Companies are racing from client to client, offering guidance in the last hectic days before President Donald Trump’s tariffs take effect on Friday.
Tariffs will push up prices
Companies using the metals that Trump’s targeting say they expect costs to rise. The tariffs will take an annual $347 million toll on America’s brewers, for example, and kill more than 20,000 jobs, according to trade association the Beer Institute — by adding a fraction of a cent to the cost of each can.
Somewhere in the Atlantic and Pacific oceans, cargo ships bound for the U.S. are carrying 5,000 tons of steel ordered by David Wolff’s Michigan-based distribution company.
Somewhere in the American Midwest, Wolff — the chief operations officer at Peerless Steel Co. — is racing from client to client, offering what guidance he can in the last hectic days before President Donald Trump’s steel tariffs take effect on Friday. But Wolff himself admits he doesn’t have much of a clue what happens next.
He doesn’t know if his shipments will clear customs before the midnight deadline, saving the company millions of dollars (“we’re praying”). More generally, he doesn’t know how much he’ll have to hike prices by, or for how long. In three decades in the industry, Wolff says he’s never seen such chaos. “It’s a mess,” he said by mobile phone on Tuesday. “It’s the Wild West.”
Peerless and most of its customers are based in Trump country, the rust-belt states that propelled the president to a long-shot election win. He pledged to bring jobs back to a once-proud industrial region hollowed out by free trade. For supporters, this week’s measures — a 25 percent charge on steel, and 10 percent on aluminum — are a down payment on that promise. For most economists, they’re a perilous step down a road that could lead to trade war, putting at risk many more jobs than they can create.
For Wolff, they’re a practical headache. Based in Troy, a 30-minute drive north of Detroit, Peerless buys steel from Europe and Asia. It delivers the metal to manufacturers who turn it into everything from car pistons to construction cranes. About two-thirds of the company’s purchases may be subject to the tariffs.
Peerless plans to absorb part of the additional cost, and pass the rest on to clients who employ tens of thousands of people. Some of those companies are already making contingency plans that involve moving or closing plants, he said.
That illustrates why economists are so united in hostility to Trump’s plans. They’ll create jobs in steel and aluminum production, an industry that employs about 140,000 Americans — and put the squeeze on businesses that use the metals in manufacturing, which provide jobs for more than 30 times that number.
“The good news is already coming in, as companies from U.S. Steel Corp. to Republic Steel announce they’re reopening plants. And it’s welcome in places like River Rouge, just south of Detroit, where Jim Allen is president of the local United Steelworkers union.”
‘Lot More Upbeat’
Allen campaigned for Hillary Clinton, but he supports the tariffs. “It’s a lot more upbeat here now,” said the 24-year industry veteran. “It’s always seemed like there’s something hanging over our heads, because we were facing competition from goods brought into the country for cheaper than we can produce.”
The bad news will be more geographically spread-out, and may take longer to arrive. And there’s no way of knowing how bad it will get, until the global response to Trump’s America-first measures becomes clear.
In a more niche market there’s Avalon Pontoon Boats, based in Alma, Michigan, which makes 4,700 vessels a year. It already uses U.S.-made aluminum, but is bracing for higher costs.
Avalon’s cheapest boats sell for about $40,000. “Our customers are doing well,” said Cliff Crowe, its senior supply chain manager. “But I tell ya, if I have to raise the price $600 to $700 in line with the increase in materials, they’re probably not going to buy.” As a result, Crowe says the company has shelved plans to hire more workers, and it’ll offer customers some lower-cost options.
And if that’s all the Great Trade War of 2018 amounts to, it’s hardly apocalypse now. Estimates vary, but the consensus is that, taken in isolation, the Trump tariffs won’t do much damage to an economy that’s picked up steam lately and probably isn’t far from full employment. Deutsche Bank saw no need to change its growth forecast; Barclays Plc predicted a hit of no more than 0.2 percent of GDP this year.
But what if America’s trade partners and rivals fight back? “If other countries, particularly the European Union, reciprocate with higher tariffs — that’s the scenario that is scary,” said Dany Bahar, a fellow at the Brookings Institution in Washington.
The EU is threatening retaliatory 25 percent tariffs on a range of U.S. exports. China is preparing levies that will hit industries and states where Trump supporters work and live, according to the Wall Street Journal.
Adding to the uncertainty, companies can apply for product exclusions, while the Trump administration is dangling the prospect of exemptions for America’s friends. But it’s not clear who’ll get them, or when. That could affect what Wolff at Peerless pays for his supplies, and what he charges customers. Right now, “I don’t have a good answer for them,” he says.
Wolff is a Republican who voted for Trump. He acknowledges that the president is making good on a promise given to the steelworkers who voted for him. But “long-term, it’s going to hurt things,” he says. “I don’t think this has been thought through.”