Since steel and aluminum tariffs were issued against China in March, many uncertainties have clouded the glass and glazing industry’s discussions of the future. The American Architectural Manufacturers Association (AAMA) held a webinar led by Michael Collins, managing director of Building Industry Advisors LLC, to clear up some of the questions companies have about the impact of these tariffs.
In “Navigating Trade Tariffs” Collins explained how tariffs work, the scope and timing of the recent tariffs and their potential economic impact.
Do Tariffs Work?
Tariffs are intended to make products produced overseas more expensive than domestic products if unfair trade practices, such as abusive intellectual property practices, are happening or if products are sold at an unfair level, according to Collins.
However, Chinese companies would not be paying the tariffs, domestic companies importing Chinese steel or aluminum would be responsible for paying the tariff.
“Those sort of practices can hallow out the domestic industry. Prices can be raised higher after domestic suppliers go out of business,” he said. “Frankly, [tariffs] don’t end up working in most cases because they’re not imposed in a vacuum. If you impose a tariff on a country’s goods they can simply pose a retaliatory tariff.”
According to Collins, tariffs can result in a loss for consumers, as consumers tend to lose more than a dollar for every dollar gained by domestic producers as a result of tariffs.
“It’s not a good trade from social good standpoint,” he said.
Collins looked to a past example to show how tariffs can backfire on a country’s economy.
“The U.S. economy was lagging in 1930. There was an idea that foreign competitors were hurting the U.S. and tariffs were passed,” he said. “There were retaliatory tariffs on U.S. exports which hurt our economy, and deepened, worsened and lengthened the Great Depression.”
Timing and Scope
“Tariffs are a changing landscape – the best thing to do to protect your company is to pay attention to all of this global news. Every once in a while, Google ‘aluminum and steel tariff latest articles.’ They’re changing on a weekly basis,” said Collins.
China, along with many other nations, currently faces a 25 percent tariff on imported steel and 10 percent tariff on imported aluminum.
“The problem is that immediately you have companies like steel wheel manufacturers saying that no domestic producer can make the specific wheels they need and they could go out of business. That leads to exemptions and several thousand companies that want exemptions. They have to be evaluated on a company-by-company basis which involves a lot of bureaucracy,” said Collins.
South Korea, Argentina, Brazil, Australia, the EU, Canada and Mexico were all given temporary exemptions from the tariffs until June 1 as the countries negotiate trade deals with the U.S.
“None of us have any visibility about a further extension. The tariff exemptions could very easily be extended or they could not. It’s unclear,” said Collins. “The purpose and reason for exceptions at all was meant to bring countries to the table to begin quota discussions. It’s more likely that Canada and Mexico will see their exemptions made permanent with quotas. The exemptions have been offered to countries with the least one-sided and least abusive trade relationships.”
The EU has said that it will impose retaliatory tariffs if its extension is not made permanent.
“It’s not that countries try to cripple each other economically. They tend to select the tariffs so that they’re on the most politically visible products,” said Collins. “So there is a systems effect not just in a few local areas. It affects everyone all over the country a little bit to put pressure on Washington.”
Collins advised companies to ensure that they are working with a supplier who can source steel and aluminum from nations not included under the tariffs.
“It would behoove you to be notified when the exemption status of your country supplier changes. If you bring in these products from suppliers who source from non-exempt countries then you need an alternate,” he said. “Those quotas I mentioned may be spoken for and you may be left out in the market buying tariff-laden steel and aluminum.”
According to Collins, major manufacturers in the S&P 500 already warned investors about higher materials costs stemming from the tariffs. He also said that 80 percent of economists surveyed by Reuters said the tariffs would do more harm than good. No respondent said the tariffs would benefit the U.S. economy.
“When you take a large group of economists they tend to be directionally correct,” said Collins.
He said that many companies are looking for ways to mitigate any potential negative effects.
Despite potential setbacks caused by the tariffs, they could help bring China to the table to discuss abusive intellectual property practices. According to Collins, China requires U.S. companies to have a joint venture with a Chinese company and to turn over their intellectual property when doing business in China.
“If a company thinks they don’t want to do that, state-sponsored hackers could just browse through their computers and take intellectual property,” he said.
He described China as a formidable country to engage in a trade war with but thinks it unlikely that China and the U.S. would engage in mutually destructive policies.
“Both have to be willing to posture that they would do so to call the attention of the other side and bring them to the table,” said Collins.
He urged companies to be careful when quoting prices to customers during this uncertain time.
“Don’t guarantee a price on a quote that is two months out if you only have a one-month price guarantee from your supplier. I can’t stress enough how important it is to revisit contracts with customers rather than just confirming that a price is still the same,” he said.