Companies look to pass on tariff pain to consumers

Jennifer Kaplan and Mark Niquette
Bloomberg News

More than half of Dan Vincent’s projected 2018 profit was wiped out with a stroke of President Donald Trump’s pen.

Vincent runs Pacific Coast Producers, a cooperative in California’s Central Valley that cans produce from 168 family farms. When metal prices soared after Trump launched the stream of tariffs and sanctions he’s been slapping on overseas trading partners, what Pacific Coast Producers pays for cans did, too, by about 9 percent. Vincent said he’s now looking for an opportunity to pass those higher costs on.

“We’re going to have to try to get these increases in the markets,” he said. “As with all tariffs, ultimately the consumer pays the bill.”

From brewers to auto and jet makers to producers of candy wrappers, companies that use steel and aluminum are reeling, partly from some whiplash. In March, Trump imposed tariffs of 25 percent on imported steel and 10 percent on imported aluminum. Then the White House in short order announced exemptions, including for Mexico, Canada and the European Union — though they are temporary.

Meanwhile, sanctions on the Russian giant United Co. Rusal — which accounts for 6 percent of global aluminum output — have sent the metal’s prices on a wild ride. They surged as much as 7.1 percent Thursday in London, a record intraday gain, and are up more than 30 percent in April. As Alcoa Corp. put it in a statement on Wednesday: “Considerable uncertainty remains in the global supply chain.”

Increases that seem small aggregate quickly. Just 1 cent added to the cost of the 119 billion cans manufactured in the U.S. every year would mean $1.1 billion in additional spending by consumers and businesses, according to the Can Manufacturers Institute.

The Aerospace Industries Association cited analysts’ predictions that the aluminum duty could create almost $2 billion in new pain for U.S. manufacturers.

For automakers, the tariffs could be punishing. Compounding the problem are additional levies proposed for more than 1,300 Chinese products including car parts and specific categories of steel and aluminum. In Europe, carmakers may face supply shortages, and some manufacturing plants could be forced to close, according to a report from Germany’s WirtschaftsVereinigung Metalle, a lobbying group for 655 metals companies.

Rusal’s Aughinish alumina refinery, a short drive from the Irish city of Limerick, is a central part of a global supply chain. It buys bauxite shipped from Guinea and crushes the ore to make alumina, which is sold to smelters across Europe. Rio Tinto Group has plants in Dunkirk, France, and Iceland that use the Irish alumina, and Liberty House Group’s Scottish smelter also depends on the site. The Dunkirk plant is Europe’s largest aluminum smelter and supplies companies like BMW AG, Daimler AG and other manufacturers.

The tariffs have already pushed many parts suppliers “close to a financial crisis and has made some of them question their future investments in the U.S.,” Ann Wilson, senior vice president of government affairs at the Motor & Equipment Manufacturers Association, said in written testimony for an April 12 House Ways and Means Committee hearing.

At Ford Motor Co., Chief Executive Officer Jim Hackett earlier this year cast some of the blame for what he predicted would be a “bad year” on costlier raw materials. Ford, which builds cars in Russia in a joint venture with Sollars, gets aluminum from Rusal, according to data compiled by Bloomberg. The automaker said it’s “still reviewing” its connection to the Russian supplier.

Companies that buy foreign steel and aluminum can petition the U.S. Commerce Department for tariff relief. The EU’s trade commissioner said Wednesday that she’s pressing for a permanent exemption from the duties.

If Washington doesn’t come to the rescue for American manufacturers, the solution will no doubt be to share the pain. That’s the course aerospace giant Boeing Co. probably will take, according to Seth Seifman, an analyst at JPMorgan Chase & Co.

“Boeing’s contracts include mechanisms to pass most raw material costs to customers,” he wrote in a research note, “and these mechanisms filter down.”