On March 8, 2018, President Donald Trump signed an order to impose a 25% tariff on steel and a 10% tariff on aluminum. It took effect on March 23, 2018.
What does this mean for you? To simplify things, it means that prices will rise for HVAC equipment, cars, cans, and any other commodities that rely on steel or aluminum. Prices will rise regardless of if companies continue to use imported steel and aluminum or switch to U.S.-made material.
What is a Tariff?
A tariff is a tax on imported or exported goods or services, although tariffs on exports are very rare. Normally, tariffs are imposed to restrict imports from overseas. Governments usually raise tariffs to make domestic products more attractive, particularly nascent or battered ones.
Typically, when tariffs are raised, the government and domestic manufacturers (in this case, American-made steel and aluminum) benefit at the expense of consumers. Not only does a lack of competition raise prices, they can also generate tensions and instigate a trade war.
Reaction From the HVAC Industry
The Air Conditioning, Heating, and Refrigeration Institute (AHRI) represents manufacturers of heating, air-conditioning, commercial refrigeration, and water heating products and equipment.
In a letter to President Trump, AHRI (along with 25 other trade associations) expressed that it did not support the additional tariffs on steel aluminum due to the “severe detrimental impact on downstream users of steel and aluminum.” As stated in the letter:
“We understand your goal of supporting these two important sectors of our domestic manufacturing base. However, it is our belief that global tariffs and quotas on imports of these products will injure the purchasers of these products and will lead to the loss of thousands of American jobs. Trade restrictions of this nature and magnitude will therefore lead to more downstream steel and aluminum-containing products being imported into the U.S.”
Reasoning Behind New Tariffs
According to the official Presidential Proclamation on Adjusting Imports of Steel into the United States, the reason for the tariffs is national security. Without a large domestic supply of steel and aluminum, the U.S. may not be able to supply itself with military equipment in the event of war.
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!
— Donald J. Trump (@realDonaldTrump) March 1, 2018
While the intention may be to bring back jobs and hold good on campaign promises, the official reason is national security. Regardless of the reasoning, these new tariffs will raise costs for downstream users of steel and aluminum.
While people are still debating the effect on the U.S. economy (we still don’t know the full scope), these new U.S. tariffs will undeniably raise expenses for U.S. automakers, HVAC manufacturers, infrastructure projects, defense spending, and any other industry that purchases aluminum and steel from abroad.
The tariffs have been supported by U.S. producers of steel and aluminum, who have been complaining about unfair foreign competition and seeking government protection for years. The government will also benefit by receiving extra taxes of imported goods.
Purchase HVAC Equipment NOW Before Tariffs and Interest Rates Rise
If you are currently looking to replace your air conditioning system, consider doing so before the new tariffs make HVAC purchases more expensive.
This is already happening. For example, Hercules Industries recently released a statement (March 20):
“Since the announcement of a 25 percent tariff on all foreign steel imports, the market has been placed under significant constraints unlike which we have experienced in recent past. All steel manufactured products will inevitably be impacted by this announcement as it rolls into implementation. To navigate such volatile market conditions, we will be implementing a 6 percent increase on all nonmaterial-intensive products and a 12 percent increase on material-intensive products… In the event that steel prices reach levels that reach beyond the increases already announced, we will be forced to implement an additional increase in the near future.”
Manufacturers and consumers will have to wait and see exactly how all of this will play out. One thing is for sure, prices and interest rates are rising!
On March 16, the Fed raised interest rates by a quarter of a percentage point, from 1.5 percent to 1.75%. They expect to raise rates two or three times more in 2018. The new tariffs can increase the interest rate even faster. Why? Because when tariffs increase prices for consumers, the Federal Reserve could see inflation rising and react with raising interest rates faster.
May 31, 2018 UPDATE:
On Thursday, the Trump administration announced that they will start imposing tariffs of 25% on steel and 10% on aluminum on the European Union, Canada, and Mexico, which supply around half of America’s imported metal. Wilbur Ross, the commerce secretary, announced that the tariffs will take effect at midnight on Thursday.
Today’s announcement confirms that prices will rise considerably for products that use steel and aluminum, such as the HVAC industry. It could also signal price hikes for goods as varied as denim and cheese.
So, start thinking about pulling the trigger on any purchases that involve steel or aluminum. You may also want to review your current mortgage fixed rate.