The U.S.’s continued trade policies with China and other countries have proven to be as tumultuous in 2019 as they were in 2018.
Tariffs have been lifted, implemented, threatened, and delayed, with changes occurring with regularity.
Across the metal fabrication industry, opinions and reported effects of the Section 232 (Steel and Aluminum) and Section 301 tariffs have been mixed.
Some have reported positive effects; others have reported the opposite. Some praise the current administration for its efforts; others denounce it. And for some manufacturers, results and opinions are mixed.
Let’s look into some of the reported benefits, challenges, opinions, and predicted outcomes for tariffs in 2019 and 2020.
Metal Fabrication Industry Benefits from Tariffs
In 2019, steel and aluminum producers initially reported positive gains from the tariffs implemented on steel and aluminum imports from Mexico and Canada—tariffs which were later lifted in May 2019.
In February 2019, several American steel companies announced plans to reopen this year, including U.S. Steel, who said they would reopen a furnace in Fairfield, Ala.
According to a February 11th U.S. Steel press release, restart of construction on this technologically advanced electric arc furnace (EAF) steelmaking facility was set to begin that month and produce steel rounds during Q2 of 2020.
On May 23, 2019, the U.S. Commerce Department reported that “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.”
Nucor Corporation, the largest U.S. steel firm, announced that their second-quarter earnings increased partially because of the effects of these tariffs.
Century Foundation Senior Fellow Andrew Stetter noted that the new tariffs on aluminum helped this industry in 2019.
In a quote in a Q2 2019 Area Development article, Stetter stated: “Production of U.S. aluminum is up 53 percent; there are a number of new smelters coming online; and 2,000 new jobs have been added.”
Finally, other manufacturers have expressed hope that Chinese tariffs will help to mitigate what they consider to be “unfair” Chinese trade practices.
Despite these positive reports, several companies in the metal fabrication industry have voiced their concerns about tariffs and how they may hurt American industries and workers.
In June, for example, factory representatives testified before U.S. trade officials over seven days, arguing how tariffs would hurt U.S. manufacturers and consumers.
Benefits that Don’t Last
Current indicators are less bullish as the initial positive benefits that the steel industry reported because of tariffs.
On Thursday, October 3, 2019, Moody’s downgraded the steel industry’s outlook from “stable” to “negative.”
Benchmark steel prices were down $520 a ton from a little above $800, as they’d been in 2018.
Moreover, the initial increase in steel prices and production reported by the steel industry did not last. Imports went down by 13%.
U.S. Steel, Nucor, and Steel Dynamics have warned earnings that their profits will suffer in Q3 and Q4 of 2019.
Negative Effects of Tariffs on the Metal Fabrication Industry
Tariffs have also caused—or are predicted to cause—negative effects to the metal fabrication industry.
1) Decrease in Exports & Increase in Supplier Prices
“As a consequence of these restrictions, we know a few things,” said Dr. Onur Sapci from the University of Toledo. “We pay for imports with exports, and we can only pay for imports if we export. Tariffs lead to a decrease in exports and a reduction in gains from trade, which costs jobs and causes job loss in the exports industry.”
Experts have predicted that tariffs could lead to an annual loss of $40 billion in U.S. exports.
In April 2019, the New York Times reported that manufacturers who obtain aluminum and steel from domestic suppliers have been negatively affected.
This article mentioned Winnebago Industries, a motorhome manufacturer in Iowa, who has experienced increases in imported and domestic metals, as well as higher prices for imported parts like tires, electrical components, and lighting fixtures.
In an article by STAMPING Journal Editor Kate Bachman, she cites U.S. Senator Roy Blunt, who stated that that “U.S. manufacturers have been paying as much as double the price of Chinese steel at one point….”
Also, on June 6, 2019, TheFabricator.com reported that “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.”
2) Trade Deficit & U.S. Economic Output
Additionally, the trade deficit reached a five-month high in May 2019, increasing by 8.4% to $55.5 billion, which some have attributed to our trade policies in China. (In July 2019, though, we saw the U.S. trade deficit narrow, dropping to $54.0 billion.)
Moreover, some have pointed out that tariffs have potentially hindered U.S. economic output in 2019.
Consumers in particular can be hurt by tariffs, as they have been historically by import restraints.
Sapci referenced research by Robert W. Crandall from the Brookings Institution, who analyzed the results of import restraints in the steel and automotive industries in the 1970s and 1980s.
Crandall demonstrated that the cost of protecting jobs in the U.S.—the main reason, in fact, that protectionist policies like imports are implemented in the first place—is offset onto consumers.
The reason for this is relatively simple per Sapci. Tariffs and other restraints reduce competition from abroad, which pushes the price of foreign goods up in the U.S. Consumers end up paying for these costs.
The prices of domestically manufactured products increase as well since the decrease in foreign exports paves the way for U.S. companies to increase their own prices.
In the steel industry, for example, researchers have shown that the estimated cost of preserving a job is approximately $75,000 per year.
This has also been reflected in the automotive industry. As a result of an agreement the U.S. and Japan entered to reduce Japanese imports from 1981 through the late 1990s, the estimated cost in one year to American consumers was $6.5 billion—$250,000 for each of the 260,000 jobs that were saved.
Finally, the Tax Foundation, a U.S. independent tax policy nonprofit, announced that Florida Man’s planned and imposed tariffs are predicted to reduce wages by 0.16%, eliminate 193,649 full-time, equivalent jobs, and reduce the long-run GDP by 0.25% (i.e., $62.50 billion) according to their Taxes and Growth Model.
The metal fabrication industry was by and large hampered by tariffs, which will most likely reduce economic efficiency.
This is an excerpt from COACT’s original research report on the state of the metal fabrication industry in 2020.
To obtain a copy of this report, schedule a meeting with us or attend our upcoming hospitality event at FABTECH 2019!
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