Trump Steel Tariff Stokes Pricing Fears, Sort of
The measure would give U.S. makers greater pricing power, which some fear automakers already managing high costs and relatively thin margins may have to pass on to consumers.
DETROIT – A proposal by the Trump Admin. to slap a tariff on steel and aluminum imports has the potential to raise costs for automakers and perhaps sticker prices for consumers, but the policy does not have General Motors’ purchasing boss sweating yet.
“It’s our job, and we’ve done it very well, to offset any commodity headwinds but, having said that, 90% of the steel we’re buying for our vehicles comes from the United States,” says Mark Reuss, executive vice president-GM Product Development, Purchasing and Supply Chain.
Reuss spoke with reporters on the sidelines of an event introducing the next-generation GMC Sierra large pickup, a product that employs many different grades of steel and aluminum.
Trump proposed Thursday a tariff of 25% on steel imports and 10% on aluminum. It is good news for American steel makers such as Charlotte, NC-based Nucor and Pittsburgh’s U.S. Steel, which have wrestled with cheaper imports from China and Brazil.
But the measure would give U.S. makers greater pricing power, which some fear automakers already managing high costs and relatively thin margins may have to pass on to consumers. If car buyers balk at the higher prices, it could ripple through the economy in a period when new-vehicle sales have plateaued.
“These proposed tariffs on steel and aluminum imports couldn’t come at a worse time,” says Cody Lusk, president and CEO of the American International Automobile Dealers Assn., a Washington lobbyist.
“Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America,” Lusk says in a statement. “The burden of these tariffs, as always, will be passed on to the American consumer. Car shoppers looking for a deal will instead find that they are paying a new tax to transport themselves and their families.”
U.S. sales volume last month declined to 1.294 million units from year-ago’s 1.324 million, leaving the year-to-date total of 2.443 million 1% below January-February 2017’s 2.46 million. February’s seasonally adjusted annual rate of 17.0 million units was slightly below the prior month’s 17.1 million and like-2017’s 17.3 million, according to Wards Intelligence.
John Toohey, head of equities at USAA Asset Management in San Antonio, TX, says the tariff could stall car sales that, despite cooling off from record highs, continue to hum along.
“Tariffs are sand in the gears of economic activity, and automakers are right at the top of the list,” he says.
The announcement sent shares of GM, Ford and FCA US down sharply and stocks of the automakers opened in the red again Friday. According to a report from Reuters, automakers account for 26% of the steel demand in the U.S., second only to the construction industry.
Beyond higher steel prices, the tariff also could further tangle trade talks between the U.S., Mexico and Canada. Trump lost a bid last year to put a 35% tariff on imported vehicles and appears to have dug his heels in on NAFTA negotiations between the three countries over content rules. NAFTA calls for 62.5% of the net cost of light vehicles to be made in North America but Trump wants it hiked to 85%.
Foreign countries also could answer the steel and aluminum tariff by taxing goods they import from the U.S., including cars and trucks.
“Whatever happens on those trade policies, we have to be ready to defend and be disciplined around how we buy, how we develop and engineer,” Reuss says.
– with Erin Sunde and Reuters