You don’t have to read the news to know that tariffs have been imposed on several products and resources. Speculation regarding the impact these tariffs will have on the American and global economies abound. Whatever your political leanings, they are happening, and they will impact many businesses. Interested to know if that’s for better or worse and to what degree? We’ve got the answer.
What are the tariffs?
To date, President Donald Trump has imposed tariffs on washing machines, solar panels, steel, aluminum and $16 billion worth of Chinese imports.
How will the tariffs impact international trade?
Retaliatory tariffs have already been enacted by several countries. Many of these retaliatory tariffs target industry specific goods.
What are the retaliatory tariffs?
In response, several countries—including Canada, the European Union, Mexico, China and Turkey—imposed retaliatory tariffs to match those levied against them. These tariffs include:
Canada: steel, aluminum, inflatable boats, yogurt, whiskey, candles and hundreds more. Over $12 billion worth of U.S. goods.
EU: steel, aluminum, agricultural commodities, clothing, washing machines and hundreds more. Over $3.2 billion worth of U.S. goods.
*The EU additionally filed a legal challenge at the World Trade Organization.
Mexico: steel, pork, cheese and hundreds more. Around $3 billion worth of U.S. goods.
China: China announced it would impose 25% tariffs on crude oil, cars, coal, plastic products and hundreds more. Over $16 billion worth of U.S. goods.
How will tariffs impact the U.S. economy?
Tariffs are intended as an offering to U.S. companies. If it costs more money for other nations to send their goods to the U.S., they will likely pass this expense on to the consumer. This gives U.S. produced goods an edge in their local markets. U.S. manufacturers of washing machines like Whirlpool are seeing this benefit as foreign competition like LG are expected to raise their prices to offset the tariff costs.
However, American solar panel companies are suffering under the new tariffs. This is mostly due to the limited number of American solar panel manufacturers and the majority of the industry selling imported goods.
But the most widely impactful tariffs appear to be those on steel (25%) and aluminum (10%). With the increase on the price of these imported goods, certain industries will be impacted more directly than others. These industries include:
Auto parts manufacturers
This industry was responsible for 26% of U.S. steel demand in 2017. For a market so in need of steel, increased costs due to higher material prices are unavoidable. These prices put auto part manufacturers in a difficult position. Price is a large factor when automakers shop for part-sourcing. Remaining competitive means either eating the costs and decreasing the profit margins or passing off the costs and risking lower sales.
Soybeans are the biggest agricultural export from the U.S. and China is the biggest importer. As China announces its 25% tariff on this commodity, soybeans are at a low. The situation has the Trump Administration promising $12 billion in relief. This does not take into account the rising price of farm equipment, another burden of the steel and aluminum tariffs that the agricultural industry will have to carry.
In 2017, construction accounted for 43% of all steel shipments, according to the American Iron and Steel Institute. Much like auto parts manufacturers, they must either stomach the cost or pass it off and risk loss of bids to undercutting. Additionally, American steel manufacturers may not be able to keep up with the output required. This could lengthen the duration of construction projects.
What are the positive effects of the tariffs?
We’ve covered many of the negative impacts. In all this, the only winners appear to be select American manufacturers, like those that make washing machines. With the demand for steel and aluminum and the broad scope of the retaliatory tariffs, it’s hard for industries to side step the impact. There are, however, a few companies doing well enough to absorb the costs and still see record profits. Polaris and CAT are still seeing success, despite the increased prices of aluminum and steel. Polaris CEO Scott Wine has been quoted saying the rise in cost would be “quite manageable.”
However, these companies are outliers. Separate from the tariffs, their industries are booming. The industries of auto part manufacturing, agriculture and construction face difficult decisions. But these tariffs have pushed other industries down a considerably more difficult road. For more information on the industries hit hardest and possible solutions to adapt to changing markets, check out our latest post on the topic and subscribe to our blog to stay in-the-know.