Will tariffs do more harm than good?

Apr 26, 2018

When new tariffs were imposed on Chinese steel and aluminum imports, President Trump said they would help rebuild American industry and create jobs. But what impact are they having on local businesses?

Credit dreamstime.com

Niagara Metals' 55 acre site, along Packard Road, in Niagara Falls, includes a large pile of old appliances and other scrap for processing and a railroad siding for 20 freight cars.

Niagara Metals' headquarters, in Niagara Falls, includes several state-of-the-art cranes for moving large volumes of scrap metal.
Credit Chris Caya WBFO News

"Six days a week, the cars are going in and out. You can see all the material lined up down the tracks that will be going out," said Todd Levin, President of Niagara Metals.

Niagara Metals ships some of its scrap to recycling plants via rail.
Credit Chris Caya WBFO News

He says, the company's 4 local facilities process and sell about 600 million pounds of scrap annually including to steel mills just across the border, in Hamilton, Ontario.  
    
"It's 100% recycled so everything that comes in is turned into something else."   

Levin says his business was hurt, in 2015, when China was dumping low-cost steel in the U.S. But since then, he says, metal prices have been coming back and 2018 is off to good start.
    
"In a nutshell when the steel mills in the United States are running well for their suppliers, like ourselves, it's going to be good for business," Levin said.   

Higher prices may help some local companies but not all, according to World Trade Center Buffalo Niagara President Craig Turner.

WTCBN President Craig Turner
Credit WTCBN.com

"The smaller manufacturers in our region, and those are the ones we're hearing from the most, who are saying, 'I'm locked into contracts. Not with the provider of the steel but with my customer.' So if the provider of the steel comes and says, 'I'm going to raise your steel 25% to cover these tariffs, now I gotta figure out how to deal with that with my customer or eat it.' That's where the big problem is," Turner said.   

China responded to the 25% tariff on steel and 10% tariff on aluminum by increasing fees on some U.S. goods which sparked several rounds of tit-for-tat. Turner says, all the uncertainty is making it difficult for some local companies.

"As you're trying to make long term plans you need some degree of certainty. 'What am I going to buy? Who am I going to hire? Where am I going to build? How am I going to expand?' And the fact that these are changing everyday are making it very difficult for companies to get their arms around it," Turner said.  

Auto industry expert, Art Wheaton, with Cornell University, agrees. Even though tariffs may increase steel and aluminum costs, Wheaton says, uncertainty is the biggest concern for steel workers and automakers.

Cornell University's Arthur Wheaton
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"The auto industry for trying to plan out the production schedules they do that years in advance. It's not just three months and we'll change everything. There's a very complicated system and you need to have your supply chain in order. So when you put in these obstacles or tariffs or barriers it makes it more difficult." And Wheaton says, he doesn't think the data supports claims that tariffs will create jobs in the steel and auto industries. Just the opposite may happen, he says, especially with average sticker prices near $35,000.  
    
"Outside of buying your home, a car or an SUV purchase is a fairly significant amount of our annual budget. So, you do want to be cautious and careful before you just drop a lot of money on something, if you're not sure what the future holds," Wheaton said.   

Niagara Metals' Levin says, he's all for tariffs if they work. But he says they don't apply to many of our trading partners.

President Todd Levin of Niagara Metals
Credit Chris Caya WBFO News

"65% of the imported steel into the United States is exempt from the tariffs. It only applies to about 35%," Levin said.  

And most of that is not from China. According to the Commerce Department, just 2% of the U.S.A's total steel imports, in 2017, came from China.

The problem is with all the other goods. The U.S. trade deficit with China, last year, was more than $375 billion. Wheaton says, he thinks that imbalance, unfortunately, will last for quite some time.  
    
"China is one the major buyers of our debt. So if they're the ones buying our, you know helping our trillion dollar trade deficits or trade imbalances for our deficits here in the U.S. you really don't want to have a huge trade war if China has kind of the upper hand in terms of leverage in the negotiations," Wheaton said.

And a trade war, he says, could just increase costs for everybody and uncertainty for the markets.