Another indication that Trump’s tariff/trade war program was ill thought out by the president and his “I hire the best people” group of economic advisors. As time progresses, it becomes more and more evident that the current administration is completely incompetent. The following article is from Forbes:

Trump Steel Policy Hits Home in Illinois

Precision metal stamping for auto parts uses steel as a major input.

For a brief period last week, it appeared that Trump administration steel policies might not be as problematic as they first appeared. While 25 percent tariffs came on, officials announced exclusions for allied countries; those seemed to exempt 65 percent of steel imports. Perhaps domestic steel users would not be hurt so badly after all.

This week it became clear they would have no such luck. Even when the steel tariff exclusions were announced, they were declared to be temporary. Then, when it revealed its reworked trade deal with S. Korea, the Trump administration announced:

“Korean imports of steel products into the United States will be subject to a product-specific quota equivalent to 70% of the average annual import volume of such products during the period of 2015-17. This will result in a significant reduction in Korean steel shipments to the United States.”


If tariffs are just to be replaced with quotas, the exclusions will not mean much. It looks like steel prices in the United States will be going up after all.

So what effect will the Trump administration’s protectionist approach to steel have on U.S. industry? It’s clearly beneficial for companies that produce steel. Such companies employed about 140,000 U.S. workers in 2016. In contrast, there were roughly 2,000,000 American jobs in which steel was a significant input in production. Let’s focus on the latter group.

Meet Principal Manufacturing Corporation, a privately-held company that does about $60 million in annual sales and has roughly 350 employees. The company is physically located in Broadview, Illinois, on the western outskirts of Chicago. In a more general sense, though, the company is situated in the middle of a global supply chain.

Using both imported and domestically-produced steel, Principal’s core competency is high-end metal stamping. According to Ed Farrer, Director of Purchasing for Principal, roughly 80 percent of Principal’s output is automotive components. Much of their work is high-precision, with tolerances of 5 microns (that’s 5 millionths of a meter, or 1/5000 of an inch).

That need for precision can determine what kind of steel Principal uses as an input. Farrer explains that there are many different types of steel. Within the United States there is steel from older, integrated mills and there is steel from minimills. “Minimills do make a good product,” Farrer said. “It just cannot be used for every application. (For example,) the surface finish is not as good for hoods and fenders.” There can be issues with thickness control and the ability to meet mechanical property requirements.

The integrated mill product is more refined, but there are important variations in quality there, too. Farrer said that for some of their needs the highest quality steel comes from Japan and Germany. While Principal tries to use domestically-produced steel when it can, it has some customers who will demand the quality of foreign steel inputs.

Principal sells both domestically and abroad. They ship to Canada, Mexico, Korea, China, the Czech Republic, Ireland, and Italy. They also have a lot of customers with headquarters in a foreign country, but production facilities in the United States.

And Principal feels vulnerable to the Trump administration’s moves on steel prices. For the metal stamping products they make, the metal price is between 30 and 70 percent of the selling price, and they have seen metal prices going up, even in anticipation of the tariffs. While the tariffs only apply to imported steel, they allow domestic producers to raise their prices to match.

“What they’ve done is moved steel producers’ pain onto steel fabricators’ pain,” said Farrer. “If we don’t have access to world competitive steel prices, we’re going to lose business opportunities.”

Principal will have no choice but to pass the input price increases on to customers. Their concern is that customers will then choose to source their parts elsewhere in the world. Even if President Trump’s steel tariffs prove temporary – and the administration has not given any indication that they are – such price hikes can have long-lasting effects. Farrer notes that it is not a simple thing for an auto manufacturer to switch suppliers. There is an elaborate “production part approval process.” But a price spike is the sort of thing that could prompt a buyer to start looking abroad for competition.

“It’s another business challenge that we don’t need,” said Farrer. “Business is tough enough today.”

What of the national security argument that President Trump has used to justify this protection? Farrer sees irony. “This is for national defense? We’ll have plenty of steel for national defense, but we won’t have anyone to fabricate a component.”