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The impact of tariffs on stampers and other metal consumers
Taking a closer look at the complicated steel, aluminum, automotive, China, and Mexico tariffs
- By Kate Bachman
- June 6, 2019
Even as I write this today, June 3, about the steel and aluminum, pending auto, widening Chinese, and now Mexico immigration tariffs, I know that in three days, when this is published, everything may have changed.
In the past tumultuous weeks, President Trump announced an end to the Section 232 steel and aluminum tariffs, the beginning of tariffs on foreign auto imports, a six-month delay on those tariffs, tariffs on Mexico as leverage to push it to halt illegal immigration, and higher tariffs on Chinese imports.
It has been a wild ride for stamping manufacturers buying steel and aluminum, supplying the auto industry, and sourcing from and selling to the global market.
Trying to even broach the subject of tariffs today is like trying to take a bite out of a triple-stacked, mayo-slathered, condiments-stuffed, extra-pickles steaming hot sub sandwich. The topic is just so multilayered, shape-shifting, and enormous. I feel compelled to try, though, because of the tariffs’ effects on stamping plants, so I’ll go layer by layer.
Steel and aluminum tariffs
I’m certain that most stampers and other metals consumers breathed a sigh of relief at the announcement that the Section 232 tariffs would cease, less than a year after they were applied to the U.S.’s largest trade partners, Canada, Mexico, and the E.U. in June 2018. I’m just as certain that U.S. steel and aluminum producers will resume sending releases and reports of alarm about the threats of foreign metal imports.
As consumers, stamping manufacturers and metal fabricators have been between a rock and a hard place, paying higher prices while also competing with suppliers sourcing that cheaper steel. U.S. manufacturers have been paying as much as double the price of Chinese steel at one point, according to U.S. Sen. Roy Blunt, Chairman of the Senate Republican Policy Committee (RPC).
Automotive tariffs
When the steel and aluminum tariffs went into effect last year, I expressed my view that they fell short of helping steel-consuming U.S. manufacturers and that they could be effective only if they extended all the way through the supply chain to products largely constructed of steel and aluminum. Just as he lifted the steel and aluminum tariffs, Trump announced he is considering imposing tariffs on steel- and aluminum-rich vehicles, which are constructed of steel and aluminum, citing a national security threat. The reason Trump relies on the national security threat reason is that, according to Blunt, the WTO has to allow member countries to levy tariffs in the case of national security. Not having the capacity to ramp up automotive production because of imports would threaten national security, the rationale goes.
Opponents to the proposed automotive tariffs point to the cross-border supply chain and say that the current dependence on foreign suppliers would disrupt and damage the domestic auto industry. That makes sense, though the point of the tariffs is to force automakers to find domestic sources for those supplies, bolstering U.S. suppliers’ businesses, isn’t it?
Will that pose challenges and take time to rebuild connections? Absolutely. Will U.S. stampers and metal fabricators be able to fill those voids? I’m certain of it. Will U.S. consumers who have been feasting at the table of cheap imports made cheap by unfair trade practices face higher prices? Yes, no doubt. In an AP report, Walmart Chief Financial Officer Brett Biggs said, "Increased tariffs will lead to increased prices for our customers."
Will those U.S. consumers whose wages have been suppressed by global trade and wage disparities be highly challenged to pay those resulting higher prices? Yes, but to what degree is uncertain. Most of the price increases are likely to be borne by the importers that have profited by the price discrepancies because wage-suppressed consumers will set a ceiling on the prices they will pay. Still, paying higher prices with suppressed or only slightly higher wages is a sure formula for pain for consumers. It probably won’t help the GDP either.
Then, on May 17, the Trump administration announced it will delay auto tariffs by up to six months as it tries to reach trade agreements with the European Union and Japan.
Chinese tariffs
I was first alerted to the China-U.S. trade disparity with a Fast Company article by Charles Fishman in 2003 called “The Wal-Mart You Don’t Know.” Fishman’s article narrative described how one great U.S. manufacturer after another went under as price-advantaged Chinese goods ousted more expensive U.S.-manufactured goods as a result of trade inequities.
Since China joined the WTO in December 2001, it took advantage of the benefits of so-called free trade while also being allowed to engage in trade violations such as currency manipulation, intellectual property theft, government subsidies, and tariffs on goods exported to it. It also enjoyed advantages of low wages, and requirements that foreign countries’ manufacturers and investors manufacture in the country and hire its workers. China built its economy as a net exporter. In effect, China could play at the country club without paying dues, so to speak, because WTO rules make exceptions for “developing nations.”
One has to look no further than the increasing trade imbalance numbers on the U.S. Census Bureau to see, in living color (red), that the trade inequities have impacted our economy, and with it, U.S. manufacturers. In 2000, our trade imbalance with China was -$83,833 million. In 2018, it was -$419,162 million.
Ironically, the U.S.’s major trade vulnerability is its own subsidizing of its agriculture industry, which gives the U.S. its trade advantage, and why U.S. farm exports are targeted by China and other countries with their tariffs.
Also ironically, congressional Democrats initiated attempts at countervailing tariffs over a decade ago and congressional Republicans blocked those efforts under a rallying cry for free trade. Some inroads to trade balance were made during the George W. Bush and Barack Obama administrations, including steel and aluminum tariffs and specific trade remedies which shrank Chinese steel exports to the U.S. to 6 percent by 2016.
Still, U.S. steel producers heralded the Trump-initiated 232 tariffs. So, too, did the U.S. Commerce Department in an unusually promotional, glowing press release on May 23: “The President’s imposition of Section 232 tariffs has brought American steel and aluminum plants roaring back to life, providing thousands of new jobs and billions of dollars of investment across our Nation. These industries are crucial to protect our national security and critical infrastructure, and this deal is another notch in the long line of successes of President Trump.”
Mexico tariffs-for-immigration halts
Friday’s announcement by Trump that he would brandish an escalating tariff on imports from Mexico—as much as 25 percent—to force it to halt illegal immigration coming from South America puts the whole enchilada into another dimension. It is a perversion of the tariff concept, which is intended to right the ship to balance the trading wrongs of another country, not to be used as a battering ram to achieve some other agenda.
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The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
start your free subscriptionAbout the Author
Kate Bachman
815-381-1302
Kate Bachman is a contributing editor for The FABRICATOR editor. Bachman has more than 20 years of experience as a writer and editor in the manufacturing and other industries.
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