Steel yourself for higher crane prices

25 April 2018

For many people in Western countries, globalisation has been far from an unalloyed blessing.

On one hand, we've all got a smart phone in our pocket clever enough to run a mission to Mars, and we can buy asparagus or okra in our nearest supermarket, all year round.

On the other hand, the sort of jobs, in steel mills or factories, that meant anyone—typically anyone male—could support a family on one salary reliably for 45 years, buy a home, and look forward to a comfortable retirement, have declined, if not disappeared altogether.

That's an issue that has brought people together in opposition to the political status quo, from both left and right. It contributed to the resentment that lead a slim majority of UK voters to vote to leave the EU. It's bought electoral gains for parties as diverse as AfD in Germany and Syriza in Greece, Fidesz in Hungary and Podemos in Spain.

It also helped power Donald Trump's march to the US presidency. While the son of a millionaire New York developer did not exactly travel from a Kentucky log cabin to the White House, he was certainly a political outsider, and represented the hopes of many who found themselves excluded from both the political system and economic opportunity.

One of the key promises he made to his supporters was that he would bring jobs back to the USA, as part of his broader 'Make America Great Again' programme. One of the ways he said that he would do this was by tearing up 'bad deals' that gave too much away to the USA's commercial, diplomatic and military rivals.

President Trump launched an economic first strike in early March, announcing that he would impose a 25% surcharge on steel imports and 10% on aluminium imports. Declaring that trade wars were 'good wars' and 'easy to win', the president has squared off against rival economies around the world, both in developed markets like the EU and Canada, and ascendant markets like China. The Chinese have responded by announcing their own tariffs, targetting US agricultural exports important to voters in those parts of the US that supported Trump's presidential ambitions.

It's unclear how committed Trump and his supporters are to a trade war: will they fight China and the EU all the way, not surrendering until the USA is again the world's undisputed economic powerhouse? Or is this more of a tactical feint, designed to strengthen the country's hand in renegotiating trade deals like NAFTA?

Even if Trump does stick to the tariffs, will they boost the US economy overall? While I support the effort to bring back high incomes for workers, I'm not convinced this is the case. The US crane industry, for one, looks set to suffer, with crane users paying more for their cranes, and crane manufacturers having to fight harder to win sales.

The tariffs will be charged on raw steel, not on products made of steel. It does not appear that exceptions will be made for specific steel types that are not produced in high quantities in the US. If that is not the case, then US crane manufacturers will pay more for raw materials than their German or Japanese rivals will.

In a letter to customers, Terex CEO John Garrison made clear what this will mean: "Steel prices have been rising steadily for several months, and this action drove prices even higher, reaching heights not seen in many years. The longer term impact of the trade action is uncertain, but the inflationary impact on steel prices and related components is already increasing our product cost.

"Unfortunately, the impact of the rising cost of steel is too large and too sudden for us to absorb. Given the uncertain nature of these market dynamics, we are not increasing our base prices.

Instead, we will be adding a steel cost surcharge on our equipment. The surcharge will cover a portion of our cost increases – and will remain separate and transparent from our base prices."

Garrison explained the company would adjust the surcharge to be as low as possible. His counterparts at rival US manufacturers will likely be taking a similar approach. He also called on crane buyers to call on their representatives to have the tariffs dropped.

There is a clear need to tackle the declining economic security of workers in the USA, and around the world. But these tariffs look like a very blunt weapon in that campaign.

Will North, editor