Tariffs Ripple Effect

Tariffs Ripple Effect

April 5, 2018

Just as equipment fleet managers gear up purchase plans, politics is applying more pressure to machine prices. That pressure is coming from President Trump’s proposed tariffs on steel and aluminum.

As with any trade war in a tightly knit economy of nations and industries, this will not be a simple tit-for-tat exchange, even as China targeted pork and soybeans. No, the Trump tariffs will ripple through the economy, giving respite to the U.S. steel industry but punishing everyone who uses anything with steel or aluminum in it.

Some construction equipment manufacturers report that prices are locked in for orders already on the books, but quotes for additional supplies of steel or aluminum come guaranteed for hours, not the usual months. Even manufacturers who buy from domestic or Canadian suppliers will find higher prices. Other users of these materials will now shift to North American suppliers. Demand will certainly increase prices and, depending on the duration of the situation, may negatively affect quality.

For fleets, tariffs just add another level of complexity to this year’s purchase decisions. Plans should already have accounted for price increases due to emissions and “smart” technology, but production backlogs are beginning to occur. One manufacturer told us that if orders are not in by now, customers should not expect to receive anything until the end of the year. Managers face uncertainty not only on when the new machine will arrive, but also how much it might cost.

Long-term, the effects of the tariffs could ripple further into the construction industry. As equipment prices increase, internal equipment rates will need to ratchet higher, and that results in higher estimates for upcoming work. Either the cost of building will increase, or margins will suffer.

For public infrastructure spending, where state budgets are already tightly squeezed, overall costs of improvements and new construction will postpone some of the projects sobadly needed in this country. Those that proceed will cost more, at the expense of taxpayers.

Looming, of course, are increases in interest rates and uncertainty about when the Fed will boost them. All in all, not a particularly pleasant position to be in this spring.

Image: Benjamin Balazs
 

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