While executives around the world are scrambling to offset the cost of Trump’s move to impose 25% tariffs on aluminium and steel, businesses and industry within the US too are bracing for negative impact of tariffs.
Trump’s tariffs a self-goal?
What Trump aims to gain with tariffs is accelerated manufacturing and creation of more jobs, building domestic industry by protecting it from competition with imported products and lower trade deficits as well as putting political pressure on other countries. However, tariffs of 25% on imported metal could be as ineffective in fostering domestic production as the previous round of restrictions he kicked off in 2018. Since those actions, US production capacity for aluminum has fallen by 32%, while steel is down 3.6%, as per a Bloomberg report.
Trump first targeted steel and aluminum for tariffs in 2018 under a Cold War-era national security law. Two years on, the numbers didn’t look encouraging, TOI has written. The US steel industry added just 1,000 jobs. But because tariffs had made imported steel costlier, domestic steel prices rose. Each of those 1,000 jobs eventually cost US consumers $900,000 more – many times a mill worker’s pay. But 75,000 jobs that might have been added in industries making cars, washing machines, etc – products that use steel – didn’t happen because costly steel made steel products costlier, and uncompetitive against cheaper imports. As per TOI, in those two years, US firms filed 100,000 requests to be exempted from steel import tariffs.
A White House official said the exemptions had eroded the effectiveness of those measures. Trump had later granted several countries exemptions, including Canada, Mexico and Australia, and struck duty-free quota deals for Brazil, South Korea and Argentina based on pre-tariff volumes.
“We applaud the president for instituting these 25% tariffs on steel imports and getting rid of exclusions, carveouts and quotas that are based on antiquated data,” said Philip Bell, president of the Steel Manufacturers Association.The short-term gains for the US from Trump tariffs will come with risks, a Bloomberg columnist has argued: “Depending on the response from US households, targeted countries and companies on both sides, tariffs can be stagflationary, contributing to cost increases while slowing growth. This impulse could be stronger now than during Trump’s first term, given the fragility of low-income consumers and the extent to which companies were hurt by the unanticipated surge in inflation that followed the pandemic.”Though steel and aluminium industries would welcome Trump’s tariffs, the import taxes could impose a heavy cost on various American manufacturers.
American businesses brace of tariffs impact
Companies ranging from Coca-Cola, Ford and Coty to smaller aluminum, aerospace and appliance firms expect to be affected by Trump’s moves, which Ford CEO Jim Farley said have so far added “a lot of cost and a lot of chaos” to American business. However, Farley believes the president aims to strengthen the American auto industry overall.
Businesses around the nation have warned off fallout from the tariffs, with many manufacturing-heavy companies finding it difficult to plan next steps or determine if Trump will follow through on signaled policy moves. Ford is considering areas in which it can build up inventory to prepare for potential 25% tariffs on imports from Mexico and Canada, executives said at an analyst conference Tuesday.
US businesses have warned of fallout from tariffs, with many manufacturing companies finding it difficult to plan next steps, Reuters has reported. “There’s so much we don’t know. We don’t know if they will go in place. We don’t know if there will be exemptions at all,” said David Gitlin, CEO of heating and refrigeration company Carrier Global on the company’s earnings conference call Tuesday. Executives are employing a number of strategies, including changing their mix of imports or passing on costs to consumers outright.
Coca-Cola, for instance, said it could shift its imports to rely more on plastic bottles if aluminum cans become more expensive, as per the Reuters report. Fragrance company Coty said it has boosted US inventories and is increasing production of fragrances in North Carolina. Coca Cola shares rose 3.6% on Tuesday while Coty shares were down 7.4%.
General Motors said it cut inventory in its international plants by 30% to 40% before Trump’s January 20 inauguration. However, if suppliers are affected, that could hit the automakers as well. Global auto supplier Autoliv told Reuters that it plans to pass on increased costs due to tariffs to the car manufacturers, “which will likely result in higher car prices in the end.”
In the near term, Trump’s tariffs could cost the industry $110 million in added costs each day and potentially $40 billion for the year without major production shifts, according to Bernstein analysts. The Detroit Three are among the most exposed. Stellantis makes 39% of its North American vehicles in Mexico or Canada, while GM makes 36% there and Ford Motor makes 18%, according to a November report from Barclays. The vast majority of those vehicles are destined for the United States. VW produces about three-fourths of its North American fleet in Mexico, Barclays said, including some of its most popular and affordable vehicles such as the Jetta, Tiguan and Taos.
Chicago-based Century Aluminum, which operates several US aluminum smelters, said it strongly supports tariffs. “President Trump’s decisive action will protect national security and help level the playing field for America’s aluminum workers,” said Century CEO Jesse Gary. But some US companies urged Trump to consider the long-term effect of tariffs on the metals industry. “There needs to be a long-term strategy to increase the amount of aluminum produced in the US so we can be closer to self-sufficiency,” Brian Hesse, CEO of New York-based PerenniAL, a privately held distributor of slab, wire rod and billet produced with aluminum used to make wheels, window frames and other products, told Reuters. He said any price increase that PerenniAL faces due to tariffs would ultimately reach the average consumer.
Garry Douglas, president and CEO of the North Country Chamber of Commerce, told Reuters stockpiling is picking up, based on conversations with more than 40 regional manufacturers and warehouse operators in recent weeks. “There is no ability to suddenly substitute domestic supplies, particularly with aluminum with more than half coming from Quebec,” he said.
Trump tariffs rattle small business owners
Trump’s wide array of tariffs is rattling small business owners already dealing with tight profit margins, AP has reported. Sandra Payne, owner of Denver Concrete Vibrator, imports steel and other raw materials for her business. Her company makes tools to settle concrete and other industrial tools. Most of the steel the company uses comes from China, and she gets material from Canada and Mexico, too. “Small businesses run on very small margins. And so a 25 per cent increase in any product is going to hurt,” she told AP. “And we can’t just raise our prices every time the cost goes up to us. So we are losing a lot of money.”
In addition to the steel and China tariffs, other tariffs on Mexican and Canadian goods have been temporarily put on hold, but they could be implemented later. So, small business owners still need a strategy for mitigating the costs of the tariffs if they go into effect.
Bar Zakheim, owns Better Place Design and Build, a contracting business in San Diego that specialises in building accessible dwelling units, or ADUs. He said he is especially worried about lumber. “This stuff has already been getting more expensive over the past few years due to supply chain shocks and wildfires, and a huge proportion of our lumber comes from Canada,” he told AP. “These tariffs are going to make everything we do considerably more expensive, at a time when the high-priced housing market and high interest rates are already cutting into our bottom line.”
Payne, of Denver Concrete Vibrator, added that the tariffs will likely have a domino effect. “I sell to other businesses, I don’t sell to the end user. So everything that happens to me is going to happen all the way down the line. It’s going to impact everyone down the line,” she told AP.
(With inputs from agencies)
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