Tariff disputes have been going on between the United States and several countries ever since the U.S. left the Trans-Pacific Partnership. New tariffs have been placed on imported Chinese goods, as well as imported lumber. Now imported steel and aluminum have become the newly tariffed products. This is impart to the President’s promise to help alleviate oversea competition for American based companies. But many people are concerned that these tariffs will have a negative impact on American business rather than a positive one.
Generally, when a tariff is placed upon an imported good it aims to raise the cost above that of the locally produced product. Many American companies have been struggling to compete with the cheaper products imported from China and other foreign countries. As a result, numerous companies have closed their warehouses in the U.S. and have opened new ones in other countries; where the labor wages and material costs are much cheaper. This allows the company to produce more product for less, in order to stay competitive. In the U.S., there has been a huge decline in job availability due to the outsourcing of labor and material. Many communities built around factory labor, such as Detroit, are now suffering, making the new tariffs such a sensitive debate.
While many argue that these aggressive tariffs will negatively affect American business, there have been some reports of success. Inexpensive solar panels from overseas has almost wiped out American panel manufacturers. However, with a 30% tariff on imported panels, the few remaining American panel manufacturers might have a chance to bounce back. SolarWorld Americas, Inc., a Portland based company, is hiring back workers to increase productions with the arrival of the new tariff [2]. Whirlpool has recently announced that they will be adding 200 new jobs in Ohio due to the tariffs placed on imported washers [1]. LG, a Korean owned company, has plans to build a factory in Clarksville, Tennessee in attempts to avoid these same tariffs on their merchandise [1].
Despite the success of the import tariffs, many businessmen and economists remain skeptical. The arrival of the steel and aluminum tariffs especially, have garnered hot debate. As of March 23, 2018 a 25% steel import tariff and a 10% aluminum import tariff have become effective. Temporary exemption has been granted to Canada, Brazil, South Korea, Mexico, the European Union, Australia, and Argentina. The first four of which, account for more than 60% of all steel imports [3]. As far as the steel tariff is considered, this means that it will actually have less than effect as previously feared. However, the tariff exception is subject to individual negotiations with these countries and the tariff to be imposed dependent on their outcome.
On average, steel tends to account for only 1% of building project costs [3]. Although, this does vary dependent on the type of building. Single family homes for example, require more wood than steel and aluminum; where these metals account for only 0.5% to 1.0% of total building expenses [4]. Contractors will have to take into consideration increasing costs, but ultimately for many there should not be a huge impact. Once prices on steel become more stable, contractors should be able to conduct business as usual.
China and Japan are the largest producers of steel in the world, with the U.S. being third [5]. In the U.S., there are 9 integrated steel mills and 112 mini-mills that together employ 149,000 people [5]. The new steel tariffs, will help lessen competition for these companies and support an increase in production. This is important as the steel industry has been on the decline for quite some time in the U.S. As profits are expected to increase, hopefully current American mills can begin to expand once again and create new jobs for American workers.
American construction companies that are worried about the recent steel and aluminum tariffs can request for exemption. So far 22,500 exemptions have been filed, as many companies rely heavily on imported steel [6]. While the tariff aims to give reprieve to American steel mills, many construction companies believe that they are not yet equipped for the increase in demand. These exemptions help to offer relief to American construction companies while steel costs stabilize and American steel mills are better equipped to meet demands.
Overall, it seems that the steel and aluminum tariffs will have only a small effect on the construction business. While larger building projects may have a more difficult time seeking approval with the uncertainty of increased costs and production times, many projects should only expect mild inconveniences at best. Furthermore, American produced steel production should see an increase in profits. Perhaps many foreign steel companies will copy LG and consider building or purchasing mills in the U.S. to avoid tariffs on their product. Regardless, once steel and aluminum prices become stable contractors and subcontractors should not have much to fear.
[1] http://www.hawaiipublicradio.org/post/trade-war-china-heats-tariff-effects-are-already-rippling-across-us
[2] https://www.opb.org/news/article/solarworld-aims-to-ramp-up-solar-panel-production-as-tariffs-kick-in/
[3] https://www.buildingsolutions.com/industry-insights/how-steel-tariff-increases-could-impact-us-construction
[4] https://www.curbed.com/2018/3/6/17087106/trump-steel-tariff-construction-infrastructure-housing
[5] https://en.wikipedia.org/wiki/Iron_and_steel_industry_in_the_United_States
[6] https://www.reuters.com/article/us-trade-steel-exemptions/u-s-manufacturers-steel-makers-battle-over-tariff-relief-idUSKBN1JO25I
