Tariffs and foreign companies in the US

I can’t find clear information about how the new steel/aluminum tariffs and various proposed tariffs apply to factories in the US owned by foreign countries.

I thought I heard a story on the radio about a foreign-owned steel mill that was affected by the steel tariff. Is that because the steel produced there and sold in the US is considered an import?

And I’ve heard the claim that foreign auto manufacturing plants in the US (e.g. the VW and Mercedes plants in TN and AL) will be affected. I understand the auto tariff is just a suggestion at this point, but is it really possible to put a tariff on US-made cars just because they are made by foreign-owned companies?

The tariff is on steel and aluminium imported into the US from other countries. That cost is passed on to anyone who purchases the steel and aluminium for use in the United States. Companies who are foreign-owned can’t claim an exemption when they buy the materials.

Steel often isn’t used the way it first comes out of an oven: it is instead used as the raw material by companies that will use it to make those parts other companies will then use for whatever.

A process from one of my actual clients:
Buy steel and aluminum from vendors.
Melt down, along with other raw materials, to create special alloys* of the desired composition.
Make parts.
Sell parts to clients for their use.

This company will have to pay more for their raw materials; if they can pass the cost to their own clients, these will pay more; when contractual conditions mean the cost can’t be passed on, the benefit obtained from those particular products will go down or even into negative values (price lower than cost). If the end client is in another country, making those products in the sister factories of Mexico or Canada makes a lot more sense, as it avoids the tariffs.

  • Alloys not commercially available, or even “propietary formulas” (not really propietary since anybody with the proper machinery can figure out the exact formula quite easily).

That’s what I’d thought. Maybe the story I heard was referring to the steel mill that processes imports raw slabs.

It would be the same for auto manufacturers, right? I.e. the Mercedes plant in the US won’t be affected? (Though of course the steel tariff will increase their raw material costs)

The Mercedes plant in the US may see some of its current production divested to other countries. Why would Mercedes pay a tariff to import parts into the US, when the resulting car is going to be sold in Canada and it can make the same model in another country?

So the proposed tariff may apply to auto parts as well as complete automobiles?

I lost a long post to gerbils but, from what I can tell, the higher tariffs apply to materials for manufacturing and construction, but not finished goods. So, the tariffs make it more expensive to build or make things in the U.S., but they don’t make it any more expensive to import goods instead.

They may, though, depending on what the President does.

In the NAFTA talks, the US is pushing for a greater requirement of made-in-Canada parts in cars made in Canada, to qualify as Canadian made.

Under NAFTA, manufactured goods have to have a certain percentage of North American parts to qualify as made in Canada and thus admissible duty free to the States. That rule serves a sound policy. It ensures that the bulk of the manufactured end-product truly is made in Canada. However, the US is apparently pushing for the proportion of Canadian-sourced parts to be pushed up. That would mean that if Canadian car factories can’t find the components in Canada, they may be forced to buy them from US suppliers, rather than from Asian or European suppliers, even if the US components are more expensive. That means US car purchasers may have to pay a higher price for a car made in Canada.

But wait, there’s more. Following last week-end’s dust-up with our Prime Minister, the President has been talking about putting a tariff on Canadian-made cars, period. That could reduce the profitability of Canadian made cars, as the sticker price for American car-purchasers would go up accordingly.

Stay tuned !