- - Monday, November 11, 2019

Steel is everywhere.

I tried to fix our clothes dryer recently, and with the front panel removed, it was a bit surprising to find only a large rotating drum, a belt and an electric motor. The dryer was mostly the steel body that contained these few components. I suspect our washer is about the same, and looking around, I realized that was mostly true of automobiles, construction equipment and even the kitchens in fast food restaurants. Steel is everywhere.

Because of this, it was with little surprise earlier in the year that many American manufacturers began warning of reduced operating margins and increased consumer prices due to the newly-imposed tariffs on imported steel. It seemed like for a while almost every day there was a popular press story about Caterpillar, or General Motors, or Whirlpool, or somebody issuing warnings and raising prices because of steel costs.


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We were told by virtually every media source — from NPR to the Wall Street Journal — that U.S. consumers would pay more for durable goods and vehicles because of the Trump steel tariffs imposed to protect American manufacturing jobs. For example, The Washington Post reported in May that consumers were paying an extra $900,000 in cost for every job saved in the American steel industry due to the tariffs.  

There’s just one little detail: None of this is true.



Let’s start with a look at one of these manufacturers’ filings with the Securities and Exchange Commission. Caterpillar’s public report, filed at the end of 2018, stated, “Our policy is to use commodity forward and option contracts to manage the commodity risk and reduce the cost of purchased materials, (and) … to lock in the purchase price of a portion of these commodities within a five-year horizon.”  

A quick read of other big steel users like automobile and appliance manufactures reveals that they all made similar statements in their public filings. As expected, they claim to hedge their raw materials costs to protect against price increases, so why would a tariff on steel increase consumer prices?

Which one of their statements is true? The one where they all said they would have to pay significantly higher prices for steel and pass the cost onto consumers, or the one where they told the SEC they hedged steel prices and were insulated against price fluctuations? Ford even went so far as to state in its public filings that in managing changes in commodity prices, “we enter into highly effective derivative contracts.” Highly effective indeed.

However, beyond the hyperbole, there is an even more important part to this story. Regardless of whether companies successfully hedge their raw material costs as they claim they do, remember that all of the shouting was really focused on the Trump tariffs raising the price of steel. It turns out that may be the biggest fib of all.

Steel prices today are lower than when the Trump tariffs first took effect in March 2018. In fact, steel prices today are lower than they were a full year before the president even announced the tariffs. Yes, immediately following their imposition, prices briefly spiked, but within just a few months they had receded to their pre-tariff levels, and today prices are 40 percent lower than on the same date last year.

All of the shouting about tariffs and high steel prices is just a cover for otherwise unpopular corporate decisions and political attacks on President Trump’s trade policies.

In November 2018, General Motors announced the idling of five U.S. plants and the layoff of 14,000 workers — certainly not a popular decision. And while GM listed a variety of reasons, The New York Times reported that one of them was “because tariffs were driving up production costs, raising prices even on domestic steel.”

What The Times failed to mention — or even challenge — was that when GM made this announcement, steel prices had already dropped to below pre-tariff price levels.

It is inconvenient when numbers and facts get in the way of the political narrative. Manufacturers, through their public filings, tell investors that they are insulated from commodity price shocks. At the same time they tell consumers that rising steel prices means they’ll have to charge more. And all the while, the media are more than happy to advance the narrative regardless of what the actual facts are. 

And what about my dryer? I did finally call a repair person because I couldn’t afford the higher price of a new one, and this is what Whirlpool had to say in their annual report, “We enter into commodity derivative contracts on various commodities to manage the price risk.” Funny, that.

• Kevin Cochrane teaches business and economics at Colorado Mesa University, and is a visiting professor of economics at The University of International Relations in Beijing.

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