The U.S. recently imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports. Roughly one-third of the 100 million tons of steel used each year by American business is imported, while imports account for more than 90% of the 5.5 million tons of aluminum used by U.S. companies. Here’s what this means for U.S. manufacturers:
These tariffs are part of a broader trade negotiation between the U.S. and China
It is likely that these tariffs represent an opening move as part of a broader trade negotiation with China. Many U.S. manufacturers have been concerned about improving terms of trade with China including protections over Intellectual Property, and the steel tariffs may be an attempt to address some of these concerns.
National Association of Manufacturers (NAM) President and CEO Jay Timmons stated, “As we’ve seen for years, China’s theft of American intellectual property and their use of unfair trade practices represent clear threats to manufacturers’ competitiveness and the jobs of American manufacturing workers…..Any actions taken globally must be well crafted to lead to concrete solutions and limit damage back to the U.S. economy, especially since trade overseas supports the jobs of millions of U.S. manufacturing workers.”
Timmons says that tariffs will likely create significant costs for manufacturers and American consumers and could provoke China to take further destructive actions against American manufacturing workers. He suggests that the only way to make lasting progress is to “forge a fair, binding and enforceable trade agreement with China that requires them to end these practices once and for all.”
There will be winners and losers from the tariffs
The most obvious winner from these tariffs are the domestic steel and aluminum producers.
Many other industries will likely face material cost increases due to the tariffs. Large industries including auto makers, the aerospace industry, and appliance manufacturers count on steel to manufacture their products. Thousands of other manufacturers that create components for these companies rely on their global competitiveness.
The increased cost of individual parts could create “a cascading effect that has fairly significant impacts on our industry’s global competitiveness,” said Remy Nathan, vice president of international affairs at the Aerospace Industries Association.
The American Automotive Policy Council voiced concerns about the “unintended consequences” of these tariffs, saying they will lead to higher prices in the U.S. compared to competitors in other countries.
“This would place the U.S. automotive industry, which supports more than 7 million American jobs, at a competitive disadvantage,” the AAPC said in a statement.
With material component cost increases, these manufacturers will be looking for offsetting cost reductions elsewhere in the supply chain.
Impact of the tariffs are already being felt by U.S. Manufacturers
Machinery manufacturers said the tariffs on steel and aluminum imports were “causing panic buying, driving the near-term prices higher and leading to inventory shortages for non-contract customers.” Primary metal producers reported “significant price increases in the steel commodity” as a result of the tariffs.
However, the overall outlook for U.S. Manufacturing remains positive with continued manufacturing hiring growth in March and manufacturing orders and production still growing.
U.S. Manufacturers can expect China to retaliate
While the trade negotation could potentially lead to long-term benefits for U.S. manufacturers, in the near term there will be more uncertainty as each country trades blows. China has already struck back by proposing a 25% tariff on U.S. soybean exports to China.
This creates a challenging environment for manufacturers to plan for the future. U.S. manufacturers who are impacted by this trade spat will need operational agility and a continued focus on cost reduction and production optimization in order to succeed in this environment.