Steel is what we use to make this country — literally. It’s used to make things as small as cans for food, paint, drinks. It’s used to make cars, trains, and planes. It’s used to make the infrastructure of our buildings and bridges. It’s used to make the equipment that makes all these things, from cranes to excavators.
Steel is important to this economy in every way, and finally, the steel and aluminum tariffs are set on paper now.
The Trump administration recently announced a 25 percent tariff on foreign steel imports as well as a 10 tariff for aluminum. But politicians are not happy. Corporations are not happy. Foreign governments are not happy. But is it all bad? How will the tariffs affect you directly, and how will it affect your wallet?
Here are three things you should know about the tariffs and their potential financial impact on you.
1. Prices for Goods are Expected to Increase
To save a few, the Trump Administration puts a lot more on the line. With the tariffs officially mandated and set to take effect this month, American companies are going to feel the sting. And that sting is going to fall on consumers: you. The theory is complex and speculative, but it goes something like this:
U.S. steel manufacturers may not be able to handle the sudden increase in demand.
The price of imported steel will increase by 25 percent.
Imported steel comes in different sheet and rod sizes that U.S. companies have accommodated in their manufacturing processes. Now, they may have to switch to U.S.-made steel, and if they do, they may have to modify — at a cost — their manufacturing equipment.
U.S. companies will have three choices due to extra costs: (1) fire people; (2) absorb costs and take the hit in profits; or (3) pass the costs onto consumers.
The likeliest scenario is the third option, which could lead to higher prices, like Campbell’s soup as reported by CNBC.
As the Washington Post reports, higher prices run the risk of inflation as consumers buy less of canned goods and motor vehicles.
And as basic monetary policy predicts, inflation runs the risk of inciting fears, and as a result of those fears, central banks may raise rates in sync with consumers buying less.
This scenario offers a shining light: it could benefit your savings even if you have to pay extra at the grocery store counter. But that’s if all goes as smoothly as it can. But therein lies the problem: it most usually does not go smoothly.
2. Tariff Retaliation and a Trade War May Be on the Horizon
China has threatened to retaliate President Trump’s tariffs in kind. Russia, one of the largest aluminum importers, is likely to retaliate as well. The European Union has already confirmed the same, as reported by Bloomberg — who produced a summary of what that retaliation would look like, including tariffs on cosmetics, Kentucky bourbon, jeans, and boats.
As a result, our exports are likely to decrease as other countries place tariffs on American products. This would impact the agriculture and aerospace industries especially because they are our largest exports. To survive retaliation, these companies will have to adjust, which may mean the loss of jobs for many Americans, a thousand times over more than what the steel industry employs.
A trade war fuels the fear of consumer prices increasing not just in the U.S., but globally. Consider this: one of the last great trade wars was fought during the Great Depression. In fact, it exacerbated the Great Depression by decreasing U.S. imports and increasing unemployment dramatically. CNN commentator Cillizza interviewed an economist about the same. An economic recession is in no one’s best interests, let alone your savings… it could eat right into those savings in a number of ways, especially if banks were to fail.
Fortunately, though, there are some protections in place since the Great Depression that help reduce the impact on savers in the event there is another recession, like guarantees up to $250,000 by the FDIC. But if part of your financial portfolio includes stocks, then that is another matter entirely.
3. Stock Volatility is Expected to Increase
As with any market changes, some stocks will win and many stocks will lose. In anticipation of the same as well as in anticipation of the unknown, volatility is expected. Upon announcement of the tariffs, stocks fell. Upon announcement of exemptions for Canada and Mexico, the stocks recovered slightly.
Of course, this doesn’t mean investors should knee-jerk. Cash in your stocks now, and all heck might break loose. It’s a no-win situation momentarily. Individuals and families with investments in stocks lost out during the recent 2008 recession, and they still haven’t recovered. Imagine something worse happening.
If you have stocks in any industry that could be hit hard, then you may have to rethink your strategy. InvestorPlace has provided a number of stocks that could be in trouble, namely anything but steel companies — though if this steel tariff plan backfires, those stocks could feel the pain, too. But in the short-term, if you have stocks in companies like General Motors, Ford Motor Company, Anheuser-Busch, Boeing, Lockheed Martin Corporation, and others, then your stocks could be at risk.
This is all very new, and there’s a big fight ahead. Republican Senator Jeff Flake of Arizona has pledged to fight via legislation. Everything is speculative right now. Thus, everything should be a concern. Paying attention and keeping abreast of the news will go a long way to help you make sure your savings or investments are safe where they are. These are precarious times economically, so stay tuned and come back for updates.