Tariffs on imported steel and aluminum imposed by President Donald Trump may play well with producers in Midwest states that helped lift him to the White House, but manufacturing costs could rise in Connecticut, complicating business for the state’s hundreds of small, sometimes family-owned, machine shops and defense and aerospace contractors.
Jason Jarvis, president of Jarvis Airfoil Inc., a Portland manufacturer of fan, compressor and turbine blades and vanes for military and commercial jet engines, compared Trump’s tariffs with pre-Civil War protectionism.
“Tariffs like the ones the president has proposed are only going to drive up costs, stifling growth and discouraging growth,” he said.
Tariffs would require Jarvis to absorb higher costs for aluminum he buys from the United Kingdom, forcing him to delay hiring or making new investments, he said.
Connecticut’s aerospace and defense industries — which produce submarines, jet engines and helicopters — use huge amounts of steel and aluminum, making the state particularly vulnerable. Researchers at the Brookings Institution report that Connecticut industries are more dependent on imported steel and aluminum than all other states, except Missouri and Louisiana.
Jamison Scott, vice president of Air Handling Systems, a Woodbridge manufacturer of duct work for industry, said the price of steel he purchases jumped 16 percent last week in anticipation of the tariff.
“I’m sort of dumbfounded,” he said. “I’m over-inventorying as much as I can so I can ride this thing out.”
Peter Gioia, the economist for the Connecticut Business and Industry Association, the state’s largest business advocacy group, said the tariffs are meeting broad resistance from owners of small businesses in Connecticut.
“I haven’t heard anyone who likes this,” he said.
Trump announced Thursday he will set tariffs of 25 percent on steel and 10 percent on aluminum, taking effect March 23. Canada and Mexico would be exempt and other countries could apply for exemptions.
“We’re going to be very fair, we’re going to be very flexible, but we’re going to protect the American worker as I said I would do in my campaign,” the president said.
The practice of dumping steel and other products — selling products at below cost, often subsidized by foreign governments to capture large market share — has long been a trade problem for the U.S. Gioia said Trump’s tariffs that are intended to hit back at overseas companies and governments instead damage smaller companies close to home.
“It’s like a horsefly in the room and he’s trying to hit it with a sledgehammer and there’s collateral damage,” he said.
Sen. Richard Blumenthal, D-Conn., said he shares the Trump administration’s desire to deny an “unfair and illegal advantage” in trade involving steel, aluminum and other products.
But he criticized the way Trump developed the tariff policy.
“It should not be impulsive and a one-off ad hoc announcement,” Blumenthal said.
“Presidential Proclamation on Adjusting Imports of Aluminum into the United States”
— Donald J. Trump (@realDonaldTrump) March 8, 2018
According to Brookings, in Missouri, Louisiana, Connecticut and Maryland, aluminum and steel imports accounted for at least 5 percent of total state imports last year — double the share of the nation’s 2 percent, the researchers said. In Connecticut, it was 6.4 percent.
As a result, the state’s economies could be among the most vulnerable to retaliation by trading partners to Trump’s tariffs. That’s more of a risk than higher costs related to tariffs slapped on steel and aluminum, said Richard Aboulafia, an aerospace analyst at Teal Group in Fairfax, Va.
“That’s what everyone is bracing for,” he said.
“Presidential Proclamation on Adjusting Imports of Steel into the United States”
— Donald J. Trump (@realDonaldTrump) March 8, 2018
Rep. Joe Courtney, D-2nd District, said overseas trading partners will likely retaliate.
“This kind of unexpected change by Washington will create political pressure in countries to not buy F-35s,” he said.
None of the three major Pentagon contractors in Connecticut — Sikorsky, United Technologies Corp. and General Dynamics Corp.’s Electric Boat — would comment on what the impact might be.
“Every defense contractor CEO is scared of Trump, afraid to go on the record,” Aboulafia said.
Lockheed Martin Corp. was slammed in December 2016 after Trump, elected president, but not yet inaugurated, tweeted that F-35 fighter jets made by the Bethesda, Md., conglomerate were too costly and that he’d cut billions of dollars in military purchases. Shares fell slightly, but soon rebounded.
East Hartford-based Pratt & Whitney makes engines for the F-35.
Marillyn Hewson, chief executive officer of Lockheed Martin, the parent company of Sikorsky, would not comment on the tariffs when asked recently. She told reporters she needs more information.
Representatives of Electric Boat and UTC also did not comment.
Greg Hayes, chief executive officer of United Technologies, told investor analysts in February, before Trump announced his intent to impose tariffs, that steel prices were already rising and climbed $100 a ton from last year. As a result, the manufacturer of jet engines, elevators, heating and cooling equipment and aerospace parts, which typically buys 500,000 tons of steel a year, faces an extra $50 million in costs, he said.
In contrast, steel used to build submarines for the Navy are typically purchased from Pennsylvania producers, said Courtney, whose district includes Electric Boat. The Navy adheres to the “notion it’s made in America,” he said.
There are unquestionably bad trade practices by nations like China, but the better approach is targeted enforcement of those bad practices. Our economy and our national security are strengthened by fostering free trade with our allies. pic.twitter.com/Ne0S4glcCx
— Paul Ryan (@SpeakerRyan) March 8, 2018
The U.S. imported about $31 billion in steel last year, according to the U.S. Commerce Department. Canada, the European Union, Korea and Mexico were the biggest sources.
The impact of tariffs would be felt differently by military and commercial aerospace manufacturers and suppliers. A Merrill Lynch investor note said purchase contracts will limit the short-term economic impacts on defense and commercial aerospace. But longer term, commercial aircraft may be more at risk than defense because airline customers are more sensitive to price changes than the U.S. military, analysts said.
J.P. Morgan analyst Seth M. Seifman said in a note to clients that tariffs should have small impact on aircraft prices. Aluminum accounts for 70 percent of the weight of a 777 or 737 and materials account for 30 percent of the price of an aircraft. A 10 percent increase in aluminum would amount to less than a 2 percent rise in the price of “more metal-intensive aircraft,” he said.
And steel is a small component of aircraft, making the impact of a tariff “negligible,” he said.
One beneficiary of the tariffs was quick to credit Trump. United States Steel Corp. announced Wednesday it will restart one of two blast furnaces and steelmaking facilities in Granite City, Ill.
The additional capacity will support “anticipated increased demand” for steel in the U.S. due to the tariffs, the company said.
“Our Granite City Works facility and employees, as well as the surrounding community, have suffered too long from the unending waves of unfairly traded steel products that have flooded U.S. markets,” said David Burritt, president and chief executive officer.
However, Jarvis said few will ultimately win with Trump’s tariffs.
“I feel this is driven to have a net benefit for a very small minority of this country,” he said.