Transportation industries sweat Trump’s tariff decision

From autos to aerospace, transportation-related industries are worried that Trump’s escalating trade rhetoric over tariffs will affect their bottom line, squeezing suppliers and dampening exports.

A variety of industries are spinning from a number of simultaneous trade actions, including the renegotiation of NAFTA, investigations into the national security implications of auto imports, a new 25 percent tariff on certain Chinese imports, and Thursday’s decision not to exempt Canada, Mexico and the European Union from wide-reaching tariffs on steel and aluminum imports.

Those tariffs go into effect on Friday.

The Auto Alliance noted in a statement Thursday that the administration’s tariffs “will result in an increase in the price of domestically produced steel – threatening the industry’s global competitiveness and raising vehicle costs for our customers” and encouraged “a careful re-evaluation” of the policy.

Though the vast majority of steel used for U.S.-made automobiles is domestically sourced, some key parts simply can’t be found in America. Suppliers will feel the squeeze, especially for contracts that lock in prices.

While the steel that goes into car hoods and side panels may be domestically sourced, fuel injectors, for instance, use European steel. Ann Wilson, senior vice president of government affairs of the Motor & Equipment Manufacturers Association, said there’s a “safety-critical” part used with injectors that’s only available in Europe.

“There’s very sophisticated tooling that actually creates these very, very small holes at the end of the injector — that is [made] in Europe,” Wilson said. “That steel is brought into the U.S., and the fuel injector itself is put together in South Carolina. This steel, which is only available in Europe, is now subject to the tariff.”

For some specialty parts, “there are not sources for this, have not been sources for this, and the tariffs are not going to increase the opportunity for those sources,”she said. She added that in some cases suppliers might find it cheaper to move their manufacturing operations offshore rather than absorb the cost of the tariffs.

MEMA represents the largest U.S. manufacturing sector, employing 871,000 U.S. workers, whom WIlson said the tariffs will hurt.

Suppliers like MEMA’s members will also be pinched in instances where they’recontractually bound to preset prices and can’t pass increased costs on to manufacturers and, eventually, to consumers.

Road builders and contractors struggle with the same problem.

“For projects that are currently underway and under contract … contractors have locked in their bids perhaps weeks, months, years ago,” said James Christianson, vice president of government relations for the Associated General Contractors of America. “Assuming that there’s no price escalation clause for materials in their contract, the contractors are the ones that are going to be bearing the brunt of this price increase.”

According to a 2016 survey by the American Association of State Highway and Transportation Officials, just 13 states had a steel price adjustment clause in their contracts.

“This can wipe away the contractor’s profits on the job,” Christianson said. “They’re not going to be able to invest in new equipment or hire new workers.”

The American Road & Transportation Builders Association also warned Thursday that “for every $1 spent on highway and bridge construction, 10 cents goes toward steel-related materials,” meaning Trump’s steel tariff would hurt “the transportation construction industry’s ability to deliver needed infrastructure improvement projects.”

The costs of construction and mining equipment and parts will also rise, which could be “a disincentive for contractors to invest in new equipment, to the detriment of many U.S.-based manufacturing companies,” ARTBA cautioned.

Equipment manufacturers “already were feeling increases in steel costs” before the tariffs hit, said Dennis Slater, president of the Association of Equipment Manufacturers. He also cautioned that equipment exports will take a hit, as prices rise. “Their competitors don’t face the problem, so it in effect really makes U.S. companies less competitive,” Slater said.

Slater also suggested the ripple effects will be far-reaching; he warned, for instance, that farmers worried about retaliatory tariffs are already showing signs of timidity when it comes to big equipment purchases.

Aerospace manufacturers, for their part, seem less worried about the immediate impacts of steel and aluminum imports, considering that they’re increasingly using composite materials.

But that doesn’t mean they’re not worried about a trade war.

Boeing expects that more than 20 percent of global demand for aircraft — amounting to more than 7,200 planes over the next 20 years — will come from China.

In an interview posted today on The Street, Boeing CEO Dennis Muilenburg said that while he’s “keeping a close eye” on the metal tariffs, he was more concerned about “the importance of trade relationships around the globe — it’s very important to us, the relationship with China in particular.”

Republicans in Congress have slammed the tariff announcements, fearing that the economic impacts could cost them at the polls come November.