Trade Cases
Mitigating Costs and Risks of Section 232 Tariffs
Written by Sandy Williams
March 15, 2018
Much has been made of the damage the Section 232 actions may have on the economy and individual firms, but little has been said about how to mitigate costs and manage risks from the tariffs. Donald Bly, Associate Partner at Applied Value, LLC, a New York management consulting and investment group, offers some strategies on how to address President Trump’s recent tariff announcement.
The exemption of Canada and Mexico from the tariffs will help “release some of the supply and demand pressure that the tariffs will generate in the U.S. domestic market and lead to slightly less drastic lead time elongation and price increases,“ Bly said. The exemptions also will give firms the opportunity to continue trade within the North American value chain.
Steel futures prices for April declined slightly because of the exemptions, but spot pricing continues to rise. Buyers can expect significantly higher steel prices in 2018 than 2017, Bly said.
In the short term, Canadian and Mexican steel prices will rise, but not as much as U.S. prices. Prices in Europe are expected to increase as mills “attempt to capitalize on U.S. increases to buoy their own price hikes.”
“Steel pricing dynamics are regional, but heavily influenced by global markets, and EU mills will use this to their advantage—although further protectionism will reduce the global influence,” said Bly.
U.S. manufacturers and buyers will need to implement mitigation strategies against cost inflation and a “dramatic impact” to gross margins. As a result, less investment by OEMS and fabricators will occur due to higher costs of production, and more firms will potentially move production overseas, Bly said. One example is Electrolux, which delayed a $250 million investment in the U.S.
Downstream job losses will increase significantly compared to the growth of U.S. steel mill jobs, Bly said. For each job lost at an OEM producer, there will be from one to 25 additional jobs lost upstream at Tier 1 companies and their service providers, he estimates.
Bly suggests companies take three immediate actions to address Section 232 concerns: Do a quick analysis of contractual obligations and financial impact, as well as domestic versus imported steel use. Develop a short-term plan that includes obtaining quotes from alternate steel sources, identifying cost recovery mechanisms and implementing managed buy programs to control material costs. Then, develop a long-term plan that includes qualifying new steel sources, identifying alternate supply chains and reassessing supplier stategies.
Sandy Williams
Read more from Sandy WilliamsLatest in Trade Cases
President Trump’s tariff letters maintain ‘Sectoral Tariffs’
Form letters sent to Japan and South Korea’s leaders stating that US President Donald Trump plans to apply 25% tariffs on goods from each nation beginning on Aug. 1 are not applicable to steel or aluminum imports.
Steel groups welcome passage of budget bill
Steel trade groups praised the passage of the Big Beautiful Bill (BBB) in Congress on Thursday.
Canada moves to curb steel imports with TRQs
Canada has implemented tariff-rate quotas (TRQs) on steel imports to help stabilize its domestic market.
Commerce launches probe into unfairly traded rebar imports
Here are the details and a case timeline for the rebar trade case recently initiated by the Commerce Department.
Leibowitz on Trade: Who is winning the tariff debate?
Most economists will tell you that universal tariffs will result in inflation and reduce demand, causing a recession or worse. (After all, this is what happened in the 1930s). It is a rare product that is so essential that demand will not go down if prices go up.