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Will the Fastener Industry be Helped or Hurt by the Section 232 Tariff?

     

Section-232-Tariff

The tariffs the Trump Administration has imposed in 2018 have been met with plenty of criticism, along with a few approvals. Recent news from Ford has really brought the decisions—specifically, tariffs on steel and aluminum—into sharper focus.

Ford announced that, after attributing $1 billion in lost profits to President Trump’s tariffs, it will institute “massive layoffs”—up to 24,000 jobs, according to one report. The automaker’s woes are not unique to the industry—other manufacturing sectors have also struggled with the effects of the new duties imposed on goods from other nations, including Canada, China, Mexico, and the European Union.

The legal basis President Trump is citing for the new tariffs is Section 232 of the Trade Expansion Act of 1962. Here is more about Section 232 and whether it’s helping or hurting the fastener industry:

Section 232, Explained

Section 232 gives the president the authority to impose and adjust tariffs if an import is deemed a threat to national security. Since the law was enacted 56 years ago, this is just the third time a president has invoked Section 232 to increase tariffs, and the first time since the creation of the World Trade Organization in 1995.

The Tariff’s Effect on Steel

A primary target of Section 232 tariffs has been steel, with 25 percent tax attached from imports from all countries other than Argentina, Australia, Brazil, and South Korea. The measures have been a boom for the U.S. steel industry, but other manufacturing sectors have suffered. American steelmakers weren’t prepared for the sudden demand created by the tariffs. As a result, manufacturers are faced with two choices: Pay more for imported steel, or run the risk of orders not being fulfilled by tapped-out U.S. providers. Naturally, costs have increased, and companies must choose between absorbing the higher cost or passing it along to consumers—which, of course, also risks lost profits. Add in the double whammy of retaliatory tariffs from trade partners, and you see why the Section 232 measures have been met with criticism.

The Impact on Domestic Fasteners

Besides steel, the Section 232 tariffs also place a 10 percent tax on aluminum. The two materials comprise a large portion of the standard fasteners that a wide range of industries need to manufacture goods and use in construction, so an impact was unavoidable. Many domestic fastener companies rely on foreign steel and aluminum for their products, so when both metals become more expensive, costs go up and production goes down. Not surprisingly, the fastener industry is among the most impacted by the Section 232 tariffs.

Moreover, other manufacturers that rely on American fasteners may be cutting back their own production because of increased material costs. They subsequently aren’t ordering fasteners, which creates even more pressure for fastener manufacturers.

The Impact on Imported Fasteners

Finding alternative fasteners to replace American options isn’t so easy. Steel and aluminum fasteners from other countries—particularly China and the EU—may be subject to the same tariffs that apply to the raw metals. In other words, the imported fastener that has proved reliable may cost 25 percent more. This inevitably could curtail capacity when these manufacturers have nowhere to sell their product.

The other concern with imported fasteners is quality. Although plenty of foreign manufacturers deliver high-quality fasteners, others, especially those from Asia, don’t. The lower-priced options that look appealing in light of Section 232 might not deliver the quality necessary for your product—which, ultimately, can increase costs in the forms of production hassles and customer dissatisfaction.

The Bottom Line for End Users

Your business still needs fasteners—that hasn’t changed. But with the current Section 232 controversy, how you purchase and stock fasteners must be carefully considered. Are you willing to pay more for the fasteners you need? Will you pass on that price to your customers? Will you keep a smaller stock to rein in costs? Will you risk cheaper alternatives?

Hopefully, these are questions you won’t need to answer. But if—and, unfortunately, probably when—you do, partnering with an outstanding fastener distributor can help you weather the storm. Great distributors have a wide variety of parts in stock and will work with you to recommend a fastener if something you need isn’t readily available. These same partners offer bulk pricing and favorable shipping so that if your fastener of choice has increased in cost, it won’t break the bank. In the continued uncertainty of Section 232, a trusted fastener distributor can offer a bit of stability for your business.

 

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