In recent weeks, the United States implemented new tariffs on steel and aluminum to promote a policy of “America First.” The theory is that increasing import taxes on foreign steel and aluminum encourages U.S. companies to use U.S.-supplied steel and aluminum boosting production capacity toward a goal of 80% capacity utilization. Increased usage of American steel should drive more jobs for US steel and aluminum manufacturers and less business for competing suppliers in other markets, such as Europe and China.
What the Tariffs Mean for U.S. Industry and Consumers
While these steel tariffs were put in place to put American suppliers at an advantage, many drawbacks are now occurring that are affecting manufacturers and consumers alike. The Coalition of American Metal Manufacturers and Users has said that companies that make products using steel and aluminum employ more than 6.5 million workers across the country compared to 80,000 workers at steel plants. Any company that uses the materials will be faced with higher production costs. A report published in June shows that US steel is at the highest point in 16 years at $982 per ton and the widest price differential compared to $644 in Western Europe and $566 in China.
When manufacturers face increased steel costs, they must offset the added expenses incurred in other ways, which has the following effects:
- U.S. consumers will pay an increased cost for products containing steel, such as cars and appliances.
- U.S. manufacturers cannot pass on the increased cost to their customers. Higher tariffs lead to smaller profits, unless manufacturers are able to obtain steel from domestic suppliers at pre-tariff costs.
- With domestic steel at a premium, American steel suppliers may continue to increase their prices, though they will likely keep it just below the combined cost of foreign steel and its tariffs.
In typical supply-and-demand fashion, the limited supply of steel within the U.S. has already caused the price to go up. Since April of 2018, the price of steel has increased almost 26%.
This makes U.S. manufacturers that rely on steel far less competitive, and leaves some worrying for the future of their businesses. Rather than face intense profit losses on U.S. soil due to the increased material costs, some manufacturers are already outsourcing some operations to China instead, where they can use cheap Chinese steel tariff-free.
The effects of the new U.S. steel tariffs are widespread, touching aspects of the entire economy. But nothing has been more impacted by it than the manufacturing sector. Even if the results from the tariffs are good for domestic suppliers of steel, many other businesses that use the steel are feeling the pressure as they are negatively affected by the rising prices.
As a U.S.-based metal stamping company and a metal forming leader, Pentaflex continues to be on alert and up-to-date with information regarding this rapidly changing situation.
For more information about the recent tariffs, or to learn about our products and services, please contact us.