STEEL
Wages and Waivers and Washing Machines… oh my!
May 2019
US tariffs appear to be doing good things for the country’s steel industry. Domestic production capacity is expanding, and companies are investing billions of dollars in the construction of new facilities and the expansions of others. In addition to a rapid spree of proposed constructions and expansions earlier this year, this last month has seen Nucor Corp and Steel Dynamics openly consider the construction of steel facilities—located in Kentucky and Texas, respectively—that would add around 4Mtpa of capacity to the market.

But, as always, there are winners and there are losers. At the moment, those losers appear to be threefold: those companies that are unable to secure reliable exemptions to tariffs for imports that they simply cannot source in the US; steel end-users, who have felt both the price increases of steel and the broader impact on consumer purchases as a result of the steel and aluminium tariffs; and manufacturing workers whose industries rely on steel. While jobs have definitely increased in the steel sector, wage growth in factories has lagged behind metalworker wages and the broader economy—frustrating those who hoped tariffs would buoy their metals-adjacent industries and careers.

 

 

NLMK is one company that has been unable to secure tariff waivers. Despite claiming that it is unable to reliably source steel slab in the right size or quantity on the US domestic market, it has had almost all of its exemption requests denied by the federal government. It has paid more than US$160m in tariffs to date and has sunk significant costs into the administrative efforts required to submit the large quantities of paperwork required for exemption requests. While the company has said that it will not make any immediate changes to its staffing or operations, it has said that its planned US$600m expansion at its Farrell steelworks is now in question.

Most companies hit by tariff costs are ones that do not produce steel, instead processing it into finished or semi-finished forms—or working with finished parts as a core part of their manufacturing business. A combination of higher steel prices and tariffs on imports, for instance, are set to cost General Motors around US$1bn during 2019, even as many of its brands are seeing significant declines in demand as automotive price rises—both real and perceived—combine with an increase in perceived economic uncertainty to reduce consumer spending.

Washing machine manufacturers were amongst the first to be hit by tariffs, scoring their own industry-targeted 20% tariff on imported models. While initially appearing to be a positive move, subsequent steel tariffs appear to have raised input costs and led at least in part to a striking 16% price rise over March to May of 2018.

 

A herd of common washing machines (Communis lotis apparatus, A.) in their natural habitat.

 

The story appears similar for many steel-reliant manufacturing jobs, with some reports estimating between 10-16 manufacturing jobs could be part-timed or cut for every steel- and aluminium-producing job gained—although calculations predicted sharper-than-realised reductions in construction spending as a result of higher steel prices, and as such should be taken with several grains of salt. The US’s manufacturing PMI has dropped consistently since October 2018, remaining above 50—and thus indicating slowing but continued growth—but establishing a continual downwards trend.

Looking at wages, the story remains much the same. Manufacturing wages have not kept pace with increases in other areas of the US economy. Workers at direct metal and industrial machine sites have seen increases in wage growth, but automotive, semiconductor, and medical equipment manufacturers, amongst others, have seen almost no gains to pay rates since 2017. For the first time in history, US manufacturing workers average a lower hourly rate than service industry jobs—albeit by nine cents per hour, or US$27.38 for manufacturing and US$27.47 for service.

The full impact of any tariff takes years to be seen. So far, they appear to be at least successful in their primary goal of encouraging billions of dollars of investment in US steel production capacity—something that will last long after the current administration. How the extended manufacturing industry will weather the altered trade environment remains to be seen.