Apr 27, 2018

Americans Hurt by Trade Restrictions

Mercatus Scholars Track the Real World Effects of Ongoing Trade Disputes
Veronique de Rugy Senior Research Fellow , Christine McDaniel Senior Research Fellow

Editor's Note: Owing to the evolving nature of ongoing trade disputes, this article will be updated periodically as new information on the effects of trade restrictions on the US economy becomes available. You can find additional updates at the bottom of the article.

Latest Updates, July 20: Lance Fritz, president of the Union Pacific Railroad, is concerned about the ongoing impacts of tariffs on his company and the industry more broadly. According to a report from the Omaha World-Herald, a recent six million dollar tariff instigated a dispute involving Fritz’ company regarding who should pay, leaving a boat filled with valuable steel imports docked in San Francisco for weeks. Fritz expressed a more general concern that undermining NAFTA would endanger millions of US jobs. He agreed that countries such as China engage in unfair practices, but believes the best way to address that problem is to work with US allies to set standard global rules for trade.

Midwest manufacturers are suffering the consequences of huge cost increases and retaliatory tariffs, as documented in the Omaha World-Herald. “Facing a 30 to 40 percent price increase is just knocking the socks off us,” says Behlen Manufacturing Chairman Tony Raimondo. Polaris Industries is considering following the lead of Harley-Davidson by moving its motorcycle production from northwest Iowa to another country. “It’s becoming increasingly difficult to export from the United States. It’s becoming increasingly difficult to grow jobs here,” summarized Chief Industries’ Agri Division president Mike Lewis.

Even playing cards are not safe from the ongoing trade war between the US and Canada. Fans of “Magic: The Gathering” and similar brands are seeing a ten percent cost increase as a result of Canadian retaliatory tariffs, according to an article from Variety. Beyond the costs to game lovers, these tariffs are putting a strain on the specialty shops that sell the cards. “Our prices may be 10% higher, but we’re not making 10% more, and then if our sales drop, obviously that’s a concern,” remarked David Teller, owner of Ottawa’s Wizard’s Tower store.

Original article: In a recent op-ed, which is running in several outlets around the country, we make the case that many of the victims of President Trump’s steel and aluminum tariffs are unseen but deserve some consideration. Here’s what we know about these tariffs:

  • Tariffs are import taxes that raise prices for American manufacturers and households on many goods and services.
  • Many Americans who suffer from tariffs remain invisible to policymakers in Washington.
  • Industry participants may get direct access to policymakers, while a supermajority of everyday Americans watch from the outside.

When everyday Americans buy household appliances, cars, and other goods made with steel and aluminum, they pay the price of new tariffs, even if they don’t realize it.

As we’ve written, “You are one of these consumers. The vast majority of American manufacturing firms are small- or medium-sized businesses with razor-thin margins. These businesses must now reprice their entire product lines and grapple with how much of the cost increase they can pass onto consumers before they start losing too much business. That’s what LOOK Trailers of Indiana is doing, as it struggles to absorb the 25 and 35 percent cost increases in steel and aluminum, two of the company’s key inputs of its manufacturing process. Companies are also looking into whether they must instead increase the share of steel-containing parts and components they outsource to stay profitable. That’s what Metalworking Group in Ohio is doing.”

Metalworking Group and LOOK Trailers aren’t the only ones. Here, we will document some of the many unseen victims of protectionism. As time goes on, and more stories emerge, we’ll update this post to provide a window into how the costs of tariffs are paid by American consumers and businesses.

Below, you’ll find clear examples of individual American consumers and businesses being harmed by potential tariffs, but hundreds of other individuals have also submitted comments to regulations.gov voicing their opinions on the topic.

Steel Tariffs Hurt Steelworkers

In Reuters, Nick Carey writes that proposed steel tariffs may leave US steelworkers jobless. He cites Mick Lang, a third-generation steelworker in western Pennsylvania, who is concerned about the future of his profession. 

Steel Tariff Fears Wreak Havoc on Construction Market

Andrew McIntyre, writing for Law360, notes that uncertainty about steel tariffs has “created a maelstrom” for construction companies struggling to estimate the costs of projects. That, in turn, creates problems for construction workers, builders, developers, and businesses who rely on those projects for their livelihoods.

“Tsunami” of US Companies Seeking Steel, Aluminum Tariff Relief

Despite the common belief that tariffs punish other nations or international companies, the Washington Post has documented a flood of US companies appealing to the Commerce Department for exemptions from new tariffs. By mid-April, the Commerce Department had already received more than 1,300 applications for such exemptions.

One such applicant, Scott Way, owns the 7A Ranch in Wimberley, Texas, and hopes to import steel to restore a steam train for operation at the ranch.

American Farmers, Manufacturers among Tariff Losers

For farmers like Will Hsu, who manages a Wisconsin farm started by his father, Will Hutchinson, a Tennessee soybean farmer, and Seneca Foods Corporation, which manufactures its own cans, steel and aluminum tariffs pose direct threats to their businesses.

Hsu manages a ginseng farm and says that his 400 employees are counting on the farm's continued access to Chinese markets.

Hutchinson is attempting to prepare for increased foreign competition from other soy exporters, like Brazil.

Seneca already has 11,000 metric tons of metal coming in from China, which will be hit with a 25 percent price increase once it arrives at a US port.

Pacific Coast Producers, a California co-op that cans fruits and vegetables for nearly 200 family farms, expect more than half of their projected 2018 profits could be wiped out by proposed steel and aluminum tariffs. While Pacific Coast Producers does buy domestically manufactured cans, those cans are made with “tinplate,” which is not widely produced by US steel manufacturers. That tinplate, which is often imported, would jump in price if steel and aluminum tariffs were imposed.

Additional Costs of Tariffs

A surprisingly large number of products, not all of which are directly targeted by tariffs, are likely to become more expensive.

Because of increases in production costs, even unassuming products like whipped cream could become more expensive.

Similarly, goods that rely heavily on exports present easy targets for retaliatory tariffs. Whiskey and bourbon producers like Jack Daniels export more than half of their total output.

American Businesses Speak Out Against Tariffs

The Association of Equipment Manufacturers, a trade association representing more than 900 members, has launched an ad campaign expressing their concerns about proposed tariffs, including fears that American firms could have a harder time competing with foreign competitors.

Similarly, the group Farmers for Free Trade has spoken out against proposed tariffs, calculating that the potential direct cost of retaliatory tariffs from China could reach $500 million and hit states like California, Iowa Washington, Missouri, and North Carolina particularly hard.

Tennessee Hit Especially Hard

Clarkesville, Tennessee was already trying to recover from the loss of a planned $1.2 billion Hemlock Semiconductor plant (cancelled in the wake of solar panel-based trade disputes between the US and China) when the Trump administration’s washing machine tariff proposal threatened an LG Electronics factory.

Tennessee farmers, like Jimmy Tosh, who employs nearly 400 people, are also struggling with potential pork tariffs threatened by China in response to President Trump’s proposed steel and aluminum tariffs. The price of rebar, a basic component in many construction operations, has jumped 17 percent since those proposed tariffs, making any expansion by existing businesses considerably more expensive.

Another company, Electrolux, had recently announced plans for a $250 million plant expansion in Springfield, Tennessee, but put the project on hold after President Trump announced his proposed steel and aluminum tariffs.

Tariffs Make Canada, Argentina More Attractive Options for Some New Plants

DowDuPont Inc., which is considering the Gulf Coast area for a new investment, is also now considering other, more price-competitive options like Canada and Argentina for their plant expansions.

Of the $6 billion DowDupont recently spent on new factories in the United States, $1.2 billion came from steel costs, meaning that import taxes on steel would dramatically increase construction costs for any new plants.

Updates

"These examples provide even further evidence of how tariffs accelerate the search for cheaper alternative products while hurting American manufacturers." -Christine McDaniel, Senior Research Fellow, Mercatus Center

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May 10: Potential increases in aluminum prices may directly harm beverage industries. The Beer Institute, a trade association of approximately 5,000 brewers, has launched a campaign aimed at Fair Aluminum Pricing. The Institute claims that a 10 percent aluminum tariff would cost the industry more than 20,000 US jobs.

May 10: Some US steelworkers, despite being the intended beneficiaries of proposed steel tariffs, may lose their jobs as a result of new import taxes. Because some US steel mills import steel slabs, as much as two million tons annually for Novolipetsk Steel PAO (NLMK) in Pennsylvania’s Mercer County, those new taxes will increase costs for US steel manufacturers. NLMK’s CEO, Bob Miller, has estimated that up to 1,200 jobs could be at risk. Additionally, NLMK could also pull back from planned plant investments ($600 million in Pennsylvania and Indiana alone).

May 11: The North American Free Trade Agreement, currently being renegotiated, allows US barley farmers to export their crops to Mexico without paying import taxes. In the last decade alone, US farmers sold $1.82 billion worth of barley to Mexico. If the United States were to withdraw from NAFTA, resulting trade restrictions could not only hurt American grain farmers, but increase the price of beer sold back to the US by Mexican brewers.

May 11: The National Retail Federation and the Consumer Technology Association released a study earlier this month finding that for every job created by proposed tariffs on Chinese imports, four jobs would be lost. The resulting damage to the US economy could be as high as $3 billion in lost GDP, and 134,000 fewer US jobs.

May 16: InSinkErator is a American garbage disposal manufacturer in Racine, Wisconsin. Steel tariffs have made it hard to access the globally competitive metal priced inputs they need.  Faced with higher steel costs, they are at a cost disadvantage. Meanwhile, other manufacturers outside of the United States can get access to globally competitive input prices, and they now make the same products but cheaper. Foreign made garbage disposals are now an attractive import for US consumers.

Here we can see again how tariffs accelerate the search for cheaper alternative products while hurting American manufacturers. 

May 16: On August 30, 2017, The Department of Commerce initiated investigations of uncoated groundwood paper imports from Canada. This was due to a complaint from a single US paper mill.  Uncoated groundwood paper includes newsprint, as well as paper for book publishing, printing, and writing.  So far, the import tax has raised the price of newsprint by about 30 percent, and final results from Commerce and the International Trade Commission investigations are expected later this year.  Higher newsprint prices will affect newsprint mills and newspaper publishers across America. The tariffs will hurt the newspaper publishers and force some newsprint mills to close. 

May 18: Behlen Manufacturing Co. of Columbus, Nebraska is a global leader in steel fabrication, and now faces 30 to 40 percent higher domestic steel prices. The manufacturing company's chairman, Tony T.R. Raimondo, said this is a “tremendous burden” and added, “I hate to say it this way, but I know we’re going to lose a key customer unless we can see the steel guys getting more reasonable.”  Behlen doesn't even use foreign steel (not that that should matter), but domestic prices went up after the tariffs were put in place just as they did after the March 2002 tariffs.  

June 11: Three manufacturing companies in Arkansas have threatened to close as a result steel tariffs unless they receive an exemption. Tire-cord manufacturers Bekaert Corporation, Kiswire America, and Tokusen USA have reportedly been unable to acquire the wire rod needed to produce their product.

There are 4,689 small and medium sized manufacturers in the state of Arkansas alone, and over 590,000 across the country. These three companies are just the tip of the iceberg. The administration should find ways other than tariffs to deal with trade disputes. Otherwise, we will see many more American manufacturing plants suffer for it.

June 20: Businesses like HVAC Sales and Supply Company in Memphis Tennessee have raised concerns that tariffs on steel and aluminum are driving up prices and disrupting supply chains. The President of  Hensley Heating recently said that tariff announcements have “destabilized the metal market” leading to “unprecedented price increases.”

Pennsylvania sheet metal fabricator S&W Metal Products has seen a 10 to 20 percent spike in the cost of materials following tariff announcements. S&W has noted that it purchases domestic steel for the manufacturing of firefighting tanks and military shelving units, but even US suppliers have raised prices in response to more expensive steel imports. Another company, Precision Metal Services Inc., estimates that it has already paid $4 million in tariffs since the end of March.

A Wisconsin cookware and small kitchen appliance manufacturer with 200 employees claimed to be “crushed” by recent tariffs. As a small exporter, 65 percent of Regal Ware’s revenue originates from outside the United States.

June 25: W.H. Bagshaw Company, based in Nashua, New Hampshire, may be forced to temporarily shut down due to steel and aluminum tariffs. The tariffs, according to co-owner and vice president Adria Bagshaw, have left the company without the basic materials necessary to manufacture their product. Other New Hampshire manufacturers, like Tidland Corporation, have expressed concern that retaliatory tariffs could further harm their business.

June 27: A small steel fabrication firm in Utah has halted plans to expand after assessing the costs associated with new taxes on Americans purchasing imported steel and aluminum. The subsequent 25 percent increase in steel prices came as a shock to the owners, who Senator Orrin Hatch (R-UT) mentioned as victims of the new tariffs during Commerce Secretary Wilbur Ross’s recent testimony before the Senate Finance Committee.

June 29: As a result of new import taxes on steel, the largest nail manufacturer in the United States is on the verge of closing. The Mid-Continent Nail company, based in Missouri, has already laid off 12 percent of its workforce due to higher costs. Even if it's able to stay open, it may be forced to move its plant to Mexico in order to stay competitive according to company spokesman James Glassman.

July 9: Vaughn Manufacturing is poised to cut five to ten percent of its workforce. This small metal stamping plant in Nashville, which supplies Electrolux, went from planning to add five or six new machinists to now cutting five to 10 jobs out of his 50 person staff. Facing a shrinking backlog, the company's owner, Mr. Vaughn, stated that he would probably need to raise the quotes he gave six months ago. “Tariffs are a tax," said Mr. Vaughn, "so they took that advantage right back out of there.”

Maine’s lobster industry is facing a steep decline in their foreign sales to China. Exports to the country have more than doubled in the last three years, but tariffs are set to change that. Tom Adams, CEO of the Maine Coast Company, told the Wall Street Journal that he expects trade changes will “virtually wipe out” his China sales, and noted that his only means of reducing expenses would cut jobs. The lobster industry constitutes two percent of Maine’s economy.

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Email Chad Reese, managing editor for The Bridge, to share other stories about the economic effects of proposed trade restrictions.

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