The U.S. has been implementing significant changes in its trade policy and economists are split on the impact of current tariffs. Many believe these tariffs will have more of a negative impact than positive on engineering and manufacturing, while others believe they could contribute to the reshoring of manufacturing jobs. In continuation from my previous blog: Manufacturing Industry Changes Part 1: How Will the Tax Cuts and Jobs Act Bill Affect Manufacturers, I’ll discuss opinions on tariffs including analysis by economist Fernando Leibovici.
Intermediate Goods
Fernando Leibovici looked at how the average U.S. manufacturing firm produces goods and realized manufacturing industries rely heavily on the input of intermediate goods in their manufacturing processes. An intermediate good is a product used to produce a final good or finished product. These goods are sold between industries for resale or the production of other goods. One example of an intermediate good is salt, a product that is directly consumed but also used to manufacture food products. Intermediate goods, which are now subject to tariffs, account for 64% of the total value of production on average and 22% of total intermediate inputs expenditure is from abroad.
Impacts on Manufacturers
Tariffs are tougher on companies that operate in a globalized economy where sourcing, manufacturing, and assembling are done in different countries. When faced with these tariffs, many companies may be forced to move production to less expensive countries to stay afloat.
What does that mean for local manufacturers? Throughout the Midwest, specifically Minnesota and North Dakota, the ripple effect is taking shape in the rising prices of steel and aluminum as intermediate goods. Stacey Breuer, a spokesperson for Bobcat, a heavy equipment manufacturer, is concerned not only with uncertainty and rising steel prices but that the tariffs also create concern that foreign competitors’ may look elsewhere to buy cheaper steel.
Earlier this year, Minnesota-based companies Winnebago and Polaris Industries purchased Chris-Craft and Boat Holdings, respectively. Due to the rising prices of U.S.-made metals, both companies are facing potential increases in their prices, passing increased materials costs along to consumers to compensate. In the summer months, boating is a big pastime and industry for Minnesotans. The impacts that the tariffs and trade policies may have are yet to be seen in sales for these Minnesota companies.
Although the impacts, whether positive or negative, facing US and local manufacturers are still taking shape, changes to sourcing of intermediate goods and global partnerships are no doubt on the horizon.
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