Tariffs could boost American steel, but also vehicle costs

steel

AssemblyMag.com reported on how President Donald Trump has considered “quotas, tariffs or a combination of the two to protect U.S. producers against an influx of cheap foreign steel.” The president and his “trade policymakers have made no secret of their desire to restrict steel imports as part of their focus on U.S. manufacturing,” wrote Daniel R. Pearson in an opinion article for CNN.

The movement of steel has been a big factor in increasing flatbed truck volumes in the U.S. this year.

Section 232 of the Trade Expansion Act of 1962 is the law quoted whenever the need to impose limitations on imports arise. But this law explicitly referred to threats of national security as the only valid reason to limit imports. The AssemblyMag.com article speculated about the difficulty of American steel manufacturers competing against cheap steel imports. Those cheaper imports, though, is one of the reasons that vehicle prices have not increased substantially in recent years.

The purpose behind Section 232 is noble - it is an initiative to remind consumers to “Buy American.” But the definition has reached a point of buying all-American from the raw materials needed to create the engine to the steel needed to mold spare parts to assemble a truck. Or, to use the AssemblyMag.com example, spare parts for jet engines. With the results of the steel review hanging in the balance, critics like Pearson started digging deeper in the analysis.

Steel costs that help American manufacturers

Pearson noted how increasing the price of steel to put the American steel industry on par with “global levels” meant increasing the costs on manufacturers that depend on these cheaper imports. In the case of trailer manufacturers, the result would be higher prices for trailers to cover the higher cost of the steel used.

The example that Pearson used was based on research provided by SteelBenchMarker from July 24. Comparisons of steel products’ prices per metric ton were shown in dollars and euros to demonstrate the disparity of prices between U.S. steel and European steel. While the European price for a hot-rolled band of steel stood at $573 per metric ton, the U.S. price for a hot-rolled band was $681. Both prices were higher than the world export market price of hot-rolled band, which was $491 per metric ton.

The Economic Calendar reported that the Trump administration has launched a Section 232 investigation against China’s alleged steel price dumping, which on July 24 was selling for $468 per metric ton.

If steel imports are restricted through tariffs, how will the manufacturing industry cope?

Pearson considers the current price of steel as already high by business standards. If tariffs are implemented, the charges would then be applied to the manufacturing costs. That would raise the final price of goods.  

AssemblyMag.com noted that 15% of all the steel consumed on American soil ends up in automotive factories, including truck and trailer manufacturing. Higher prices, not only for trucks and trailers, but also all the products carriers haul, could curtail economic growth as consumers pull back spending, potentially putting jobs at risk.

That is not the intention of the Section 232 investigation, but will it be the outcome?