SMU Data and Models

SMU Analysis: Tariffs Would Burden U.S. Manufacturers

July 23, 2017

The steel market is waiting anxiously to see if the Trump administration places additional tariffs or quotas on steel imports. Opponents of the proposed Section 232 trade action say it will be bad for the U.S. economy, in particular U.S. manufacturers that will have to pay more for raw materials, making them less competitive versus foreign rivals. That appears to be the consensus view of respondents to Steel Market Update’s latest survey of mills, service centers, toll processors and trading companies.

Imposing additional duties on steel imports will place an even higher price burden on U.S. manufacturers, agreed 87 percent of respondents to SMU’s July 17 flat rolled steel market trends survey. Only 13 percent indicated they feel the duties would not overburden manufacturers.

Following is a sampling of comments from individuals opposed to trade restrictions that would almost certainly raise the price of steel in the U.S.:

· “Material cost is a large input in any manufacturing business. U.S. manufacturers are already under a burden of higher labor cost and regulation. This will put an unnecessary burden on their ability export.”

· “Tooling will be shipped overseas and parts will be formed in countries outside the USA, so more jobs will be lost and the tooling may never come back once it has moved.”

· My industry competes against global manufacturers, including Asian-based companies. We would either need to continue outsourcing production abroad or we would need protective tariffs for my industry in order to compete and maintain market share.”

· “Abso-Bloody-Lutely! There does seem to be more interest in protecting the domestic mills than domestic manufacturing. Who is running this ship anyway?”

· This is a very slippery slope that ends in a very nasty looking cesspool.”

Other respondents said that Section 232 might slow the flow of raw steel products, but would just boost the flow of finished steel products. “I believe more finished products will flood our markets,” said one manufacturer. “Finished goods will replace U.S. manufacturing. The effect will be irreversible,” warned another.

Others suggested that the scope of the trade action should be expanded. “Section 232 should be inclusive of steel-containing goods,” said one service center executive. “If duties were also applied to products manufactured outside of the U.S., it would bring a landslide of manufacturing back,” said another.

Others consider trade actions that would raise prices but protect the domestic steel industry from unfair foreign trade practices “the lesser of two evils.”

“I believe the mills will be warned not to go overboard with price increases. I don’t see 50 cent HRC in the future,” said another executive, pointing to some middle ground. New steel tariffs might be a burden on manufacturers in the short term, added a mill executive, “but the market will adjust, idle capacity will come back on line and new capacity will be built.”