It has been a solid year for sales and profits among equipment builders, industrial firms and fluid power manufacturers alike. The same can’t be said looking ahead. Many financial experts predict a hit to economic growth next year, in large part due to protectionist sentiments and the volatile future of U.S. trade policy.
Earlier this year the Trump administration enacted tariffs on steel and aluminum imported from trading partners like Europe, Canada and Mexico. And it has threatened to impose more than $250 billion in tariffs on goods from China, including construction and agricultural equipment and components. In talks in late July the U.S and EU agreed to try avert a trade war, although tariffs and retaliatory measures remain in place.
The reality is that with foreign steel restricted from domestic markets, U.S. steel manufacturers have little incentive to rein in prices, which are reportedly up 40 to 50% versus a year ago. That directly affects items that use a lot of steel, everything from ag tractors to hydraulic cylinders. John Deere, for example, announced price hikes on its product line. Eaton said it could see a $50 million increase in its raw materials costs.
And tariffs are more than just a tax on farmers, manufacturers and consumers. In a roundtable with Wisconsin Sen. Ron Johnson last month, as reported in the Milwaukee Business Journal, business leaders explained how the administration’s trade policies and resulting retaliations are hurting their bottom line.
“There certainly is an enormous amount of loss productivity and wasted time and effort from all of this,” said Mark Gliebe, the CEO of Regal Beloit. “The biggest issue we have is the uncertainty of it all.” Fears are that tariffs could force businesses to move additional production overseas and, more insidiously, make companies outside the U.S. more efficient and economical.
A lot of steel goes into a now-more-expensive cylinder.
“This policy is designed, or at least has an effect of making our overseas competitors more cost competitive in the U.S.,” said Austin Ramirez, the CEO of Husco International. “It’s a terrible impact of this.”
That certainly seems to be playing out. While free trade is out of fashion in the U.S., the EU and Japan—which together account for around 30% of global economic output—just inked a deal to eliminate most bilateral tariffs and create one of the world’s largest liberalized trade zones. The Europeans have also agreed to trade pacts with Canada and Mexico, and initiated trade discussions with China, Latin America trading bloc Mercosur, and Australia and New Zealand.
America’s attractiveness as a manufacturing base declines and global supply chains shy away from U.S. suppliers when we raise duties on imported raw materials and components. In a remarkable turn, China is now touting itself a protector of international rules while castigating the U.S. for disrupting global commerce.
“The last thing America’s manufacturing workers need is an escalating trade war,” said National Assn. of Manufacturers President Jay Timmons. “Instead of more tariffs, the U.S. and China should immediately begin working toward a fair, bilateral, enforceable, rules-based trade agreement to end China’s market-distorting activities. China cheats, and manufacturers want to see China held accountable.” But more tariffs will punish America’s manufacturing workers, he said, and could undermine hard-won reforms which have increased our global competitiveness and led to higher investment and more American jobs.
