The tariffs that President Trump vowed to put in place while campaigning - and followed through on - like many government solutions, are solving one problem while creating others at the same time. In this case, the "unintended consequences" from steel tariffs are hurting agricultural jobs across the Midwest, putting pressure on some of the most vehement supporters of President Trump.
A Reuters expose released this morning reveals how how tariffs - as well-intentioned as they may have been - have led to higher cost of goods for farmers across the country.
The authors tell several personal stories, including that of a farmer who was about to purchase a $71,000 grain mill, but had to hold off on the purchase because the seller raised the price 5% to account for the rising price of steel:
Lucas Strom, who runs a century-old family farm in rural Illinois, canceled an order to buy a new $71,000 grain storage bin last month - after the seller raised the price 5 percent in a day.
The reason: steel prices jumped right after U.S. President Donald Trump announced tariffs.
Throughout U.S. farm country, where Trump has enjoyed strong support, tariffs on steel and aluminum imports are boosting costs for equipment and infrastructure and causing some farmers and agricultural firms to scrap purchases and expansion plans, according to Reuters’ interviews with farmers, manufacturers, construction firms and food shippers.
The impact of rising steel prices on agriculture illustrates the unintended and unpredictable consequences of aggressive protectionism in a global economy. And the blow comes as farmers fear a more direct hit from retaliatory tariffs threatened by China on crops such as sorghum and soybeans, the most valuable U.S. agricultural export.
A&P Grain Systems in Maple Park, Illinois - the seller of the storage bin Strom wanted to buy with a neighboring farmer - raised its price two days after Trump announced aluminum and steel tariffs on March 1 to protect U.S. producers of the metals. Strom and his neighbor backed out.
Not surprisingly, government intervention to suppress volatility has caused abnormal volatility in the steel industry:
A&P Grain President Dave Altepeter said the steel used in their bins is made in the United States, but domestic steel prices also have soared because of the tariffs.
U.S. steel mills typically adjust their prices once a year, normally in the first quarter, Altepeter said. But this year, those prices have jumped four times, he said.
A second narrative details more purchase delays in the agriculture industry, including a $800,000 sale of a grain storage system because, again, the fresh steel tariffs caused the price to increase by 15%:
In Riverton, Illinois, farmer Allen Entwistle said he postponed construction of a new $800,000 storage system for grain after AGCO Corp’s GSI unit increased prices by 15 percent. Entwistle, who voted for Trump, will instead store corn in bags on the ground.
“President Trump keeps telling us he’s going to get a better deal,” Entwistle said. “When are we gonna make it better?”
In the third story - not surprisingly - also focuses on the adverse impact of tariffs on steel prices to one small US farmer:
In Sheffield, Iowa, Sukup Manufacturing has seen steel prices soar 40 percent since November, said Brent Hansen, the company’s commercial accounts manager. The maker of grain bins and pre-manufactured steel buildings has encouraged customers to buy quickly before prices jump more. But some have already postponed projects, Hansen said.
“That’s obviously a big price increase for an industry that’s a little bit doom-and-gloom over tariffs,” Hansen said.
Sukup used to give customers up to two months to consider its bids for projects. Now, it allows just a week in some cases because of volatile steel prices, Hansen said.
Prices have jumped by 25 percent for thermal insulated panels that keep food cold – which can use either steel, aluminum or both, said Glenn Todd, owner of Todd Construction Services. The company has built food processing and storage facilities for Bumble Bee Seafoods and poultry company Foster Farms.
Finally, Richard Adkins, director of sales at Discovery Designs Refrigeration in Mukwonago, Wisconsin, thought his company wouldn’t have to worry about Trump’s tariffs. Most of the metal they use to design industrial refrigeration systems comes from Canada and Mexico, he told Reuters, two countries which have both been exempted from the levies.
It didn’t matter. Price-hike notices from vendors landed in Adkins’ mailbox days after Trump announced the duties.
“There’s this knee-jerk reaction,” Adkins said. “We’re quoting prices for projects that won’t be awarded for another six or eight months, and no one wants to be hung out to dry.”
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The bottom line is that we are once again left with a situation where government micromanaging/intervention is doing more harm than good. As goes the old saying "the road to hell is paved with good intentions". In early March, we showed "The Foolishness Of Trump's Steel Tariffs In One Simple Chart" pointing out that Trump hoped tariffs would bring back steel manufacturing jobs. We said it then and we'll say it again: it won't happen.
Meanwhile, and perhaps ironically, Trump sincerely wants to save steel-related jobs, tweeting in early March:
Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!
Just today, Trump doubled down, tweeting "We are bringing back our factories, we are bringing back our jobs, and we are bringing back those four beautiful words: MADE IN THE USA!"
We are bringing back our factories, we are bringing back our jobs, and we are bringing back those four beautiful words: MADE IN THE USA! pic.twitter.com/grABSrYUBX— Donald J. Trump (@realDonaldTrump) April 13, 2018
Alas, those jobs are gone and will never return, and NAFTA had little to do with it; those who want to blame someone, should blame technology, and its relentlessly deflationary impact: the US is now producing 7.7% more steel than in March of 1990 with 48,000 fewer workers.
As the chart above shows, steel employment went on a deep dive nearly four years prior to the passage of Nafta.
Meanwhile, unrenovated, inefficient US plants are aging dinosaurs compared to those in China, which invested massive in modernized plants in recent years, the US didn't. On top of that, the question of whether or not the government realizes that fixing prices can do more harm than good still seems to be answered with a resounding no.