In early June, the United States government implemented a series of tariffs on materials essential to the manufacturing industry.
Among these were a 25% tariff on steel imports and a 10% tariff on aluminum imports from the European Union, Mexico, Canada, and China.
While these tariffs were designed as a way to aid the domestic steel and aluminum industries, the impact of these tariffs may come at a cost to manufacturers, and ultimately consumers.
In this post, we’ll dive into how the steel and aluminum tariffs are impacting the industry, in both positive and negative ways, so keep reading to learn more.
Fair Trade
The first effect of the new tariffs that we’ll look at is the intended purpose of them, fair trade.
By introducing these new tariffs, the government has created a more competitive field for the steel and aluminum markets, which often had trouble competing against companies from China and other locations.
Unfortunately, this competitive market hasn’t extended to those using steel and aluminum in their manufacturing efforts. Around the time that the new tariffs were implemented, the price of domestic steel increased as well, creating a lower profit margin.
This, in turn, may make it harder for manufacturers to compete with overseas companies at a consumer level.
Retaliation
As with many trade disputes, escalation can occur leading to opposite parties retaliating, which is something we’ve seen happen as a result of the steel and aluminum tariffs.
In June, for instance, the European Union announced their intentions to implement a 25% levy on a number of U.S. goods ranging from whisky to pleasure boats, as well as a 10% tariff on playing cards.
In July, Canada imposed some retaliatory tariffs of its own on nearly $16.6 billion in goods such as:
- Chocolate
- Coffee
- Dish detergent
- Yogurt
- Whiskies
- Prepared meals, such as pizza
Within the first two months of implementing the retaliatory tariffs, Canada has collected nearly $300 million as a result.
Additionally, we are seeing a similar back and forth between the United States and Chinese governments, with retaliations occurring on both sides.
Increased Demand
As previously stated, the steel and aluminum tariffs have helped bolster the U.S. steel and aluminum industries, creating an increased demand for the domestic materials.
Unfortunately, this increased demand has come at a cost. Shortly after the new tariffs were put into place, the price for domestic steel and aluminum increased as a result of the higher demand.
Many manufacturers aren’t just concerned with the price increase, but also an increase in lead time, with many worried that the domestic companies lack the capacity to keep up with the increased demand.
According to reports, there are only 140,000 steel-producing jobs in the U.S. compared to nearly 6.5 million steel-consuming jobs. Manufacturers worry that this could result in longer wait times for materials, increasing their own production times, which could find larger contracts turning to overseas companies to fulfill production needs.
Trickle-Down Effect
Along with the concern for continued increases in domestic steel pricing and a longer lead time, many manufacturers also worry that they will be forced to raise prices for consumers in order to make a profit, creating a trickle-down effect.
As the price of raw materials and production costs increase, the price of the final product may rise as well, which could harm the American manufacturing industry as a whole, with consumers turning to cheaper, foreign goods over American-made goods.
Not only could consumers feel the effects, but workers may as well. With increased overall costs and less business, companies may be forced to end expansion plans or even lay off workers.
In the auto industry alone, trade analysts are worried that not only could the tariffs increase costs for consumers, but possibly lead to nearly 700,000 auto workers losing their jobs as a result.
Moving Forward
As the trade disputes continue, manufacturers could be further impacted in a variety of ways, from additional tariffs to unforeseen price increases. While there are trade talks in the works, no definitive date is set as of now. Be sure to keep an eye on this issue.