When Giffin Sheet Metals Ltd. needed a large quantity of aluminized steel for an automotive project in Alliston, Ontario, the Toronto contractor reached out to a U.S. supplier in southeastern Michigan.
Aluminized steel is harder to come by in Canada and the company required several hundred thousand pounds. It was a transaction the 70-year-old company had done many times before, and with the 24-year-old North American Free Trade Agreement, such cross-border purchases were virtually hassle-free.
This time, however, tight supplies since the U.S. instituted tariffs on almost all foreign steel turned a routine order into an international pain, said Bill Giffin, a vice president and partner at Giffin Sheet Metals.
“It’s gone crazy,” Giffin said.
SMACNA members like Giffin are among those impacted by President Donald Trump’s March 1 decision to impose a 25 percent duty on imported steel and a 10 percent levy on aluminum. Even though many SMACNA members and machinery manufacturers say they purchase domestic metal almost exclusively, the boost in the price of imported steel quickly had an effect on costs from U.S. suppliers, many members say.
In Giffin’s case, he was forced to buy from a company he didn’t have a history with. The supplier forced terms that Giffin said were worse than c.o.d.: “Cash before leaving their yard.” The company was required to wire payment before it could take possession of the steel.
Giffin is not a supporter of the tariffs.
“It’s impacting us, it’s impacting our industry in general,” he said. “It’s very volatile right now.”
Trump used his authority under Section 232 of the Trade Expansion Act, a 1962 law that few had heard of before the tariffs were announced. It gives the president the power to impose tariffs if the Commerce Department determines they’re needed to ensure national security. Because steel and aluminum are widely used in military equipment, the White House said a strong domestic industry is vital for U.S. defense.
American steel manufacturers have long complained that some countries sell steel in the U.S. at a price lower than it sells for where it’s made—a practice known as dumping. Steelmakers blame dumping for contributing to the decline in the domestic steel industry in the last 50 years. Most support the tariffs.
“For far too long, steel imports have been allowed to undermine America’s steel strength,” United States Steel Corp. President David Burritt said shortly after the tariffs were announced. “Our national security is only as strong as American steel. President Trump’s action will begin to level the playing field for the security and manufacturing strength of the United States.”
Not everyone who uses the steel put out by domestic manufacturers agrees, however. Several U.S. manufacturing associations, including the Air-Conditioning, Heating and Refrigeration Institute, have criticized the tariffs. Among SMACNA members and suppliers, opinions vary from support and neutrality to strong opposition.
The companies that make up SMACNA’s Georgia chapter recently took part in a survey on the steel tariffs. Chapter Executive Vice President Ginger Slaick said members reported price increases ranging from 3 to 60 percent, depending on material.
“They (are) seeing increases anywhere from 20 to 40 percent on stainless steel and up to 35 percent on galvanized and up to 50 percent on aluminum,” said Slaick, reporting what two respondents, who asked to remain anonymous, said.
Such price increases are affecting profits, she added.
“For the most part, they’re not able to pass it on to their customers,” Slaick said.
Cleveland-based distributor and SMACNA Silver Associate Member Majestic Steel USA said it counts many SMACNA members among its client list. Company officials there said the price increases have generally been what they expected, but they acknowledged that getting a hold of certain types of metal can be difficult.
“We’re seeing demand extremely strong in all of our markets throughout the country,” said Rob Zito, Majestic’s HVAC market manager.
Unfortunately, the tight supply situation won’t change anytime soon, said Majestic Market Research Manager Chris Billman. The tariffs have reduced the amount of imported steel in the market, and many domestic mills are running at close to full capacity. Adding additional steel processing facilities takes time.
“Since the start of the year, a couple of the domestic suppliers (have announced) new coating-capacity projects that are going to be coming online over the next one to two years, so that should help maybe alleviate some of the pressure but nothing in the short or even medium term,” Billman said.
For now, Zito and Billman both recommend sheet metal contractors ensure they have good relationships with their vendors.
“From a mechanical contractor perspective, they need to stay up-to-date with the factors going on,” Zito said. “They need to get updates weekly or biweekly from their steel suppliers to make sure there are no changes going on in the supply chain.”
But solid relationships with vendors don’t make up for excessively large price increases, according to Jack Knox, current SMACNA president, and president of R.F. Knox Co. Inc. in Smyrna, Georgia.
He said the 104-year-old sheet metal firm has good relations with its steel suppliers, but that hasn’t stopped the company from being hit with increases of 30 to 40 percent on some materials.
“That’s had a major impact on us, especially on projects that we already secured,” he said. “I’ve got to make a decision: Do I try to go to the owner or to the mechanical (contractor)—whomever we’re working for—and pursue that additional money? Then you potentially lose a customer. Or do I just eat it?”
Knox estimated that his company uses around 4 million pounds of steel a year, typically U.S.-made. He figures market volatility will affect a million of those pounds.
“That’s some hefty dollars on the bottom line,” he added.
Some steel vendors are only holding prices for 24 hours. Previously, most quotes were good for a month, Knox said. Such short windows don’t work on HVAC projects.
“We never price a job and are awarded within 24 hours,” he said. “When we land a job, they don’t start the next day.”
Some companies are reluctant to criticize the White House’s decision to enact the tariffs, preferring not to take a position on a controversial policy. Knox is not among them.
“I’m a Trump supporter, but I am absolutely opposed to this tariff,” he said. “I understand the long-range goal. I get that. But the short-term effect it’s had on contractors like myself? It’s going straight to the bottom line, taking away from net profits that are critical to keep a business going. Right now, it hurts.”
Feeling No Pain
But not all SMACNA contractors are feeling an impact from the tariffs. Craig Pessina, president of Partlan-Labadie Sheet Metal Co. in Oak Park, Michigan, said his firm hasn’t noticed much of a change. Pessina said he typically buys flat sheets of steel, not coils, along with lots of other types of metal, and he hasn’t experienced the price fluctuations some other contractors are complaining about.
“I believe that our relationships with our steel suppliers are very solid,” said Pessina, who serves on SMACNA’s Industrial Council. “They give us a lot of forewarning if there’s going to be a small fluctuation or any fluctuation at all.
“We’re not finding thus far that the steel tariffs are affecting our business,” he said.
Pessina estimated that Partlan-Labadie purchases between 200,000 and 400,000 pounds of steel a year—all of it from domestic suppliers. He said many have cut the length of time that they’ll guarantee a quote from a month down to 15 days.
Personally, Pessina said he doesn’t have an opinion on Trump’s efforts to punish countries such as China that the White House believes take advantage of the U.S., although he acknowledged he doesn’t like to see steel prices rise. With a heavily automotive client base, Pessina said he is concerned that the White House is mulling tariffs on imported car parts, since many U.S.-built vehicles contain materials sourced around the world. Such a levy could affect his company more than the current duties on steel and aluminum, he said.
Going With the Flow
Charleroi, Pennsylvania-based DMI Cos. uses steel in just about everything it sells under four HVAC-related brands: Ductmate Industries, GreenSeam Industries, Linx Industries, and Aire Technologies. Company President and CEO Ray Yeager estimates it buys “tens of millions of dollars of steel” annually. He estimated that in many cases, prices have increased more than the 25 percent tariff on foreign steel.
“Our costs have gone up on galvanized a significant amount,” Yeager said, pointing out that DMI seldom uses foreign steel.
Unlike some companies, Yeager said DMI hasn’t had any difficulty getting the materials it needs—as long as they’re willing to pay current prices. At his company, Yeager said he hasn’t had much pushback passing along price increases to distributors who presumably raised prices for their contractor customers.
“Everybody pretty much understands what’s going on,” he said. “I think we might have had one distributor that said, ‘Come on guys. You’re really going up?’”
Yeager said DMI doesn’t take a position on the tariffs. He wasn’t too worried about a steel supply shortage and said the tariffs are part of Trump’s negotiating strategy to improve America’s position in global trade.
“That’s why we didn’t go overboard and buy a year’s worth of inventory,” he said.
About 300 miles away from DMI in Lester, Pennsylvania, Ernest D. Menold Inc., does heavy industrial and commercial HVAC, and duct fabrication in Pennsylvania, Delaware, and New Jersey. Like Yeager and many SMACNA members, company President Ernest J. Menold, P.E., is seeing higher prices on almost everything since the tariffs were announced. Aside from a slightly longer schedule for deliveries, Menold said his business, which does a lot of “quick turnaround” projects, isn’t suffering. But he does have some questions about the impact of the tariffs.
“The only thing that concerns me is domestic prices are going up,” he said. “You would figure if we’re only taxing imported goods, why is the domestic price going up? Is it because the market will bear it?”
Major Dates in the Steel Tariffs Saga
- March 1: President Donald Trump announces on Twitter that the U.S. will soon impose a 25 percent tariff on imported steel and a 10 percent tariff on aluminum in an effort to help American steelmakers he says have been hurt by foreign producers such as China.
He uses his authority under Section 232 of the Trade Expansion Act, a 1962 law that gives the president wide latitude on trade issues that the White House says impact national security.
- March 8: Trump signs the tariffs into law, temporarily exempting Canada and Mexico while the administration tries to renegotiate the 24-year-old North American Free Trade Agreement. The European Union (EU) says it will put similar tariffs on $3.5 billion in U.S. products if the trading bloc is not exempted. A temporary exemption is granted two weeks later.
- March 23: The tariffs go into effect. A handful of U.S. allies agree to quotas and other measures to avoid the tariffs.
- April 1: China releases a list of 128 popular American products it plans to hit with tariffs ranging from 15-25 percent in response to the steel tariffs.
- April 3: The U.S. puts out a list of 1,300 Chinese products it may hit with a 25 percent tariff. The products include HVAC parts. The next day, China says it may retaliate with new tariffs on $50 billion in American products, many of which are agricultural.
- May 3: A bipartisan pair of Midwest senators sends a letter to the White House, asking Commerce Secretary Wilbur Ross to explain the rationale for the tariffs. Sens. Ron Johnson (R-Wis.) and Claire McCaskill (D-Mo.) say the answers they have been given so far are incomplete.
- June 1: Unable to reach an agreement with the EU, Canada, or Mexico on trade, the U.S. applies its steel and aluminum tariffs to the close allies and trading partners. All countries promise to retaliate with tariffs on American goods.
- June 27: A group of imported steel-using companies files a lawsuit seeking to have the tariffs declared unconstitutional. The American Institute for International Steel says Section 232 of the Trade Expansion Act is unconstitutional as well.
- July 1: Tariffs on U.S.-made bourbon and a number of food products go into effect in Canada. The move follows weeks of failed negotiations between the two countries to exempt America’s northern neighbor from the steel and aluminum tariffs.
- July 6: $34 billion in American exports are now more expensive in China, thanks to tariffs imposed by the Chinese government. The tariffs match similar levies imposed by U.S. on Chinese goods. China’s tariffs hit America’s soybean farmers especially hard—China is a top market for U.S.-grown soybeans.
- July 24: The White House announces $12 billion in aid to farmers hurt by the trade war started by the steel and aluminum tariffs.
- July 25: Trump and European Commission President Jean-Claude Juncker announce they will work to bring an end to the steel and aluminum tariffs that have frayed relations between the U.S. and the 28-nation EU. No timetable is given.