How Will Trump’s Tariffs Affect Trailer Pricing?

When President Trump announced tariffs of 25% on steel and 10% on aluminum, and they set off a tumble in the stock market, as investors feared a debilitating trade war.

His primary target seemed to be China, which he and other observers charge with dumping products in the United States, to the detriment of workers in the metals industries. Tariffs would affect all foreign countries unless waived, which has been done for several U.S. allies.

The tariffs are not yet in effect, because the president can’t impose them on his own; there are procedures to go through. But if they do happen, they will raise the cost of imported materials and give domestic metals producers, and their workers, a better chance at competing. Experts say the domestic producers also will be able to more easily raise their prices, and probably will.

How much? That’s a complex area, but the important thing to truck operators is, how will tariffs affect prices of vehicles made with steel and aluminum? I posed that question to Frank Maly, director of commercial vehicle transportation analysis and research for ACT Research.

We talked while I was in an airport, about to board an airplane, so he got to the point: “We’ve looked into this on trucks, and concluded that the cost from tariffs would be about $1,000 per vehicle. We have not looked specifically at trailers, but we’ve extrapolated the numbers and figure it to be about $900 per trailer.

 “That’s an average impact across all trailers; how much depends of course on the amount of steel and aluminum that goes into various types, like vans, flatbeds, and so forth, so the impact on vocational-oriented trailers could likely be higher," he added. Aside from flatbeds, vocational types would include dumps and tankers, Maly said.

Like trucks, sales of trailers have been hot, reaching record levels as motor carriers, flush with cash from strong freight shipments plus profits from the famous cut in the corporate tax rate, are enthusiastically ordering new equipment. Will they step back if vehicle prices go up substantially? Maybe, though prices have been rising steadily for many years, and the current order rate cannot last too long anyway.

How Much Metal Comes from China, Anyway?

The market for primary metals is highly complex, and Steve Latin-Kasper, director of market data and research with the National Truck Equipment Association, discusses it in an article in the April NTEA News. China, he says, is the world’s largest producer of “primary” aluminum and steel, the kind that’s shipped in sheets, coils, and bars. But China consumes most of those primary materials itself, partly to build products for its own markets and partly as exports of those products.

While the U.S. buys innumerable products from China, aluminum isn't one of them. The U.S. purchases 43% of its aluminum from Canada, Latin-Kasper says. The next biggest source, supplying 11%, is Russia. Canada has taken over much aluminum production from the U.S. because it mines a lot of bauxite and electricity rates are lower there. Aluminum production requires copious amounts of electricity, and rising rates here have forced production to go north.

China also doesn't show up as a sizeable supplier of steel and steel products to the U.S. First again is Canada, but its share is just 16%. Next in line are Brazil (13%), South Korea (10%), Mexico (9%), and Russia (9%), followed by many other countries, according to Latin-Kasper’s study.

The North American Free Trade Agreement exempts most products of the U.S., Canada, and Mexico from tariffs, and with some exceptions, they flow unhindered among the three countries. As long as NAFTA lasts (a big question, because Trump is challenging it, as we know) prices shouldn’t be affected. Besides, the president has exempted Canada from his 25/10 tariffs and has said he might exempt Mexico.

Back to China: It has reacted to the Trump tariffs by threatening its own duties on numerous products from the U.S., many of them agricultural commodities, which would hurt American farmers. Trade war, here we come?

Related: Feds Offer Exclusion from Tariffs on Steel and Aluminum