Metal tarriffs- cockamamie scheme, or real sales tactic?

In reply to The0retical :

With the decoupling of natural gas prices from oil and the reduced propene yields from cracking you'll likely see a shift to using acrylonitrile from natural gas liquid sources instead of oil.  

These tariffs suck out loud for my company.

We make stainless steel gas hoses.  Our supplier for the steel is domestic.  They jacked there prices up over 20%.

Also, some of the fittings we get are from China.  Those are now over 25% more expensive.  There is a machining atep completed in the US.  The vendors have increased tooling costs as well as material costs.

25% increase in materials in an almost commodity product is not good....

dclafleur said:

In reply to The0retical :

With the decoupling of natural gas prices from oil and the reduced propene yields from cracking you'll likely see a shift to using acrylonitrile from natural gas liquid sources instead of oil.  

That does seem like the next logical step in the evolution.

Funny thing happened here in Canada. Even on metals made in Canada, we are being charged the extra for "Tariffs". At least the Metal Supermarket uses that line. And their prices were plenty high to start.

Pete

 I wonder if there is a way we could make plastic exhaust that could withstand the heat? 

NOHOME said:

Funny thing happened here in Canada. Even on metals made in Canada, we are being charged the extra for "Tariffs". At least the Metal Supermarket uses that line. And their prices were plenty high to start.

 

 

 

Pete

I know.  That is because 87% of the people in the world have no berkeleying idea how tariffs work, so they can get away with it.  Now, if they were to say, "We can't sell as much into the states anymore, so we figure we need to bump our price so we don't go broke."  then I might accept it.  Feeding me a line about "World Price fluctuations" just makes me angry.

Sooo where does all this extra tarriff 25% money end up?

Competition lowers prices, that's free market 101. The US and Canada each sell other about the same amount of metal. Quebec has tons of hydro power, so they have cheap electricity and they can produce aluminum very cheaply. It's the same reason lots of data centers are in the US north west. Addionally, the economy is at its peak so there is less competitive pressure.

In reply to 8valve :

The DC bottomless pit.

So no evidence related to metal industry but my father is in the housing construction industry and it’s absolutely real. Not only are imported products increased in price but the domestic stuff has increased in lockstep. Why?  Because domestic companies want to make more money, and it’s just a free lunch for them. Some have suggested that domestic companies might wait a while to see whether the tariffs stick - changing political landscape is one reason NOT to invest in expanding capacity, but the other big reason is that it’s likely not worth it. 

Imagine if you sell 100 units for 10 bucks and make 3 bucks per unit. That’s 300 of profit before overhead of say 150. So your operating profit is 150. Now one day you wake up and tariffs are in place and you can now raise prices by 20%. Now if you’re selling the same units you’d make 5 bucks per unit, so 500 of profit before Overhead and 350 of operating profit. Now imagine that instead of raising prices you want to compete to take share in units, and you invest in capacity to do so. To make the same amount of money before overhead you need to make an extra 66 units. It’s far easier and less risky to just take the extra money from raising prices rather than selling more units. 

Obv the above example is super simplistic and the analysis can get far more complex, but I think you get the point. Any financially savvy investor would take the price increase and count their blessings. Of course the consumer ends up paying the price (and then end up paying taxes that go to help farmers who are impacted by the retaliatory tariffs). There’s a reason why global economy has shifted toward free trade - I thought the idea of comparative advantage has been proven a long time ago but apparently not everyone understands that...

bcp2011 said:

So no evidence related to metal industry but my father is in the housing construction industry and it’s absolutely real. Not only are imported products increased in price but the domestic stuff has increased in lockstep. Why?  Because domestic companies want to make more money, and it’s just a free lunch for them. Some have suggested that domestic companies might wait a while to see whether the tariffs stick - changing political landscape is one reason NOT to invest in expanding capacity, but the other big reason is that it’s likely not worth it. 

Imagine if you sell 100 units for 10 bucks and make 3 bucks per unit. That’s 300 of profit before overhead of say 150. So your operating profit is 150. Now one day you wake up and tariffs are in place and you can now raise prices by 20%. Now if you’re selling the same units you’d make 5 bucks per unit, so 500 of profit before Overhead and 350 of operating profit. Now imagine that instead of raising prices you want to compete to take share in units, and you invest in capacity to do so. To make the same amount of money before overhead you need to make an extra 66 units. It’s far easier and less risky to just take the extra money from raising prices rather than selling more units. 

Obv the above example is super simplistic and the analysis can get far more complex, but I think you get the point. Any financially savvy investor would take the price increase and count their blessings. Of course the consumer ends up paying the price (and then end up paying taxes that go to help farmers who are impacted by the retaliatory tariffs). There’s a reason why global economy has shifted toward free trade - I thought the idea of comparative advantage has been proven a long time ago but apparently not everyone understands that...

Economist here. Higher profits for domestic producers are the positive effect of tariffs. As you note, these profits come at the expense of domestic consumers and, in this case, there is also a social loss caused by tariff revenue flowing to the government, which is generally an inefficient spender. 

Comparative advantage is real, but as someone else noted before, a big part of the Chinese advantage has really been a willingness to absorb pollution and below-living-wage labor costs that the West has not. Unfortunately putting the offshoring genie back in the bottle is not something that can be done easily or cheaply. We will have to unwind unfathomably complex international supply chains and create tremendous manufacturing infrastructure and expertise. The tariffs announced thus far can push this process on the margins but I expect them to have minor macro effects on the US economy. YMMV, particular if you sell metal parts for a living!

MadScientistMatt said:

We've been having to deal with a lot of electronics components either becoming expensive, or having the supply almost completely disappear as somebody else decides to get IBTT (in before the tariffs) on that part. We try to keep the key parts (cases and PCBs) made in the US, but the individual transistors and resistors are typically imported.

I read an article last month that the company here in the US that owns Cobra CBs basically builds practically of all CBs (of various brands) sold in the US in China, and they did not get an exemption from Tariffs, so the owner, who apparently built the company up from nothing, basically raided their corporate savings and had the factories over there doing triple-shifts and emptying all the stock warehouses to get a year's supply of CBs into the country before the tariffs began. He made some comment about (paraphrase) "there's nobody more American than a trucker, and they're all going to be paying a lot more for CBs in the future but we still can't afford to make them here in the US, so may justs move production to Vietnam"

8valve said:

Sooo where does all this extra tarriff 25% money end up?

presumably into the federal government coffers - so we can give more tax breaks to favored constituencies, or make more subsidies for favored industries, or whatever. 

Dave M said:

bcp2011 said:

So no evidence related to metal industry but my father is in the housing construction industry and it’s absolutely real. Not only are imported products increased in price but the domestic stuff has increased in lockstep. Why?  Because domestic companies want to make more money, and it’s just a free lunch for them. Some have suggested that domestic companies might wait a while to see whether the tariffs stick - changing political landscape is one reason NOT to invest in expanding capacity, but the other big reason is that it’s likely not worth it. 

Imagine if you sell 100 units for 10 bucks and make 3 bucks per unit. That’s 300 of profit before overhead of say 150. So your operating profit is 150. Now one day you wake up and tariffs are in place and you can now raise prices by 20%. Now if you’re selling the same units you’d make 5 bucks per unit, so 500 of profit before Overhead and 350 of operating profit. Now imagine that instead of raising prices you want to compete to take share in units, and you invest in capacity to do so. To make the same amount of money before overhead you need to make an extra 66 units. It’s far easier and less risky to just take the extra money from raising prices rather than selling more units. 

Obv the above example is super simplistic and the analysis can get far more complex, but I think you get the point. Any financially savvy investor would take the price increase and count their blessings. Of course the consumer ends up paying the price (and then end up paying taxes that go to help farmers who are impacted by the retaliatory tariffs). There’s a reason why global economy has shifted toward free trade - I thought the idea of comparative advantage has been proven a long time ago but apparently not everyone understands that...

Economist here. Higher profits for domestic producers are the positive effect of tariffs. As you note, these profits come at the expense of domestic consumers and, in this case, there is also a social loss caused by tariff revenue flowing to the government, which is generally an inefficient spender. 

Comparative advantage is real, but as someone else noted before, a big part of the Chinese advantage has really been a willingness to absorb pollution and below-living-wage labor costs that the West has not. Unfortunately putting the offshoring genie back in the bottle is not something that can be done easily or cheaply. We will have to unwind unfathomably complex international supply chains and create tremendous manufacturing infrastructure and expertise. The tariffs announced thus far can push this process on the margins but I expect them to have minor macro effects on the US economy. YMMV, particular if you sell metal parts for a living!

And in the end, the offshoring will just move around to another low-wage, low-regulation country that isn't under sanctions...Vietnam....India.....whatever. 

Sanctions may punish or even destabilize the PRC economy, but in the end, it won't do away with cheap offshoring of industry from the US. 

In reply to Streetwiseguy :

I just uttered those exact same sentiments, if not the exact same words, five minutes ago with a friend who just picked up some steel from MS. 

I have to say that I'm genuinely impressed that this thread hasn't gone political. Good going, guys!

Kreb said:

I have to say that I'm genuinely impressed that this thread hasn't gone political. Good going, guys!

I've had to pre-edit all of my posts so far lol.....

I use ARP wheel studs for one of my Lab-14 products. I was paying $3.00 each for them, now they're $8.00 each!

NOT A TA said:

I use ARP wheel studs for one of my Lab-14 products. I was paying $3.00 each for them, now they're $8.00 each!

crap, and I need to order a new set of Motorsport Hardware studs for the rally car this winter :/

NOT A TA said:

I use ARP wheel studs for one of my Lab-14 products. I was paying $3.00 each for them, now they're $8.00 each!

Just thinking out loud - that might be made from a specialty metal product. There could have been a small number of competitors in the marketplace and now they have even less competition and they can charge what they want. Or perhaps they are simply testing the waters to see what they can get away with.

Kreb said:

I have to say that I'm genuinely impressed that this thread hasn't gone political. Good going, guys!

The entire thread has been political.  We just haven't mentioned the Oompa Loompa in the room 

In reply to Dave M :

Totally agree with you on the externalities point. They are significant, if not to us as consumer than certainly to people living in foreign lands who have to deal with said pollution, etc. But of course that’s not surprising when climate change is still being debated in this country, and CO2 is very likely the most significant externality of the industrial era (mankind?)

Your point on supply chain is also spot on. It’s taken decades to build so reversing it won’t take months...  My father was complaining about how the products now made in Vietnam (to evade tariffs) have really crappy quality because they just don’t have the manufacturing know how, but consumers will only notice the quality difference years down the road when their house starts to fall apart.

In terms of total impact to economy... I hope you’re right. But given the percentage of the economy that’s tied to consumer spending, and that those products haven’t necessarily seen the price increase yet, I’m not sure the tariffs won’t have a ripple effect.  

In reply to irish44j :

The things you’ve mentioned are indirect and unknown. One direct consequence we know for sure is that farmers are getting more govt support in light of the Chinese tariff retaliations so I think to link the two is pretty fair. 

I've had a small (as in, just me) biz making custom equipment for gyms, weightlifting facilities, crossfit boxes, physical therapy offices, etc. for the last couple years.  Pretty much everything is made out of steel.  As I started to do a bit more business and bought some equipment (and got it working!) I was able to move away from Metal Supermarkets - who are really pretty great for single pieces - and buy from a local supply house where you can only buy the full sheet, tube, bar, etc.   Every time I've gone in there this year, the price has bumped up since the last trip.  My costs for steel have gone up something like 35% since this time last year, and it's all US steel.

I'd been questioning if I wanted to continue pushing on over the past 6 months to make the biz even marginally profitable, so the increased costs have felt like a kick in the b***s.  Over the last few months I've told several folks who have been contemplating buying something or having me make something that, whatever they decide, they should do it quick, because prices are going to keep going up, and there may be a large step increase from the giant manufacturers when their supply of steel at locked-in prices dries up.  

So yeah, they're real.  

In reply to Streetwiseguy :

Can you elaborate which part(s) seem political?