Trump’s tariffs could drive up costs for manufacturers in Franklin County

(Undated) — President Trump’s tariffs on steel and aluminum eventually could cascade to the local job market.

Local manufacturers who sell in the global economy will have to deal with the higher costs of raw materials.

Pennsylvania businesses will face an extra $468 million in costs from a 10 percent tariff on aluminum and a 25 percent tariff on steel, according to Tax Foundation President Scott Hodge. Pennsylvania ranks ninth among the states impacted by the potential tariffs. Nationally, businesses will see a $9 billion tax increase.

“The impact of these tax hikes may ultimately be shared by most American consumers, but the initial costs will be concentrated among a narrow segment of U.S. states,” Hodge said.

Volvo Construction Equipment, JLG Industries and Manitowoc Grove together employ thousands of workers who convert steel and aluminum into road rollers, lifts and cranes. Franklin County’s economy relies more heavily on manufacturing than does the nation or state.

“Should the tariff impact be all-inclusive, it will significantly impact the cost of imported steel, which would create a corresponding need for increased pricing for finished products, which in turn which would negatively impact demand,” said L. Michael Ross, president of the Franklin County Area Development Corp.

While the intent of the tariff is to make U.S. steel manufacturers more competitive “the issue highlights the connectivity of economic decisions on a global scale,” Ross said.

The tariffs could ignite a trade war impacting local farmers.

 “The agriculture sector knows from experience that our ag exports are the first to be hit by retaliation,” said Brian Kuehl, executive director of Farmers for Free Trade. “Whether it’s our chickens in retaliation for tariffs on Chinese tires, or U.S. apples and wine exports as a result of a Mexican trucking dispute, historically, agriculture always has the biggest target on its back.” 

About 59 percent of Pennsylvania’s ag exports went to the top steel producing countries and 17 percent to the top aluminum producing countries, according to the American Farm Bureau.

Pennsylvania’s dairy exports are worth nearly $250 million a year and create nearly 4,000 jobs, according to the U.S. Export Dairy Council. Franklin County is Pennsylvania’s No. 2 dairy county. Pennsylvania milk producers face a “very difficult” situation in 2018, according to the latest outlook from the Penn State Extension.

Meanwhile, equipment manufacturers have emerged from several lean years with their feet on the ground. Volvo, JLG and Manitowoc are waiting for the federal government to tackle the nation’s crumbling infrastructure.

Their stock prices fell immediately after Trump’s tariff announcement on March 1, as did other U.S. large users of steel and aluminum. The stock prices have yet to recover a week later.

The parent companies of the area’s three major manufacturers had an optimistic outlook in their most recent financial reports:

• Volvo Group achieved the highest sales and operating income in its history. Construction equipment sales increased 28 percent over the year thanks to improving demand in Europe, Asia, South America and North America. The Chinese market was up 74 percent from a year ago.
• Oshkosh boosted its outlook for 2018 based on improved demand for access w equipment, largely manufactured by subsidiary JLG. The company reported a growth of 28 percent in access equipment –primarily aerial work platforms and telehandlers — compared to a year earlier.
• “During the fourth-quarter of 2017, we saw an increase of 78 percent year-over-year in orders primarily driven by increasing customer sentiment in the North American market,” said Barry L. Pennypacker, president and CEO of Manitowoc. Operating margins improved even though revenue declined 2 percent over the year.

While Trump seemingly has walked back part of his proposal, the ripple effects continue. Gary Cohn, his top economic adviser, resigned Wednesday in part over Trump’s stance on the steel and aluminum tariffs.

Trump signed the tariffs order on Thursday. He has argued he can implement the tariffs without approval from the U.S. International Trade Commission because steel and aluminum imports pose a national security threat.

Trump has excluded Canada and Mexico from the tariffs, pending the outcome on ongoing trade negotiations. The U.S. imports by far more steel and aluminum from Canada than any other country, according to the Tax Foundation. China is tenth in steel and No. 2 in aluminum.

The tariffs will go into effect in 15 days. 

This story comes to us through a partnership between WITF and The Chambersburg Public Opinion.