SIDNEY — The federal government announced 25 percent tariffs on $34 billion of imports from China, Friday.
Apparently, China has slapped duties on American commodities in retaliation in what is becoming an escalating trade war.
It is unclear what the impact will be on the Shelby County economy, or how soon an impact will be felt here, but there is no doubt there will be an impact.
The latest round of tariffs are on Chinese industrial goods, according to an Associated Press report, including metal-cutting machinery.
Tariffs imposed earlier this year targeted steel and aluminum.
“A signficant number of companies (in Shelby County) are involved in metal fabrication,” James A. Hill, executive director of the Sidney-Shelby Economic Partnership, told the Sidney Daily News, Friday. “You could list a long list of companies in this area that will be impacted. It’s a big economic engine for Shelby County and the entire region.”
One such company is Superior Aluminum Products in Russia. It is feeling the brunt of duties imposed on aluminum that became effective June 1.
“The tariff actually impacted Superior Aluminum long before the effective date, however, as during the month of April, the price of aluminum on the open market went from less than 90 cents per pound up to $1.14, a cost increase of over 25 percent even before the 10 percent tariffs went into place in June,” said Doug Borchers, Superior Aluminum president. “Thankfully, a fair amount of our aluminum was purchased on future contracts, where our pricing was locked in for six months, so we have minimized the 35 percent price increase somewhat, but, nevertheless, I’d estimate our costs have gone up at least 15 percent. It also caused short-term worries about supply, as in addition to imposing tariffs, our government is imposing sanctions on the amount of aluminum that can be brought into the country going forward.”
The June tariffs apply to commodities from all over the world, not just China. Superior Aluminum gets most of its imports from Canada.
“While we have the resources in the U.S. to supply much of our own steel, that is not the case with aluminum. If every aluminum smelter in the entire U.S. were running at 100 percent efficiency, 24/7, we could still only supply 30 percent of the raw aluminum that is needed in the U.S. We simply don’t have the infrastructure here to make the aluminum we need, and to change that requires three- to five-year projects to build new plants, assuming they could get the raw materials here to make it in the first place!” Borchers said. “So to put a penalizing tariff on aluminum coming into the U.S. mostly hurts our own economy. Especially when the effects of retaliatory measures affect other U.S. industries, which has already started. It won’t change the proportion of aluminum imported vs made here, because we’re already consuming all we can make in the U.S. Prices for items like cars, buildings including houses, appliances, equipment and even beer will all be artificially inflated while this tariff is in place.”
Hill hopes that won’t be long; although, he noted that “it’s early in the game” and that it could be a few weeks or months before the tariff issue affects employment or the local economy.
“My hope is that this is a short-term escalation or disruption. I hope things stabilize soon,” he said.
In the global economy, he added, parts and materials are purchased broadly and integrated into all kinds of products in the United States.
Companies could deal with the rising prices of materials in any number of ways. They could purchase less and therefore, produce less. They could lower wages or lay off workers. They could hold off on expansion plans or the purchase of new equipment.
Borchers said his firm has put equipment purchases on hold. He also is quoting fourth-quarter projects at higher rates. Because of those increased costs that he has to pass on, some of his usual customers for aluminum products have turned to suppliers who use other materials, including fiberglass and PVC. So at the same time Superior Aluminum has to pay higher prices because of the tariffs, it’s losing income on sales.
Borchers took his concerns to Washington two weeks ago. He met with Treasury Secretary Steve Mnuchin and Budget Director Mick Mulvaney.
“Secretary Mnuchin listened to our concerns, explained much of the background on their decisions, and in the end asked for patience to fully execute their strategy,” Borchers said. More of that execution took place Friday.
“On Thursday, Trump said higher tariffs on an additional $16 billion in Chinese good were set to take effect in two weeks,” wrote Joe McDonald, Paul Wiseman and Darlene Superville for the Associated Press. After that, they added, there could be as much as $500 billion more in Chinese imports that could be slapped with tariffs.
The battle in this trade war is over Trump administration allegations that China steals American technology or forces U.S. companies to give it to Chinese authorities in exchange for the right to do business in China. China denies the allegations.
The tariffs also seem to be part of Trump’s strategy to “make America great again” by forcing companies to move production back to the states from Europe and Asia. Borchers says that won’t work for his business.
“It is very clear to us in the aluminum industry that the answer is not tariffs if we want to be more self-sufficient in the U,S. It should be tax incentives to bring new aluminum smelter facilities on board. We are attacking the problem from the wrong end,” he said.
It’s not just manufacturers who feel the pinch of a trade war. According to the Associated Press, the Communist Party’s newspaper said retaliatory tariffs have been put on soybeans, pork and electric vehicles. “U.S. soybean farmers have been particularly concerned, and the price of soybeans has plunged 17 percent over the past month on tariff fears,” the Associated Press wrote.
Reach the writer at 937-538-4824.