SYRACUSE, N.Y. — The topic of steel tariffs is one that many in our country don’t truly understand. The current administration is trying to level the playing field so that U.S. companies can compete globally under fair market conditions.
The reason they are doing this is twofold.
First, they believe, as most every business professional should believe, that if we are able to compete on a level playing field that we can win due to our superior work ethic, technology and operational practices.
When the playing field is slanted, it is challenging to compete globally. Here’s a good example: If we sell a product to China, there is a 27% duty applied to said product. It’s difficult to ask an end user to absorb this, and the original equipment manufacturer (OEM) can’t absorb it, either, as the capital equipment business is a low-margin business.
The second reason involves the state of trade with China. I attended an international trade meeting in June where the guest speaker was from the State Department, and he presented the facts behind why the administration is focused on China.
The Chinese government is buying influence around the globe so that they can try and control markets, unfairly, in its favor. The recent expansion of tariffs into the European Union is directly targeted at steel mills and processing houses that have been bought by Chinese companies, and who are importing low-end raw material from China and other regions to be processed and shipped around the world to try and get around the tariffs. The administration is wise enough to know this and to act upon it
The actions taken have had an impact on raw material prices for all who are buying steel. The impact is due to two
things:
- The fear of tariffs has allowed mills and processing houses to inflate their pricing.
- This fear has driven many buyers into a panic mode. As this happened, they placed larger-volume orders for materials to hopefully avoid a further escalation in pricing. When this happens, it upsets the supply-and-demand relationship and only further allows the steel suppliers to raise pricing, as they have a supply-and-demand situation that works to their favor.
As for our organization, we have seen a steady increase in steel pricing since November. We buy all of our material direct; we track the pricing domestically and globally, real-time, over the course of the year; and we buy all of our material from U.S.-based suppliers, as we have demanding quality specifications for the material.
These demanding specifications are tied not only to equipment design, but also if you buy cheap material, it will not afford companies like us the ability to efficiently process said materials via our automated environments. The old adage, “You can pay me now or you can pay me later,” or, “You get what you pay for,” truly applies. We simply don’t cut corners on quality or processes in our business, as what may look like a short-term win only results in a long-term loss for us, and for our valued clients—neither of which we will allow to happen.
This situation will take some time to settle out. It is interesting to watch the different countries soften their positions. Our thoughts are that once it settles, it will be at a place that is higher than where the market was in November. It is quite a bit higher now, but how high it will be as it settles out is still to be determined.
The market has to understand that the steel manufacturers have been trying to secure price increases for the last few years and simply have not been able to make anything stick until now, as the supply-and-demand relationship would not support such an increase. As such, many have held pricing for the past year or two on their products, given that steel is a major component of said end items.
However, the increases are real now, and the costs are not going to be something that any OEM is going to absorb. Smart business partners exercise greater discipline in forecasting and in bundling demand in these situations so that the raw material buyers have an opportunity to create some level of leverage to mitigate a portion of the increases that have been placed on said materials.
Our approach is that whatever savings we can attain from said strategic planning and sourcing with our end users, we will pass on to them in the spirit of partnership.
At the end of the day as the dust settles, these actions will be better for all as it will level the playing field and hopefully eliminate some of the gamesmanship that exists around the globe as countries and industries try to gain an upper hand in the markets they serve.
Have a question or comment? E-mail our editor Matt Poe at [email protected].