Machinery makers impacted by steel tariffs look for ways to save money
The Trump administration decision to levy stiff taxes on imports of steel and aluminum has many sheet metal contractors seeking to lessen the impact of an unexpected jolt to their businesses.
But the March 1 announcement by President Donald Trump to impose a 25 percent duty on steel and a 10 percent duty on aluminum in an effort to restore “balance” with foreign steel-producing countries such as China isn’t just affecting those who make ductwork and fittings.
Companies that produce the machinery that HVAC contractors use to turn steel into duct are also impacted.
“We’re no different than anybody else,” said Jack Pennuto Jr., a senior vice president with Mestek Machinery, based in Cedar Rapids, Iowa. Mestek builds sheet metal forming equipment under the Engel Industries, Iowa Precision, Lockformer, ISM, Lion and Roto-Die names.
Mestek Machinery Senior Vice President Jack Pennuto Jr. says the steel tariffs caused his company to raise prices.
Pennuto said the company is a “huge consumer of steel.”
“I couldn’t tell you how many millions of pounds of steel a year we buy, but it’s a lot,” Pennuto said.
Forced to react
Mestek announced price increases April 1 on some equipment due to the sharp increase in raw materials resulting from the tariffs. After Trump unveiled the tariffs, Pennuto said the company’s buyers were busy trying to find metal that may have been imported or produced domestically before the tariffs went into effect.
“A lot of the material that’s out there wasn’t produced at the post-tariff cost,” he said.
But it’s not easy to find materials at pre-tariff prices. Many steel suppliers seemed to be taking advantage of the uncertainty in the market, he said. Already up more than 40 percent in the past year, steel has now almost doubled in price since fall 2016. Even scrap metal’s price is spiking.
“A few years ago, nobody would have thought that $900 a ton for hot-rolled steel was on the radar, but here we are,” Pennuto said. “There’s big concerns on the West Coast about steel shortages.”
The president used his authority under section 232 of the Trade Expansion Act, a little-known 1962 law aimed at opening borders to U.S. goods, to enact the taxes. It gives the president the power to determine if imports threaten national security and make changes through the use of targeted quotas or tariffs. The White House says because steel and aluminum are widely used in military equipment, the health of both industries is a domestic safety issue.
Richard Kessler, a senior vice president with Mestek Machinery and its chief procurement officer, says the White House’s reasons for enacting tariffs on steel and aluminum are deeply flawed.
Mestek is among the companies that are skeptical of that claim. Richard Kessler, a Mestek senior vice president and its chief procurement officer, said using U.S. defense as a reason for the tariffs doesn’t make sense.
“This is a sham,” Kessler said. “It’s not about military spending. It’s about propping up an industry that isn’t able to compete globally for a large number of reasons.
“This isn’t political on my part,” he added. “Whether you love Donald Trump or not doesn’t matter. It’s estimated that between 2 and 3 percent of the total steel produced in this country goes to military defense. I’m sorry but (the tariffs) are a disproportionate cure to fulfill a campaign promise.”
As a company that annually purchases millions of dollars’ worth of steel and aluminum, Kessler said Mestek had no choice but to pass along the price increases.
In addition to Mestek, a number of manufacturing organizations that have supported many of the president’s initiatives to boost manufacturing and streamline regulations say they disagree with the move to impose tariffs.
The Air-Conditioning, Heating and Refrigeration Institute, which represents 320 manufacturers of HVAC equipment, said new taxes will not help its industry or the country overall.
“As major users of steel and aluminum, we have been proactive in explaining to the administration that the HVACR and water heating industry would be negatively impacted by an increase in tariffs, as would the consumers that rely on the products we manufacture,” said AHRI President and CEO Stephen Yurek. “While we have been pleased with the Trump administration’s enthusiastic support for manufacturing … we believe this step to be injurious, rather than helpful, to our efforts to increase American manufacturing and create jobs.”
A Roto-Die Model No. 15 press brake being assembled at a Mestek factory. Mestek officials say the company uses a lot of steel and aluminum in the manufacture of its sheet metal forming machines.
Following strong lobbying by a number of U.S. allies, the White House decided to exempt Canada, Mexico and the European Union while it seeks to renegotiate trade deals such as the North American Free Trade Agreement. In late April, it announced that South Korea, Argentina, Australia and Brazil have been given permanent exemptions to the tariffs.
But the exemptions have not done anything to bring down the price of either metal, many users say.
China has retaliated by imposing tariffs on a variety of U.S.-made goods, including HVAC equipment, and filing a complaint with the World Trade Organization.
In contrast to officials with many steel-consuming industries, a number of U.S. steelmakers have announced support for the tariffs. Some have even pledged to restart shuttered facilities and recall laid-off workers thanks to the increase in steel prices.
But for companies that are large users of steel and aluminum like Mestek, executives such as Kessler worry the tariffs could have the opposite effect.
“When Washington decides to benefit about 150,000 steelworkers nationwide at the expense of about 20 times that amount of employees, I have to kind of scratch my head and go, ‘What the heck is going on?’” he said. “That doesn’t seem proportionate.”