The trade war isn’t over yet
President Trump and the EU reached an agreement to reach an agreement. Uncertainty still lingers in sheet metal industry.
President Trump and European Commission President Jean-Claude Juncker recently agreed to pursue zero tariffs and subsidies for non-auto industrial goods. But uncertainty still lingers among sheet metal contractors, and rightfully so, because there is still no official agreement … yet. Trump and Juncker reached an agreement to reach an agreement. Sure, it was a positive step. For the first time in months, Trump seems to be pressing pause on his march toward trademageddon. But the sheet metal industry should be preparing for if and when the day comes that a Trump led trade war is back in play.
Government envoys tend to meet at posh resorts and enjoy fine dining. In such an environment, there is little urgency to come to quick terms. Bureaucrats and diplomats can talk for a long time. Trump, it should be remembered, is neither. The president’s patience is limited.
When talks with the Chinese failed to make progress after two meetings, Trump imposed $34 billion in tariffs. If talks with the EU similarly stall, I expect Trump to follow through with his European auto tariffs.
When it comes to President Trump, the only certainty is uncertainty. It seems no one outside of the president knows his ultimate endgame, which opens everything he does up to political scrutiny — including what he doesn’t do.
Some fear Trump is the greatest protectionist since Messrs. Smoot and Hawley. Others hope he is a master negotiator who is playing three-dimensional chess — thinking three moves ahead of everyone else. Meantime, the sheet metal industry is left to navigate day-to-day uncertainty. And uncertainty is bad for business.
In uncertain times, businesses have difficulty making plans and tend to turtle up, succumbing to excessive conservatism. Fortunately, the headwinds created by the uncertainty appear to be less than the tailwinds resulting from the tax cut and the Trump administration’s efforts for regulatory relief.
Even if the United States and the European Commission manage to work out an actual agreement, steel and aluminum prices are unlikely to fall much — if at all. When the first tariffs were imposed they set a new price floor. Until they are eliminated for a sufficient amount of global production, the price floor will remain. Even if the tariffs were wiped away tomorrow, prices need time to fall.
The impact made by the tariffs is still rippling through the economy as many manufacturers seize upon the broad awareness of the tariffs to push through price increases. Some of the announcements are price signaling with hopes that competitors will follow suit. How the actual price increases will differ from these initial announcements is a matter of time.