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This American Metalworking Company Is Already Paying Up to 30 Percent More for Steel Thanks to Trump's Tariffs

"Those are traumatic increases. They are shocks to our system," says Mike Schmitt, CEO of The Metalworking Group, an Ohio-based manufacturer.

picture alliance / Patrick Pleul/Newscompicture alliance / Patrick Pleul/NewscomLess than a month after President Donald Trump announced new tariffs on imported steel and aluminum, the CEO of an Ohio-based manufacturing company says his business is already paying significantly higher prices for rolls of steel—and that he will have little choice but to pass those costs on to his customers.

Mike Schmitt, CEO of The Metalworking Group, tells Reason that prices for cold-rolled steel have jumped by 18 percent since January, while hot-rolled steel (a less-well-finished and less expensive product) has increased in price by 30 percent.

"The reality is that those are traumatic increases. They are shocks to our system," Schmitt says. "This isn't a level of price increase where you can say 'oh, I'll negotiate a little bit of it.' You have to pass it on."

The Metalworking Group operates in the middle of the supply chain, buying raw steel from suppliers and cutting, stamping, or machining it into components for a wide range of industrial uses. Schmitt says he has several different contracts with steel suppliers, with prices usually updated every three months to avoid the difficulty of adjusting every time the price of steel fluctuates. Major contracts signed in January are expiring at the end of the month, and his business will have to start paying the higher prices in April.

Steel prices fluctuate as supply and demand rise and fall, but Schmitt says the increases he's facing this spring are well outside of the ordinary. In contracts his businesses signs, they usually agree to ignore increases or decreases of less than 5 percent, as a way of smoothing typical volatility in the commodities market.

Trump has pitched his tariffs as being in the best interest of national security. "If you don't have steel, you don't have a country," he famously tweeted shortly before announcing the 25 percent import tax. He has downplayed the potential threat of starting a trade war (those are "good, and easy to win," he announced on Twitter) with America's top trading partners, and others in his administration, like Commerce Secretary Wilbur Ross, have downplayed the potential consequences tariffs have on American businesses that use steel.

But from Schmitt's perspective, the tariffs are "punitive." And while higher prices might help prop up American steelmakers, there are far more businesses like The Metalworking Group that consume steel, rather than make it. According to 2015 Census data, steel mills employed about 140,000 Americans and added about $36 billion to the economy that year, but steel-consuming industries employed more than 6.5 million Americans and added $1 trillion to the economy. In other words, for every steel-producing employee in the country who might benefit from Trump's proposed tariffs, there are 46 employees whose companies may suffer serious economic distress.

Schmitt, 55, says The Metalworking Group has no immediate plans to lay off any of his 180 workers in response to the higher production costs, but the tariffs will create plenty of other headaches. Contracts have to be rewritten to account for higher prices, which might cause some of his company's customers to look elsewhere for the parts they need. Already thin margins will get narrower. Investment and expansion will be put off.

The consequences will be felt across almost every sector of the economy, from agriculture to manufacturing, and could raise the price of everything from electricity to beer. According to a policy brief released by the Trade Partnership, a Washington-based pro-trade think tank, tariffs are projected to cause 146,000 net job losses—five jobs lost for every job gained. Even protectionist think tanks like the Coalition for a Prosperous America project a net decline in American jobs as a result of tariffs. The only point of disagreement seems to be how bad things will get.

"The uncertainty is whats troubling," says Schmitt, who has served as CEO of the company since 2000. "In a typical year, I'd be looking at maybe buying more equipment or investing in the business. And now I don't know what things are going to look like six months from now. It puts a chilling effect on the investment level."

Investors on Wall Street seem similarly shook. Global stock market have responded negatively to each new tariff announcement—most recently, the Trump administration's outlining of plans to put $60 billion of additional tariffs on Chinese-made electronics, furniture, and other goods. Those tariffs are a serious policy blunder motivated by Trump's protectionist politics, says Stephen Roach, an economist and professor at Yale. "There's not really a great appreciation of economic policy analysis in the Trump administration," Roach said during an appearance on Bloomberg this week.

If he could talk to the president or the White House's top economic advisors, Schmitt says he would tell them that tariffs have the potential to undo the gains created by tax reform. While changes to the corporate tax system have encouraged investment and hiring, the steel and aluminum tariffs "flies in the face" of those positive developments.

He'd also ask the president why he's determined to repeat history. After all, the consequences of tariffs are not unknown. When George W. Bush imposed tariffs ranging from eight percent to 30 percent on imported steel, the higher costs dealt a $4 billion hit to the economy and led to 200,000 job losses, according to an analysis by the U.S. International Trade Commission. Bush's former chief of staff has warned the Trump administration against pursuing the same course.

Schmitt says his business, like plenty of others, is still factoring in the price increases. It will take months for all the consequences to be seen.

"No matter what happens, it's going to be a downward pressure on the amount of product that you sell," Schmitt says. "When you raise prices, people buy less. You can't get around that."

Photo Credit: picture alliance / Patrick Pleul/Newscom

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  • Libertymike||

    Tariffs protect the politically connected.

    Tariffs protect the politically wired.

    Tariffs protect the politically powerful.

    Tariffs protect political entrepreneurs.

    Tariffs protect central planning.

    Tariffs protect central planners.

    Tariffs protect inefficiency.

    Tariffs protect the philosophically bankrupt proposition that politicians and central planners are somehow best able to protect a so-called "national interest," a construct not informing the revolution of 1776.

  • sarcasmic||

    Protective tariffs make sense if you believe the purpose of the economy is to supply jobs, not goods and services. That the job of government is to serve businesses, not consumers. In fact there are a lot of beliefs based upon this faulty premise. Like putting up a wall to stop brown people from crossing the southern border and stealing those precious menial jobs that most Americans are to proud to do.

  • Shockerengr||

    But they don't even accomplish that outside of narrow areas.

  • sarcasmic||

    Within that gulf between intentions and results is some proverbial road.

  • creech||

    Think how many jobs could be supplied if the Feds outlawed the use of bulldozers!

  • AD-RtR/OS!||

    That would be useless without also repealing Davis-Bacon.

  • Slocum||

    Protective tariffs make sense if you believe the purpose of the economy is to supply jobs

    In this case, not even then. The likely result will be that, if the steel tariffs remain in place, either 'The Metalworking Group' will ultimately move production offshore or its customers will switch to foreign suppliers who can still buy cheap, tariff-free steel.

  • Headache||

    Good luck with that. China cut production by 20%.
    https://gensteel.com/wp-content/uploads/2018/02/ Steel-Price-Forecast-Infographic-2018.pdf

    Here is the $64,000 question. The tariffs are on imports, so why would domestic price increase?
    And another, are quotas more or less effective on domestic price than foreign tariffs?

    What was Reason's explanation for 2012 price of steel? Which was higher than current price.
    https://gensteel.com/wp-content/uploads/2018/02/ Steel-Price-Forecast-Infographic-2018.pdf

  • Iheartskeet||

    The economy doesn't have a "purpose" other than allowing each to seek their self-interest.

  • Libertarian||

    "When you raise prices, people buy less. You can't get around that."

    Wait -- does Trump know about this?

  • Shirley Knott||

    The minimum wage folks don't.
    Why should Trump?

    The easy error that the economy exists to provide jobs arises from the conundrum 'how do I buy goods or services without a job?'
    The solution is left as an exercise for the reader.

  • Mark22||

    Yes he does, and that's the point: you raise prices on foreign goods and people by less foreign goods. Seems to work as intended.

    The way this is supposed to work is that you (1) impose tariffs, (2) prices spike, (3) this motivates more domestic production, (4) prices go down somewhat again to reflect what market prices would be without foreign subsidies. We are currently at (2). Getting to (4) will take a few years.

  • John||

    Schmitt, 55, says The Metalworking Group has no immediate plans to lay off any of his 180 workers in response to the higher production costs, but the tariffs will create plenty of other headaches. Contracts have to be rewritten to account for higher prices, which might cause some of his company's customers to look elsewhere for the parts they need. Already thin margins will get narrower. Investment and expansion will be put off.

    It is almost like businesses and the markets adjust to these things just like any other price shock. Who knew? If the price of steel had gone up 30% because of some crack pot carbon tax scheme, Reason would be on here explaining how the market will account for the rise in price and it was no big deal and stopping global warming was the most important thing ever!!

  • gormadoc||

    It's sad, because you've been reading Reason for a while and somehow have just missed the point. For one, Reason does not like carbon taxes or related idiotic plans. The only person favorable to carbon taxes is Ronald Bailey, who seems more to prefer it over the EPA and energy subsidies. For another, price shocks imposed by fiat are bad, whether from tariffs or taxes.

    It seems more like you're trying to divert attention from the fact that Trump fucked up by saying that other people would fuck up, too. Even if we grant that, it doesn't make it less of a fuck-up.

    I would give more links, but Reason doesn't like that.

  • Kivlor||

    And yet they wholeheartedly cried out for GayJay, the only pro carbon tax candidate in the libertarian primary.

    And Ron writes the overwhelming majority of the environment-related articles here, so it would be quite easy to get the notion that Reason is pro carbon tax in general.

  • Cynical Asshole||

    And yet they wholeheartedly cried out for GayJay, the only pro carbon tax candidate in the libertarian primary.

    First, I didn't think Reason as a magazine made official endorsements of candidates, although I freely admit I may be mis-remembering. To the extent that many of their individual contributors supported Johnson, my impression was that it had more to do with him being the only candidate for the presidential nomination that had actual executive government experience as a former 2-term governor of NM than him being the "purest" libertarian candidate.

    Also, minor nit, but fairly important: the libertarian party doesn't hold primary elections, they hold a nominating convention where party delegate select the presidential and vice presidential candidates. And they select them separately, not as a ticket, although Johnson did practically beg the delegates to nominate Weld for VP (I wonder if he would have been so insistent if he'd known Weld was going to end up all but endorsing Shrillary on Madcow's show a couple of week before the election? I also wonder how many votes the LP lost because of him?)

    And Ron writes the overwhelming majority of the environment-related articles here, so it would be quite easy to get the notion that Reason is pro carbon tax in general.

    The only thing I take away from that is that Ron Bailey is their science correspondent.

  • Kivlor||

    Yes yes, it's not a "primary" it's a "nomination". But the basic idea is there. You have a bunch of candidates who are vying for the nomination. There is even a libertarian ballot, where voters who don't want to vote for a GOP or Dem candidate can vote for a libertarian one. We can call it whatever you want, but colloquially today it would be easily understood as a "Primary". It's not a democratic one, but that's pretty pedantic nitpicking when we get down to it.

    My point about Ron--whose articles I do like quite well--is that as he writes the majority of their science articles, and has some flirtations with being pro carbon tax, and Reason prints this as the official libertarian magazine, it would be easy to infer that Reason supports his pro carbon tax position. Especially because the opposing point is not advertised that often here.

  • AD-RtR/OS!||

    They don't hold a "Primary" because the abysmal voting results would demonstrate the complete futility of running for office as a Libertarian......as if the Presidential Election numbers aren't sending that signal now.

  • arbe59||

    "And yet they wholeheartedly cried out for GayJay, the only pro carbon tax candidate in the libertarian primary."

    I'm getting so sick of this fallacy that a supporter must agree with every single thing their preferred candidate believes. This is how millions of millennials are convinced that, literally overnight, we went from a country that freely elected a black man to 2 presidential terms, to a country that is on the verge of bringing back slavery and patriarchal culture.

    For the LP nomination, Johnson was up against nobody with a chance of getting on stage with Trump and Hillary, so carbon-tax supporter or not, he was going to get the libertarian platform more of a look from general voters than any of the other guys vying for that nomination. So perhaps Reason adopts the burden of convincing new readers that no, in fact, libertarian ideology isn't compatible with the idea of gov't-based, contrived markets like carbon-trading schemes. But if the reader is there because Johnson made them think twice about the duopoly of Republican/Democrat, because he was on stage in the debates against them...that's a path that could be effective.

  • Hank Phillips||

    The LP could have gotten another 4% of the vote without that Rent-a-Republican pushing idiotic planks not in the LP platform. Gary's vote total increased 328% by simply using the LP plank birth control choice instead of the Prohibition Party/Republican coathanger abortions plank in 2012.

  • Cynical Asshole||

    you've been reading Reason for a while

    Assumes facts not in evidence. Besides, no one reads the articles anyway. Except for cucks and fags.

  • AD-RtR/OS!||

    Yeah, we're all here for the Centerfold.

  • Elias Fakaname||

    Tony reads the articles?

  • silver.||

    I do agree about the market swallowing this tariff. It's a goof in principle for sure, but it'll be okay. I can buy that there are national defense concerns; most of us are aware of metal rationing that occurs during armed conflicts. I just don't think a dozen steel mills closing is going to cause us to lose a war. If we were to lose a war so fast that we and our allies didn't have a few months to ramp up steel production... well .. we weren't gonna make it anyway.

    OTOH, Trump is pandering to the Rust Belt voters that swung for him. It's economically stupid but politically shrewd to implement these tariffs, and as voters we incentivize shit like that all the time. It's not like there's actually much he can do to "fix" their industries and "buy" their votes.

  • AD-RtR/OS!||

    You realize that DoD has made major "small arms ammo" purchases from the Israeli's because of the dearth of small-arms ammo production capacity now existing in the USA due to many firms closing plants here?
    How many "shipyards" are available for the construction of USNavy warships now v. 50-years ago?

  • Headache||

    Reason didn't ask if price increase was in its Chinese operation. Do to production cuts in steel.

  • sarcasmic||

    "Papiere, bitte"

  • sarcasmic||

    Wrong article, duh-oh!

  • Crusty Juggler||

    Apparently we need Suppressor Control as well.

  • $park¥ leftist poser||

    "The reality is that those are traumatic increases. They are shocks to our system," Schmitt says. "This isn't a level of price increase where you can say 'oh, I'll negotiate a little bit of it.' You have to pass it on."

    Suck it up, Sally. We've been assured on many occasions that the tariffs are just Trump blowing hot air on Twitter to get his opponents riled up. They're not actually going to go into effect.

  • Cynical Asshole||

    We've been assured on many occasions that the tariffs are just Trump blowing hot air on Twitter

    Wait, I thought they were just a negotiating tactic by the nth dimensional chess wizard. Which is it? And correct me if I'm wrong, but I thought the tariffs had already gone into effect last Friday (at least that was the plan last week).

  • $park¥ leftist poser||

    Let's not get crazy. If the tariffs had gone into effect then certain somebodies would have been all up in here saying that they were wrong.

  • gormadoc||

    It's just disgusting watching these people crow about socialists and high taxes support this new redistributive tax with no evidence that this will help anybody but certain businesses and Trump's political performance in the rotting North.

    Replace China with big business and their "unfair practices" with CEO compensation and you get a Kamala Harris or Bernie Sanders speech.

  • Headache||

    I believe it was March 8,2018. It sure was fast, only twenty days. Supply must have been really low, but somehow that would not cause a price increase.

  • Jerryskids||

    "Who is this that obscures my plans
    with words without knowledge?
    Brace yourself like a man;
    I will question you,
    and you shall answer me.

    "Where were you when I laid the Trump Tower's foundation?
    Tell me, if you understand.
    Who marked off its dimensions? Surely you know!
    Who stretched a measuring line across it?

    On what were its footings set,
    or who laid its cornerstone—
    while the morning stars sang together
    and all the Muslims in New Jersey danced for joy?

    "Who shut up the Mexicans behind a wall
    when they burst forth from the desert,
    when I made the concrete its garment
    and wrapped it in big, beautiful gold leaf

    when I fixed limits for immigration
    and set its doors and windows in place,
    when I said, 'This far you may come and no farther;
    here is where your rapists, thieves and murderers halt'?

    Have you ever given orders to Russian hookers,
    or shown the bitches their place,
    that you might take the women by the pussy
    and bomb the living shit out of ISIS?

    The Donald takes shape like clay under a dead weasel;
    his features stand out like those of a clown .
    The workers are denied their steel,
    and their upraised prices are shocking.

    /A reading from the Book of Jobs (Returning to America)

  • VinniUSMC||

    Yeah, we should totally just continue to let China screw us. Let them continue to manipulate their currency, tax the shit out of American imports, steal copyrighted/patented/trademarked stuff, and make their own people disappear for disagreeing with the government.

    Fuck China, until they're ready to play by the same rules as the rest of the modern world.

  • Echospinner||

    Steel is not all that labor intensive and operates on a thin margin. High up front costs. China is overproduced in steel resulting in lower prices.

    I do not like tariffs either. At the same time in any negotiation you need leverage.

    The market, I follow Nucor and some of the others. It has stayed flat despite all of the hoopla.

  • Douchebag McEvil||

    Elections have consequences.

  • Ben_||

    Steel from Canada, Mexico, the EU, and obviously the US is exempt from the tariffs. And the tariffs are only 25% on steel from Turkey, Russia, China, and others. So how is this company paying 30% more?

    The trade war talk is 10% reality and 90% exaggeration and storytelling about a scary future someone imagines. Stick to reality please. If you can't argue your point without making shit up, maybe that's a sign you should consider your positions.

    Free trade is better than tariffs. Don't turn it into a religion.

  • JWatts||

    "Steel from Canada, Mexico, the EU, and obviously the US is exempt from the tariffs. And the tariffs are only 25% on steel from Turkey, Russia, China, and others. So how is this company paying 30% more?"

    Yeah, I noticed that too. Something doesn't add up with this story.

  • Elias Fakaname||

    Like with illegal immigration, I simply don't trust Reason to be straight with us about subjects like this.

  • AD-RtR/OS!||

    Sounds like some "greedy" capitalists* see an opportunity, and are taking it (Enron anyone?).

    *Bernie Sanders, call your office.

  • KH||

    "Free trade is better than tariffs. Don't turn it into a religion."

    Thank you.

  • Elias Fakaname||

    It certainly is better. The complicated part is that we never had free trade to begin with. Given China's bad behavior on many levels related to trade. There are arguments to be made for and against what Trump is trying to accomplish.

    I just hope he ends up being right. For all our sakes.

  • vek||

    Yup. All the hype and hysteria is waaaay overblown. Trump hasn't slapped a 200% tariff on ALL imported goods from the entire world or anything. So it's all just going to have minor ripple effects that are no more than normal swings. Go look at the history of steel pricing, it's been cheaper than it is now, and it's been more expensive than it is now even after the tariff. AKA it's not a HUGE deal.

    But everybody has been grasping at straws to show how horrible it is, even though it's not really been that bad. Posting stuff like 30% price increases after a 25% tariff is obviously bullshit, unless it is OTHER market forces driving it up still further, which happens all the time.

    Funny thing is, Trump has largely been "winning" with his little trade battles (it's hardly a trade war), and they sure don't like to talk about that. But he's got some decent concessions so far, and nobody has had the balls the strike back hard... Probably because they all know we have the upper hand, just like Trump knows.

  • AD-RtR/OS!||

    Perhaps he shouldn't have put all of his eggs in the Shrillary basket.

  • Entelechy||

    Time to send Ambassador Bolton to Wakanda for vibranium tariff talks .

  • Elias Fakaname||

    Or we could just cut a deal for Canada's adamantium stores. Or get some uru from the Asgardians. Or skip all that altogether, and see if we can license some new man made super metal from Reed Richards.

  • Devastator||

    Sure he will have to pay more but why do they never say how much of a percentage the final price will go up? 1% ? 10%? There's a lot more work than just getting raw steel into his manufacturing process.

  • vek||

    Exactly. I own a business. Any one part of the process going up in price (certain materials, labor, etc) only makes end price go up a little, and usually doesn't even warrant having to alter pricing.

  • thisbrucesmith||

    Everyone remain calm, Eventually, Larry Kudlow will talk Trump into dropping the tariffs and subsidizing steel and aluminum instead. Problem solved. (Another problem created, but hey.)

  • Headache||

    Where were libertarians when

    www.cbp.gov/trade/quota/guide-.....ommodities

    I think this was last updated 2014.

  • joebanana||

    Oh, boo-f*cking-hoo. Quit buying cheap Chinese crap steel. Moron. The US used to make the best quality steel on the planet, until cheap Chinese crap bankrupted the industry.

  • KH||

    Can someone point to the 2015 census data used in this story?

    ("According to 2015 Census data, steel mills employed about 140,000 Americans and added about $36 billion to the economy that year, but steel-consuming industries employed more than 6.5 million Americans and added $1 trillion to the economy.")

    The phrase "steel-consuming industries" is broad enough to include everything from auto makers (heavily exposed to tariffs) to toy makers (very lightly exposed by way of the occasional coil spring or stamped metal tab). It makes a difference.

  • vek||

    They're counting EVERYTHING. Funny thing is that even a car company probably spends far less on the cost of steel than labor, R&D, electronics, transport, etc by the time its all said and done. And that's probably one of the ones that uses the MOST steel per end dollar of value.

  • Elias Fakaname||

    True. This tariff won't make the MSRP of s new car more than A few hundred dollars. It's like if we get rid of all the illegal artificially cheap agriculture labor. It will probably raise the price of lettuce maybe ten percent even if the cost of labor doubles.

  • santamonica811||

    An Ohio company...

    Sorry; I don't give a rat's ass. You voted for Trump, you helped get him elected. Enjoy your higher costs and your lower standard of living.

    Classic schadenfreude (Not proud of my feeling...just acknowledging it.)

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