff.” Perry noted that domestic steel-using manufacturers will lose because of the higher input price, lower profits and the potential for reduced sales and market share.

“And even if they avoid buying Chinese steel, US manufactures will still face much higher steel prices as American steelmakers, protected from foreign competition and lower-priced foreign steel, gain US market share with their higher-priced steel,” Perry said.

Perry noted in his blog post that Brookville Equipment Corp. uses 10 tons of steel to make a single mining locomotive and would see profit reduced by a few thousand dollars per machine.

It’s worth noting that other nations could retaliate with their own tariffs, which in turn could reduce the demand for some products built by American manufacturers. Harley-Davidson media manager Michael Pflughoeft told CNBC.com that “in general, tariffs impact our ability to offer products at a competitive retail price to our customers in any market.”

Many say it is a complex issue. Experts note that steel has never fully recovered from the 2008 financial crisis and that capacity utilization in the U.S. iron and steel industry has been lagging. Trump’s interest in steel tariffs isn’t new. Last year the president launched a Section 232 investigation to find the impacts of steel and aluminum imports.