The Tariff Situation – Impact on Materials & Manufacturing

Sunday, November 18, 2018

The trade war between the U.S. and China has become close to a year-long affair that has affected nearly every industry nation-wide, and like many manufacturers, Air-Way isn’t immune to the impacts. As tariffs have been ramping up since the start of 2018, it’s hard to understand the current state of trade and what it means for manufacturing. That topic is too big for a single article, but we would like to try and explain the specific tariffs that are affecting our entire industry and Air-Way’s manufacturing and supply chain.

Tariffs & Trade, a General Overview

The word “trade war” isn’t used lightly, ever. But, that’s essentially what’s been happening. When President Trump made the initial Proclamation citing Section 232 (more on that in a moment) of the Trade Expansion Act of 1962, it was the first of what has since ballooned to a true trade dispute with China. Aimed at pressuring China to change longstanding trade practices, the series of tariffs are meant to alleviate trade agreements Trump believes are hurting American industries.  

The most recent tariffs announced last September affect $200 billion worth of products and comes on top of the $50 billion worth of products already taxed earlier this year. That means that half of nearly all Chinese imports into the U.S. will face tax. 

Section 232 

Citing Section 232 of the Trade Expansion Act of 1962, President Trump issued two proclamations increasing duties on steel and aluminum products.

Trump stated that, “…I concurred in the Secretary’s finding that steel mill articles are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States, and decided to adjust the imports of steel mill articles, as defined in clause 1 of Proclamation 9705, as amended (steel articles), by imposing a 25 percent ad valorem tariff on such articles imported from most countries, beginning March 23, 2018.”

In short, this proclamation has resulted in restrictions on imported steel (25%) and aluminum products (10%), from all countries of origin except Argentina, Australia, Brazil, and S. Korea.

Section 301

According to the International Trade Administration of the US Department of Commerce, Section 301 provides the U.S. with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the U.S. can impose trade sanction. 

As such,the U.S. Trade Representative (USTR) began an investigation under Section 301 of the Chinese government’s actions and policies regarding the transfer of technology, intellectual property and innovation. The subsequent tariff actions taken by President Trump and the USTR are based on that investigation. 

Citing Section 301, the USTR has released a list of Chinese-made products subject to increased duties and fees. The proposed list consists of three separate sets of products. These are commonly referred to as List 1, List 2, and List 3. 

From Air-Way’s perspective, we are most impacted by the restrictions within List 3 on products from China (10%) effective September 24, 2018, increasing to 25% effective January 1, 2019.

No one is immune to these rising costs of imported goods & materials 

Mid-2018, Reuters published a list of comments made by U.S. companies regarding the rising tariff costs. Note: these comments were made before the latest round of tariff hikes, but still shows how every industry and company is dealing with rising costs. 

• Caterpillar Inc said U.S. tariffs on Chinese imports are expected to increase its material costs by about $100 million to $200 million in the second half of the year. The heavy machinery maker plans to offset most of the higher costs with mid-year price hikes.
• Detroit automakers General Motors Ford Motor Co and Fiat Chrysler Automobiles NV lowered their full-year profit forecasts due to escalating tariffs.
• U.S. motorcycle maker Harley-Davidson Inc said it expected incremental costs of about $15 million to $20 million for the remainder of the year from the steel and aluminum tariffs. It also says it will take further hits from retaliatory moves from the European Union. 

How it affects Air-Way Global Manufacturing 
 

We have worked diligently to mitigate these cost increases with minimal impact on our prices. Nevertheless, due to the material cost increases incurred and recent tariff action, it has become necessary for Air-Way to pass through a portion of these costs in the form of surcharges.  Communications with customer have been ongoing.

The Air-Way team will continue pursuing actions to minimize the cost impacts as we closely monitor trade negotiations. Should cost pressures subside, and the tariffs reduced or eliminated, we will take corresponding action to offset these surcharges.

If you have any questions about the changes listed above, please don’t hesitate to reach out to us anytime.