Steel Tariffs and You: What Contractors Need to Know

Steel Tariffs and You: What Contractors Need to Know

In early March, President Donald Trump announced that he was enacting new tariffs on both imported steel and aluminum, at 25 and 10 percent, respectively. These figures were largely based on a February report from the US Department of Commerce. As soon as his signature Twitter-fest broke the news, many began to fear a trade war was imminent, considering how large this industry is in China.

Others started crunching the numbers and revealed the real reach of such a tariff: there would absolutely be potential for job creation in the metal fabrication sectors. However, the overall cost to the economy may be as many as five jobs lost in related sectors (or those that buy these materials, like construction) for every job created.

How Much Damage Can Be Expected?

A report from the economic research firm, Trade Partnership Worldwide, LLC, revealed some interesting points that have led trade groups to petition the President to stop antagonizing the rest of the world. A few of the most vital findings include:

● Job growth in the iron and steel industries would increase by 33,464 positions.
● Outside of the iron and steel industries, they expect to lose 179,334 jobs.
● The construction sector is expected to be hit particularly hard, with an estimated loss of 28,313 jobs.

Because the tariffs were enacted on very short notice, steel and aluminum prices have already begun to skyrocket, both due to manufacturers and distributors taking advantage of the tariffs as an excuse to raise prices and because builders are buying up stock as quickly as possible to give themselves some financial breathing room on existing projects.

“Trade Wars Are Easy to Win”

Take a look at the S&P 500 or listen to the morning stock reports and you’ll immediately notice that pretty much every stock worth talking about has dropped in price over the last month. Many valuations are literally dropping like stones. This is the result of a suddenly skittish public that understands that China’s massive role in the global economy means that the American people will lose in a trade war.

China buys tons of agricultural products from the US – literally. For example, last year, America was the second largest supplier of soybeans for the Chinese market, exporting 32.9 million tons of them (34.4 percent of China’s soybean imports). Because of this, it was not a huge surprise that China would make a few tariff threats of its own, with most of the taxes focusing on these massive exports of various agricultural products.

The President, for his part, is trying to reassure the country that the failing stock market, potential job losses and overall increase in consumer products is no problem. When interviewed by a New York City morning show, he told the hosts that he wasn’t going to say that there wouldn’t be some economic pain caused by his playground scuffle, but “we’re gonna be much stronger for it.”

Many people in Washington disagree, citing crumbling infrastructure that will continue to crumble because state and local budgets will suddenly not be able to afford the materials or contractors they need. Commercial contractors and those who build multifamily residential or specialize in metal buildings are expected to become early casualties of this trade war with China.

Efforts to Calm the Tariff Escalations

Another war is raging on Capitol Hill, one behind the scenes. Several Senators, including Pat Roberts (R-Kansas), Chuck Grassley (R-Iowa) and Ben Sasse (R-Nebraska) have been particularly vocal about the long-term damage the tariffs will cause. Their concerns aren’t the only dissenting voices, though. Trade groups representing agriculture, construction and even retail are writing letters and talking to reporters about the massive impacts this effort to create a few jobs will have, in the hope that somehow this information will get through the fog of the oncoming trade war.

Someone is listening, though it may already be too late. The House Ways and Means Committee has announced that a hearing on the economic impact of the tariff initiative will take place on April 12. Until then, there’s little more to be done, since both the current US administration and their Chinese counterparts each seem bent on one-upping the other.

What You Can Do Now to Protect Your Business

If you’re already working on projects that require significant quantities of metal, buy up what you can find at the best prices possible. Check your contracts for clauses that provide for an increase in cost when prices of raw materials become volatile, otherwise, you could be stuck holding the bag if you do need additional materials at those higher prices.

Going forward, ensure that any new contracts include clauses that allow you to increase the price for unpredictable increases in material costs. Also, prepare for lean times. Until these trade issues are settled, the public, by and large, may be hesitant to spend anything they don’t have to spend. That new flooring and paint job aren’t that big of a deal when your retirement funds are hemorrhaging money.

The same will go for commercial construction and government jobs. Expect there to be a contraction in new work at least until this tariff business is settled. State and local governments still have the same amount of money for infrastructure improvements, so they’re not going to be able to stretch it as far as they may have expected due to the higher costs of metal. These sudden tariffs will have long reaching arms.

The Bottom Line: Brace Yourself, It’s Gonna Be a Wild Ride

It’s easy to assume that everything is going to be ok in the end, that’s how a lot of people make it through the day. But when it comes to a trade war with China, it’s not going to be easy. When two of the three biggest economic powerhouses in the global economy start charging exorbitant tariffs to one another, it’s more than a little tiff.

Because American-Chinese relations are already somewhat strained, the Chinese government will not hesitate to play it cool and harsh. Due to a political climate that has birthed a “hold my beer” President, there’s absolutely no way to predict how Donald Trump will respond to further escalation by China’s President Xi Jinping. Even as Trump’s advisors swear he’s not saying exactly what he’s just tweeted, Trump will continue pushing the buttons of whatever political figure is in his sights at any given moment. Xi Jinping is not the kind of person to do that with.

As terrible as it was, the recent recession and real estate market collapse was probably good training for handling these kinds of situations. You’ll want to think back to how you managed to survive those rough years and implement a plan that will keep you afloat in case the market contracts violently. Keep an eye on the news as well, it’ll help you make the best business decisions possible until this trade war escalation is over.

ContractorTalk.com

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