Steel and Aluminum Tariffs Effect on Automakers, Steel Consumers
In the immediate days following the tariff announcement there has and will continue to be a flurry of expectations and predictions. On the same day as the tariffs were formalized the Dow Jones Industrial Average dropped over 400 points, its worst single day decline in three weeks. Large corporate consumers of steel and aluminum were also hit hard by the news. Boeing, Ford and GM all experienced 3-5% declines through the close of the market Thursday and continuing through Friday.
For automakers, they were already entering 2018 on lowered expectations. Following seven years of growth, 2017 marked the first time new car sales declined since 2009 and 2018 is projected to decline further from the 2016 high water mark. Of course the 2009 decline came at the time of the financial crisis in the U.S. During this time industry giants General Motors and Chrysler went bankrupt. While a slightly declining sales volume is not the biggest concern to American automakers, a loss of profit margins would be more threatening. Ripples of these tariffs should be felt throughout the industry as companies could suddenly be paying more for steel and aluminum.
Either your margins are going to be hit or you’re raising prices.-Ian Winer, head of equirites at Wedbush Securities, Dow Ends 420 points lower as Trump calls for U.S. import tariffs on steel, aluminum, MarketWatch
Concerns of protectionist trade policies and threats of a trade war is what seems to fuel concerns to the market. “For now, the more predictable forces of tax policy, fiscal policy, and monetary policy are overshadowed by the incendiary news flow and protectionist rhetoric,” said David Kotok (MarketWatch). So far, talk and implementation of steel and aluminum tariffs has been a boon to domestic steel prices. Since the beginning of the year prices are up about 20%.
Scrap Metal Market Quiet So Far Since Announcement of Steel and Aluminum Tariffs
While tariffs should push manufactured steel and aluminum prices higher it should also push scrap metal prices up as well. Before the tariffs were announced, the scrap metal market was already off to a strong start in 2018.