As the manufacturing industry begins to get “its mojo back,” Miles Free thinks danger might lie ahead for the sector, especially if the federal government imposes tariffs on key raw materials.
On Thursday, President Donald Trump signaled that he planned to impose a 25-percent tariff on imported steel and a 10-percent tariff on imported aluminum, according to national reports as this story went to press. The move — which exposed deep rifts in the administration — fulfills a Trump campaign promise and came after the U.S. Department of Commerce recommended even higher tariffs on the raw materials last month.
In Michigan, 325 shops and 11,165 employees may be affected by the tariffs, said Free, the director of industry research and technology at the Brecksville, Ohio-based Precision Machined Products Association (PMPA).
Free described imposing the tariffs as the federal government taking a step “too far” in affecting American industries.
“We don’t know how we can adjust,” Free told MiBiz. “You can’t make a product without steel, you can’t make a product without aluminum.”
Trump had scheduled an announcement on the tariffs for March 1, but delayed issuing the order because a legal review had not been completed, the Washington Post reported. The move was described as a delay in announcing the tariffs, not a cancellation of the plans, despite cries from industry and warnings from other GOP lawmakers for Trump to tread carefully so as to not start a trade war.
According to Free, the tariffs would have sweeping effects on the domestic manufacturing industry, especially since a shop with $10 million in annual sales spends an average of one-third, or $3.3 million, on raw material like steel and aluminum.
“To blow that up another 25 percent … is a road too far,” as shops all over country will struggle to “swallow” those costs, he said.
Additionally, U.S. manufacturers would likely lose market share to foreign companies in China, Hong Kong, Russia, Venezuela and Vietnam, he said, citing their advantage of selling domestically at lower prices.
“This is classic bad news, where the government intervenes and the loss of jobs ensues,” Free said of the possibility of a tariff.
Particularly for certain grades of steel that are unavailable from domestic producers and can only be sourced from outside the country, the tariff makes little sense, he said.
“Because there are no provisions for tariffs on final products made from steel and aluminum, it is likely that this action will just shift the injury to the steel-consuming industries who will be uncompetitive in the market due to these increased raw materials costs,” Free said.
However, he remains optimistic that the proposed tariff won’t be implemented, as he believes “the president is committed to protecting the American worker.”
Trump will have until April 11 to make a decision on steel tariffs and until April 19 for the aluminum tariffs.
In all, Free said the tariffs could affect some 6.5 million steel employees nationwide.
In a form of group protest, 15 metalworking associations signed a letter to Trump and U.S. Department of Commerce Secretary Wilbur Ross urging them “to avoid any decision which would do harm to many downstream steel manufacturing companies and other steel consumers, our employees, and our customers.”
Among the groups signing the letter were the American Wire Producers Association, American Gear Manufacturing Association and the National Tooling and Machining Association.
“Our members make everything from steel wire used in control cables and fasteners for military aircraft, to fabricated steel plate doors and floors for military vehicles, and many types of machined and formed steel products for defense and civilian applications that enhance our security and improve our country’s well being,” the group wrote in the letter dated Feb. 12.
Additionally, the letter made note of how “everyone in the U.S. steel supply chain will be damaged by restrictions on steel imports.”
If the tariffs are enacted, they will likely lead to higher costs throughout the supply chain, including locally, according to industry sources.
“Somebody is paying for the tariff,” Michael Davenport, CEO of the Grandville-based Jireh Metal Products Inc., told MiBiz. “My customer is buying directly from the mill, so now the mill will basically be saying, ‘OK, any prices that we have now will have to go up because of the tariff.’”
As a full-service metal fabricator and stamper for the automotive, furniture and hardware sectors, Jireh Metal doesn’t deal with the mill directly, but its customers do.
“Any increase in costs, that has to go somewhere,” he said. “For the mills to produce their steel, it’s going to cost more.”
COSTS TO RISE
Davenport said the tariffs, if enacted, would affect a range of manufacturers, including automotive OEMs, appliance makers like Benton Harbor-based Whirlpool Corp. (NYSE: WHR) and companies in the office furniture industry. In those sectors, “their raw materials, their cost of goods, are now going up,” he said.
“They have to offset that cost of goods with something — a commision fee or an increased price of goods,” Davenport said.
Free at PMPA wonders how many jobs will be affected in places like West Michigan “if we cannot stop this.”
“We are going to continue working on this,” he said. “We have been working on this since last year. … Advanced manufacturing has its mojo back, and this kind of stuff is throwing a bucket of water over it.”