Winners and Losers in a Tariff War
“A few hundred steel companies benefited, and a few thousand small metal manufacturers suffered” said John Shegda, President of the regional National Trade Metal Association (NTMA) and President of a Bucks County Company, Merion Medical. He was responding to a question about the recently enacted tariff on foreign steel. John added “Unfortunately, the same pricing relief given to producers of US Steel through the Tariff was not extended to the small companies relying on US steel for their products. Unless a remedy is provided that allows the tariff benefits to be shared with the downstream supply chain partners, these small companies will suffer.”
Just as in nature, the economy works best when it is in balance. When the monetary level of exports is roughly equivalent to the financial cost of imports, business on both sides of the transactions are generally satisfied. However, when one side is able to gain a significant advantage through lower costs or vastly superior technology, the parties on the other side are often required to a take drastic steps to off-set the disadvantage they are enduring. One of these dramatic counter-actions is by imposing a tariff on low cost products. While tariffs are generally designed to level the playing field, they also have unintended consequences as well. Another one of those laws of nature, Newton’s theory of action and reaction forces, dictates that an applied tariff on one side is usually met with counter action from the other side. The result is a tariff war. Just like any war, there are casualties on both sides. Even worse, there is often significant collateral damage.
A real world example of this unintended consequence of tariff warfare is small businesses who are using domestically produced steel. The tariff applied to raw or unfinished foreign steel allowed domestic producers to raise their prices. Unfortunately these tariffs did not include producers of finished products made of steel. Therefore, the US companies producing finished products made of domestic steel are forced to absorb the increased raw material prices and cannot pass the increase along to their customers. For the many US manufacturers making finished products, the playing field remains uneven and they have become prime examples of collateral damage from the tariff war on foreign steel.
Paul Czacher, President of American Keg in Pottstown, has become an outspoken advocate for holistic relief for finished goods suppliers. Paul had appeared on talk shows, been interviewed by newspapers and has continually carried the message that, if tariffs are applied in one area, they have to be consistently applied for all the secondary suppliers as well. His company produces stainless steel kegs and he has many customers wanting to buy American Made. However, as a result of the imposed tariff, the cost of his raw material steel has risen beyond his former sale price for the entire keg. The loss of sales related to a modest price increase has forced Paul to reduce his workforce just to stay alive. As one of Paul’s customers said, “Price is important and you’ve got to meet payroll before you support social responsibility.” For small businesses like American Keg, the only good alternative is complete tariff elimination or an additional downstream tariff on finished steel products. While this may not level the playing field, it will at least allow for some marketplace stability. Businesses overcome a lot of obstacles everyday but sometimes, they really do need some outside help.
For free, professional succession planning and many other small manufacturing enterprise services in the Southeast region, call Greg Olson, SEWN Regional Director at 215-776-0130 to set up a no-cost, no-obligation consultation regarding your business transition. Or, if you prefer, you can email Greg at sewnse@steelvalley.org with your questions. And be sure to visit our web site at www.steelvalley.org for more information regarding all of SEWN’s services, our newsletters and success stories, and interesting, relevant blog articles to help you navigate today’s manufacturing environment.
SEWN was founded in 1989 to support the region’s manufacturers and preserve jobs. The Department of Labor embraced and sponsored the program in 1993 to protect Pennsylvania companies and jobs. Since then, we have expanded to five regional offices, helping hundreds of companies and saving thousands of jobs statewide. Today, SEWN is one of the most cost-effective jobs programs in the United States. Over the last five years SEWN’s job saving services have saved Pennsylvania more than $34.8 million in unemployment benefits (over $836 million if jobs/payroll multipliers are included). Since its inception, SEWN has contributed to the retention and revival of more than 900 industrial enterprises within Pennsylvania, impacting more than 20,000 jobs.
