This week, President Trump announced exemptions and exceptions from 2018 tariffs on imported steel would be removed. The tariff on imported aluminum will also go from 10% to 25%.
This means all steel imports will be taxed at a minimum of 25%. The change will go into effect next month.
It’s meant to give U.S. steel producers a leg up in global competition, allowing them to charge higher prices.
But it can also have a negative impact on U.S. manufacturers that use the steel to produce goods.
Mitchell Metal Products in Merrill is one of those manufacturers. It’s a contract manufacturer of metal components for original equipment manufacturers. It has contracts with companies all across the United States, Mexico, Canada, and other parts of the world.
The products they make go to a wide variety of industries including furniture, telecommunication equipment, computers and self-checkout units in stores.
“We consume many, many tons of steel and other metals each year,” said Mitchell Metal Products President and Owner Tim Zimmerman.
The 2018 Tariffs
In 2018, when the 25% tariff on imported steel was first put in place by the Trump Administration, Zimmerman said the impact was quite dramatic.
“Our raw material costs began to rise, and at the high point, they were 70% higher than what we had been paying prior to the 25% steel tariffs that went into effect,” said Zimmerman.
He said foreign steel was not really making its way into the U.S. which allowed steel producers to escalate prices.
One of the biggest challenges for Zimmerman’s company was paying the price at delivery.
“There was a period of time where we would place orders and we would not know what the price of the material would be until it hit our docks, which made it very, very difficult for us to price our products in a manner that allowed us to retain the margins that we need to be successful,” said Zimmerman.
Because Mitchell Metal Products needed to recoup those costs, it was passed onto their customers. Zimmerman said they ended up losing one customer they’d had for 25 years to a competitor in Europe.
“That's the challenge that companies in the metal consuming part of our manufacturing industry here in the U.S. face in comparison to our global competitors,” said Zimmerman. “We compete with each other here, but we also compete with manufacturers all around the world, and it makes it very difficult for us to stay competitive.”
‘An island of high steel prices’
The Coalition of American Metal Manufacturers and Users (CAMMU) was created after the 2018 tariffs went into effect. They represent those that buy steel to turn into products.
Executive Director Paul Nathanson says part of the issue is the U.S. only produces about two-thirds of the steel U.S. manufacturers need. This means they have to import at least some steel to make their products.
“Most of our members only buy domestic steel. They don't even buy imported steel. The problem is, is that when you put a tariff on it, our members pay more for the steel than anybody else in the world, and therefore our customers just buy the part from overseas, because we can't compete, because the United States becomes an island of high steel prices,” said Nathanson.
Currently, there’s a set quota of steel that can come in from certain countries before a tariff will go into effect. That will change March 12 with the most recent order from President Trump. All imported steel will have a 25% tariff.
While that will hurt, Nathanson believes the bigger impact will be the lack of exclusions. Thousands of exclusions requests have been granted to companies that can show they cannot get their steel domestically.
“This announcement does away with that, which will cause huge increase in the cost of companies who make everything from energy infrastructure, pipelines, to appliances, to automobiles, to the aviation industry, you name it. It's going to have a huge impact,” said Nathanson.
Nathanson says CAMMU wants to see a healthy domestic steel industry, but not at the expense of manufacturers that use the steel.
“We need to have a trade policy that considers the entire supply chain and not just one part of it,” he said.
Part of the problem is that steel producers in China have oversaturated the market. Nathanson explains China has a lot of steel plants and when their economy slows down, they start exporting that steel around the world, depressing prices.
“Instead of just slapping tariffs on the entire world, we should get with our trading partners and focus on what the problem is, and that's trying to confront China and their practices,” said Nathanson. “Putting tariffs on our trading partners, our closest trading partners, including Canada and Mexico, just is going to raise prices for our own domestic manufacturers and not solve the problem.”
Impact on jobs
A 2020 report from economists at Harvard University and University of California, Davis looked at the initial impact of the 25% tariffs imposed in 2018, as well as the 10% aluminum tariff that was put in place at the same time.
It found the number of jobs in production of new steel rose by roughly 1,000 in the year and a half since the tariffs were imposed. It also said the tariff’s may have also prevented the loss of jobs in that industry.
It also found that jobs in manufacturing took it hit, stating, “We compute that this amounts to about 75,000 fewer jobs in manufacturing attributable to the March 2018 tariffs on steel and aluminum, not counting additional losses among U.S. exporters facing tariffs other countries levied in retaliation.”
Mitchell Metal Products was among those that made cuts. It went from 102 employees to about 70 now.
“Part of the reason is due to some losses of contracts. The other reason is that when we're paying a premium, which we're paying right now compared to the rest of the world for steel, that leaves less margin for us to be as robust in our employment as we would like to be,” said Zimmerman. “We're living leaner right now than I would really prefer that we have to live, but it's what we have to do because of the environment we're in now.”
Looking ahead
Zimmerman says if prices go up further it will exasperate the situation.
“There'll be difficult decisions that we have to make, both in terms of employment and how we handle our customers, and the prices that we take to market,” said Zimmerman.
Mitchell Metal Products has been in Merrill since 1954. Zimmerman has been with the company since 1989.
He says they’ve had to modify operations in the past, like the offshoring of high volume production in the 90s and the 2002 tariffs implemented by President Bush.
Even though it will be a challenge, Zimmerman they’ll evolve and continue. Though, he’ll hardly be alone in that. Manufacturers down to the customers will feel the impact.
“The tariffs are going to have an inflationary impact on everyone. We'll see it first, and then prices for consumers are going to increase as a result. I don't see any other outcome than that,” said Zimmerman. “We just came off of very high inflationary period, and I sincerely hope that this doesn't rekindle that type of inflation again. That would be a terrible outcome.”
