Do you know what President Trump’s basket of tariffs is supposed to accomplish? Do you think they will work for the country? Will they be good for you? How about for me?
Well I have my doubts. So yesterday I tried to find out by talking to a few of Graff-Pinkert’s most successful customers, who happen to be some of the brightest folks in the machining world. The following is what I learned.
Nobody is really sure about this tariff strategy. Twenty five percent of tariffs on a host of things from Canada and Mexico? Lumber and avocados will be more expensive if they finally go into effect. The idea is to reduce fentanyl from entering the country illegally. A noble idea that people will not argue with, but is a host of tariffs going to have just that effect?
For the machining business and automotive industry with so many suppliers in Mexico and Canada, the tariffs will be painful both in these countries and in the United States.
And now the President throws a whopper of a tariff on steel and aluminum. I talked to a customer of ours who orders 140,000 pounds of 52100 bearing steel each week, which is not made in America. He has some stockpiled, but not enough to allow him to satisfy his clients.
Can a Nucor or another smaller steel company immediately start making it here? Not a chance. And why would they try when lobbying by high priced lawyers in Washington could convince the administration to change course anyway.
One of our customers has a 30% “float” built into large contracts with the Defense Department, meaning they are insulated from huge unexpected increases in materials, but few companies have that kind of clout.
Tariffs are supposed to Make America Great Again. Undoubtedly they can be used as weapons to accomplish certain goals such as controlling unwanted immigrants and dangerous drugs, and intimidating China. But the cost may be rampant inflation in America and significantly higher interest rates.
Our clients see some potential gains for them particularly related to China tariffs. The big question is will it be worth it if Ford F-150s cost $7,000 more in the coming year.
Elon Musk, who has developed an extremely close relationship with the President, may gain if Chinese electric cars are shut out of the country, but he also might pay a price with his sales in China.
It seems too early to judge how the tariffs gambit ends up. Are they a viable tactic to show American power to gain useful goals?
We can hope so.
Personally, I think the Administration is overplaying its hand right now.
Question: How will the current basket of tariffs affect your business?
13 Comments
The Chinese government subsidizes raw materials for the components they manufacture, making their raw materials next to nothing in cost—yes, aluminum and steel. We cannot compete with that. The Chinese have been very good at manipulating both Canada and Mexico to keep this advantage. Ford one of the companies that shipped work outside the country uses American costs to price its F150 and then sources the components to the low-cost countries. The consumer should never see an increase though profits will erode.
It is up to the American consumer to react accordingly.
Unfortunately corporate profits never erode, the price is passed to the consumer. We are already starting to see some rebound inflation, it’s only going to get worse
The voters will reap what they sowed.
Doesn’t Metallus/Timken produce 52100?
Most likely not competitive with foreign sourced steel.
Our company just started up a high-volume aluminum project, and the tariff situation has been a mess for us to deal with. In Trump’s first administration we lost a significant customer in Mexico due to steel tariffs that favored moving work to China back then. I have friendships with mid-west farmers that are very upset with Trump’s recent rhetoric regarding soybean trade with the EU… Still, I remain on board with the reciprocal tariff view, and back Trump up. I also trust Elon Musk is working for America over his own interest. IMHO, the US needs radical change; & I’m more optimistic for America’s future than I was a year ago. Much more.
David
My situation is similar to yours. Trump tariffs part 1 and the resultant inflation in metal prices stripped out a chunk of profits. Tariffs part 2 will likely cut even deeper AND my Canadian orders have already tanked because of the attacks on our northern friends. Unlike you, I do not embrace the musk-trump-putin leadership alliance and the astonishing misinformation that’s pouring out.
If everything they are doing is so great, why do they have to lie about it?
Lawrence,
I don’t recall that I have ever “embraced” Putin, and like you would like to see truth prevail over lies.
David
If you back trump/musk, you are enabling Putin and misinformation. It’s all part of the same package.
As our conversation goes, so goes the country…I fear. Best wishes, Lawrence.
For an alternate perspective… the tariffs are very good for my domestic metal stamping/fabricating company. Most of our customers are making domestic products for domestic use and the tariffs advantage them as well. Additionally, many of our international OEM customers have either reached out to us about re-shoring, or already returned a portion of their work that had been sent overseas during the Bushx2/Clinton/Obama era. I am grateful to Trump for changing the status quo on this country’s trade policy.
Dave
The thing about the “first” tariffs is that material prices went up for everyone. That will happen this time too, so hard to imagine that’s an advantage in some way.
It is true that material costs may increase, but that condition is only temporary until supply chains adjust. The metal tariffs in 2018 had no permanent impact on the cost of material, at least for us, last time around. Additionally, as a domestic manufacturer, labor is our biggest cost relative to our foreign competition, and any marginal increase in metal has only modest impact to our business. However in 2018, the increase in cost due to tariffs on foreign manufacturing and metal sources caused enough uncertainty to our OEM customers that the marginal benefit of overseas supply was not worth the risk to their operations versus our slightly more expensive, but more reliable domestic supply. Tariffs, IMO, if used correctly and at appropriate levels, will enhance US manufacturing in the long run at a very minimal or negligible permanent cost to the consumer. If I would wish for anything, it is that the tariffs be extended to all foreign manufactured products, not just metal.
If I can’t afford avocados during this process, I’ll forgo them. Getting things repaired after 4 years of disaster is the most important goal. It might sting a bit before it feels better and works better. So be it.