Metal tarriffs- cockamamie scheme, or real sales tactic?

NorseDave said:

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.  

Sorry to hear that. The same thing happens with larger small businesses - it's just that the overall numbers are bigger. Stuff that was marginal becomes untenable. We've seen some big sales drops on some of the affected products, to the point where we're probably going to have to discontinue ones that were good sellers just a few years ago. Some of that is also due to the appearance of Chinese knockoffs of the same parts, made out of much weaker material but that look good on eBay photos. So yeah, double kick in the nuts there.

bcp2011 said:

In reply to Streetwiseguy :

Can you elaborate which part(s) seem political?  

I would assume the presumption is that the administration implemented the tariffs, so the blame for effects goes on the administration, for better or for worse. Or perhaps the blame goes on China for unfair trade practices that did or didn't necessitate the tariffs. Noting the political realities of what president or congress or cabinet member implemented the tariffs isn't by nature political though - it's just factual. The price of steel and other materials is a knowable fact and isn't political. Anyone who follows economics knew this would be the result of tariffs, so it's not a surprise. The end question is whether they will stick long enough to effect the desired change in China and other trade....er....partners. Guess we'll see, or we won't !

The political irony is that (painting with a broad brush here) democrats have traditionally been more protectionist and republicans have traditonally been free-trade-oriented. So it's amusing seeing the tables turned on both sides and people arguing against their (former, apparently) positions, on both sides of the aisle...

In reply to bcp2011 :

Tariffs are always political.  Protectionist policies benefit one portion of the population at a cost to the other portion.

Streetwiseguy said:

In reply to bcp2011 :

Tariffs are always political.  Protectionist policies benefit one portion of the population at a cost to the other portion.

Agreed, except it’s a net loss for everyone involved, unless you don’t believe in comparative advantage... 

irish44j said:

The political irony is that (painting with a broad brush here) democrats have traditionally been more protectionist and republicans have traditonally been free-trade-oriented. So it's amusing seeing the tables turned on both sides and people arguing against their (former, apparently) positions, on both sides of the aisle...

Indeed. Just goes to show how many voters actually understand their values and beliefs vs just repeating what they hear on fox or msnbc (or insert your fav channels that you think are political). 

In reply to bcp2011 :

Some farmers more than others, and if 70 percent of your wine sales went to China, and that market practically disappeared overnight, the protections might seem a tad inadequate.

I run a HVAC and metal fabrication business. Raw metals have gone up unevenly, but manufactured goods - like furnaces for instance, have seen three sets of price increases this year.

And keeping in mind that the irony of Bart is that he never lies

And you can see that the day has finally arrived.

I'll stay out of the political posts but I do know the oil filters we buy are going up on average 40 cents each. They are American made and the explanation was an increase in raw material price. 

I wouldn't call this a political issue. There is no political gain to be had, at least short term, which is the same as nothing. Neither side wanted to touch this issue for years, because it is seen as either political suicide, a bad idea, or too much short term risk for a somewhat slim chance at long term gain. For better or worse, the current administration thinks they can tackle it. But you would be hard pressed to justify saying that they did it for political reasons, as it's wildly unpopular. The economy is humming along, throwing a wrench into it won't buy many votes.

That said, the price increases that I've seen do not match the tariffs. If the cost of materials goes up 15%, the end product should not go up 15%- because the materials cost is only a portion of the overall cost of the final product. Many companies are simply using the tariffs as cover for price increases. Some due to profiteering, some because competition has stunted normal increases over the years and the businesses are trying to catch up- much like when prices went up across the boards ten years ago when fuel prices surged. Everyone raised their prices, and they didn't drop when fuel prices dropped. 

The US is really the only developed nation that can fully support itself. Nobody else has the resources to raise enough food to feed their people and provide enough energy to run things. This puts the US in an advantageous position in negotiations for more "fair" trade policies because they're the only country that doesn't have to trade to survive.

International trade has also encouraged the longest peaceful time in recorded history. That's largely thanks to the US military keeping the waterways and airways that act as the conduit of free trade open and conflict free. Again, the US can pack up and bring them all home and leave other countries to fend for themselves as they did in the conflict-filled times before WW2.

Everybody likes buying cheap stuff, and everybody likes making money. International trade facilitates both, and tariffs will hurt both of those aspects of our lives. Tariffs will hurt. But nobody can survive without international trade like the US. In this macroeconomic game of poker, the US is ultimately the only country at the table with a winning hand. It just comes down to which country gets uncomfortable and folds first.

In reply to STM317 :

"I'm gonna take my ball and go home" only works if you don't want to play ball with that team.  Once you go there, the other kids are glad to see you leave. Then they always seemed to find a way to play ball and have a better time without a petulant child hanging around. 

Pete

In reply to Boost_Crazy :

Not sure why you don't think this is political- the whole point of taking THIS path to get China to do something is to placate a group of voters.  There are a ton of different paths to deal with this, and this may or may not work out in the best way- if you give up a big chunk of the economy and China now behaves- is that really worth it?  And listening to supporters, some of who have lost businesses, they are happy. 

Heck, before now, most of the people who let China do what they do were the huge corporations that wanted the money from China- either by them making stuff for cheap or selling products there once they got a good economy.  I know we thought it was a good idea to tech share so that we could do business in China- this should have been dealt with then, but quick money overruled long term.  

As for the price reaction- the US companies are dealing with it in a very US way- instead of increasing business for long term gain, they just increase prices for a short term gain.  That's how we've been doing business for decades, as a nation.  I can't tell you how many times my company has decided to cut it's way to profit, in the face of watching Toyota increase the value of their product- and in the end- they will be the ones selling cars at a profit, and we will stop selling cars just because.  This whole situation is self inflicted, IMHO.

bcp2011 said:

In reply to Streetwiseguy :

Can you elaborate which part(s) seem political?  

A tariff, being imposed and collected by the government, is by definition political.

However, this thread has avoided taking a political move personally - nearly all of the replies have been a civil discussion concerning the practical effects. I'm glad to see the discussion has generally been kept that way.

In reply to NOHOME :

The number of global conflicts before the Bretton Woods Conference would seem to indicate that the other kids weren't doing so well without the 'petulant child'. They were fighting for control of trade routes and resources because they had to in order to survive. Nobody is anxious to go back to that, but without a single country/empire/etc overseeing things and providing stability, eventually conflict will occur. Past is prologue.

The current situation has helped everyone involved because everyone got something out of the deal. But, now that the US no longer needs to import oil to survive, and unfair trade has made it harder and harder for US firms to compete there's little motivation for the US to remain under the current rules. Would you pay to secure trade routes that you didn't need, just so your neighbor's could continue to make your life difficult? Or would you use your position of strength to try and re level the playing field?

In reply to STM317 :

We make a LOT of money via trade.  And now that we are starting to close up our borders, you see other countries more than happy to fill in our gaps.  Yes, we can survive on our own.  But we've been thriving via trade for many decades- why would you want to end that?

Worse, our economy has shifted away from making everything- so to actually get to a point where we can truly survive on our own, it will take many billions of dollars to shift all that back to the US.  There are many items that are used every single day that are not made here- mostly tech items- that would cause a huge disruption if we cut ourselves off from the world.

In reply to alfadriver :

You're right. It's not going to be pain free. But the situation has become untenable long term. Like you said regarding tech sharing in China, steps should've been taken a long time ago to prevent arriving here. But there was money to be made in the short term, and nobody wanted to rock the boat or be uncomfortable so here we are...The longer the situation continues, the more painful it gets to fix. Eventually you either fix it, or it kills you.

The US tolerated it when it had to because it needed to import oil, but that's no longer the case. Because they no longer need to rely on this agreement, they can try and leverage their position to enact change. The longer this game plays out, the more it hurts everybody on all sides! But as I said, the US has the best position and should be able to outlast everybody else, however long that may be. I should mention that I think we were eventually going to get to this point regardless of the political party in charge. Energy dependence was the last straw that was keeping the US from rocking the boat and trying to renegotiate.

bcp2011 said:

In reply to Dave M :

...

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.  

Well, trade is only ~10% of the US economy, so the direct effects will by definition be small overall. I think it is hard to predict what the "ripple" effects on the consumer will be. If people start thinking there will be a really big brouhaha and start pulling back on spending, then yes, the effects could be quite large. So far they are small!

In reply to STM317 :

But will it really kill you?  That's the real question.  

Do we really need to make the cheap stuff to survive, or can we start making high value products that China has no way of making- sort of how Germany is doing things?  

Does the "fix" really help things or does it just push off better practices for some of the industries even more- making them more likely to fail?

We are not dying, at all. 

the effect is real

https://www.investors.com/news/trump-tariffs-us-companies-earnings-impact/

Coke.. Alcoa.. UTC(carrier airconditioning).. all have raised prices..

In reply to alfadriver :

When I look at the wealth gap in the US, I think it might. Wall St and the wealthy are making money through global trade, but when accounting for inflation, the average American's buying power peaked in the 70s. We're rapidly returning to a society of haves and have nots that existed  before WW2. It's becoming more and more difficult for a normal person to afford a decent life.

Im lucky enough to have a decent job. I work for a big corporation that is incredibly reliant on international trade. My community was found to be the most dependent on foreign trade in the entire US. Tariffs are going to hurt, and might hurt me more than the average American. I'm not a fan. But I'm not concerned for myself. I'm concerned for my daughter. If it might give my daughter better odds of having a good life then I'd happily sacrifice now due to tariffs. I'm already sacrificing for her benefit in other ways to ensure she has the best chances for success and happiness and if tariffs cause more sacrifice then that's how I'll view them.

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. 

I know the softwood lumber debate is long running and complicated, but it is illustrative and similar to the metals issue. I think the bottom line is that up here in Canada we're a big tree, rock and snow farm. We have a low population density, so we can produce cheap trees and other natural resources, the same way different parts of the US have different strengths. One can chose to leverage this to increase competition and lower prices for everyone, or you can call it unfair and artificially keep prices high. The US has always out competed Canada and frankly many other trade partners on a wide array of medium to high value add products/services. The US bought our Blackberrys when it made sense. Now Canada buys iPhones. It's one thing to prevent illegitimate dumping, but having an open market for metals helps us all. I don't want to over pay for metals and I don't want a Blackberry.

_ said:

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

The military is currently working on polymer shell casings, so in theory it is possible. There would definitely be some interesting engineering challenges to overcome.

Many years ago when I used to live in Nigeria, one of my local business contacts explained how African trade works.

"You Europeans are lucky;  no man in Europe can  do all the things needed to survive year round. You have winter and you have had to learn to get along and do a fair trade for the necessities to survive 5 months of no food or heat."

"Here in Africa, we take what is in season and don't  worry about storing for the future. There is always something in season, and as such all business transactions are ideally as if between a Lion and a Zebra. You and I my friend, are just deciding which one of us is the Zebra right now"

As the white guy with $$$, I got to be the Lion more often than not. And that was fine by me and made me feel great about being a wealthy person in a poor country. There is a certain honesty to the method and the lifestyle once it is made clear, but zero-sum transactional society is not really a life I want to return to.

Pete

In reply to STM317 :

Russia might disagree with you on the US being the only country capable of supporting itself. But much like the US, their economy has grown dependent on international trade.  Logistical problems aside, the country is quite capable of feeding and powering itself from a pure raw materials POV.

The ultimate question is not whether any one country will fold to US will, but whether than can find the political fortitude to collectively decide they don't want to play with the US anymore.  A scenario most Americans can't even imagine as possible.

The next few years should be interesting.

Unfortunately I deal with tariffs on a daily basis, it's part of my job.  We sell internationally to a lot of countries and import pieces from others.  It is a huge problem.  The US has basically bent over without lube in most of our trade practices.  Some countries impose 100%, 200% and even 300% tariffs on US goods, and even ones that don't pull US imports in and rake them over looking for additional revenue.  To put this into perspective, one of our competitors is a German company.  In Brazil I think we get taxed at like 110% with theirs at like 35%.  In what way does this help the US?  

As for China, we do purchase some materials from them.  We have one supplier there that is excellent, but most of the others require diligence in inspection.  The first shipments are always pretty good, but as time goes on they get worse and worse.  The biggest issue is the recourse in returns or replacements.  They count on you to not be willing to go through the problems to do so.  So what you are left with is going with these components to keep you costs down, or pay 2x to 3x or more for the part in US, which also probably comes from the same source and you are just paying mark up.  

If you sell internationally, you are forced to look at places like China to remain competitive in the market, and having tariffs that work against you makes the problem worse.