{"id":192858,"date":"2025-03-20T18:36:04","date_gmt":"2025-03-20T17:36:04","guid":{"rendered":"https:\/\/llyc.global\/?p=192858"},"modified":"2025-03-27T12:55:40","modified_gmt":"2025-03-27T11:55:40","slug":"steel-and-aluminum-tariffs-sloganeering-vs-strategy","status":"publish","type":"post","link":"https:\/\/llyc.global\/en\/corporate-affairs\/tendencias\/steel-and-aluminum-tariffs-sloganeering-vs-strategy\/","title":{"rendered":"Steel and Aluminum Tariffs: Sloganeering vs. Strategy"},"content":{"rendered":"

With a second Trump administration<\/strong>, tariffs have been all the rage in Washington for the past few months. We have heard the soundbites and sloganeering from political partisans \u2013 tariffs pay for themselves, tariffs don\u2019t cause price increases, we can replace the income tax with tariffs<\/strong> \u2013 these all-sound reassuring, but they don\u2019t reflect the complex reality<\/strong> of these actions on global trade.<\/p>\n

Tariffs and their economic impact are much more complicated than can be conveyed in a post on social media. Leaders responsible for short-, mid- and long-term strategic thinking must account for that complexity when determining and communicating a path forward.<\/p>\n

 <\/p>\n

The Lofty Goals of Tariffs<\/span><\/h3>\n

For many people, the big picture goals of tariffs are laudable. After all, who wouldn’t want to see a revitalization<\/strong> of the iron range of northern Minnesota<\/strong> and steel mills throughout the industrial Midwest<\/strong>? But returning the steel and aluminum industries<\/strong> to where they were in the mid-20th century<\/strong> with the stroke of a pen seems highly unlikely<\/strong>. And let’s not forget that the United States doesn’t even produce the bauxite necessary to extract the aluminum to meet current demand.<\/span><\/p>\n

Beyond these high-level goals, we must consider the practical implications<\/strong>. For many industrial companies, steel and aluminum are essential inputs that are not easily replaced. And let\u2019s not be deceived about the impact of tariffs on these critical components. If a company that exports aluminum or steel to the United States is suddenly forced to pay a 25% tariff<\/strong>, when their profit margins may be far less than 25%, why would they continue to sell product into the United States at a loss<\/strong>? The idea that tariffs are paid by foreign governments is simply false. They are in fact paid by foreign exporters<\/strong>. Those exporters must account for those additional costs when pricing their product for the United States market.<\/span><\/p>\n

As companies confront the prospect of higher import prices, they’re faced with several choices. They can simply accept the higher prices and pass along the difference to their end customers. It is more likely that companies will meet with their suppliers and discuss ways to share these costs, which may mean lower margins for the company itself as well as for the supplier.<\/span><\/p>\n

Companies may also look to alternative suppliers within the US<\/strong> market, which may ultimately be the goal of the tariffs. However, the price differential may still be higher than the original pre-tariff price of the imported goods. Ultimately, the choice then becomes either lower margins or passing on higher prices<\/strong> to end customers, or some combination of the two.<\/span><\/p>\n

Tariffs, Pricing, and Consumer Confidence<\/span><\/span><\/h3>\n

The trade-offs between margins and pricing are just one basic element of this strategic discussion. The reality is far more complex.<\/span><\/p>\n

Pricing dynamics have a direct impact on demand, while the uncertainty surrounding tariffs and tariff delays have an effect, often negative, on consumer confidence<\/strong>. When consumers are facing an inflationary environment plus the impact of tariffs on the price of consumer good, they become more circumspect about making purchase decisions<\/strong>. This may have a significant drag on consumer-facing industries such as automotive and large discretionary consumer products such as recreational vehicles or motorcycles, as well as appliances and goods that are needed for everyday life.<\/span><\/p>\n

Beyond the basic impact of price elasticity on market demand, companies with significant exports to tariff-impacted countries will need to consider the potential repercussions of retaliatory tariffs<\/strong> on market demand. Reduced demand for exported products could exacerbate the impact as companies face an additional 25% export tariffs on top of increased costs due to import tariffs, potentially crushing overall demand<\/strong> for their products.<\/span><\/p>\n

Hidden Costs and Unexpected Consequences<\/span><\/h3>\n

Beyond consumer sentiment, companies often face unexpected complications because the full impact of tariffs is not plainly obvious<\/strong>. For a steel mill, an aluminum extrusion plant or other entity purchasing basic materials directly affected by the tariffs, the calculus might be easy. But what about a company purchasing components that contain steel or aluminum? The raw steel or aluminum costs may be just a small piece of that component\u2019s overall cost, in addition to the costs of technology, labor and other elements not affected by tariffs. As a result, the increased cost attributable directly to the tariff may be opaque. For example, we may not see a 25% increase in the cost of aluminum window frames or a 25% increase in the cost of spark plugs, but we may see a smaller increase directly related to the tariffs in question.<\/span><\/p>\n

In addition, some suppliers may seize on this opacity to secure price increases<\/strong> that more than offset the tariffs, boosting their profit margin. So, when the direct impact of tariffs is not obvious, how does that impact decision-making?<\/span><\/p>\n

Managing Investor Expectations<\/span><\/h3>\n

In an environment where companies are facing potentially lower margins and higher pricing for end consumers, businesses may experience lower end-market demand<\/strong> on top of lower margins<\/strong>. This compounding presents a significant challenge, particularly for public companies<\/strong> who must explain the dynamics of their operations to the markets on a regular basis. How can management teams effectively communicate the potential impact of these tariffs to the investment community? Furthermore, how can we effectively communicate the potential impact on end consumer demand based on uncertainty that is proving to be a drain on consumer sentiment?<\/span><\/p>\n

Ultimately, the path we recommend is transparency and clarity<\/strong> about how companies are approaching these decisions, in order to reduce the potential for surprises to the investment community.<\/span><\/p>\n

In one case, we observed a company announce a specific tariff impact of $50 million<\/strong>. If you can accurately come to such a precise figure, that is impressive \u2013 but for most companies, it will be more of a best guess. Providing a range, perhaps a low- to mid-single-digit impact on costs, is a solid approach.<\/span><\/p>\n

It\u2019s also important to clarify the pricing side of the business<\/strong>, which might be a bit more challenging, as management teams must decide how much of the price increase to pass on and how much of a hit they will take to margins. Increased prices will have repercussions for demand<\/strong> based on price elasticity, further complicating revenue expectations. If companies acknowledge this complexity, investors will likely be more understanding if management cannot be precise in its estimated impact. Of course investors will still expect a firm strategy<\/strong> for how the team is addressing the situation.<\/span><\/p>\n

Highlighting broader strategies such as negotiations with suppliers on sharing the burden<\/strong>, expanding the supplier base to include domestic players<\/strong>, and reviewing the potential effect on customers will be critical to building investor confidence in whichever playbook your team is using.<\/span><\/p>\n

As we consider the consequences of the latest round of tariffs, management teams must examine direct as well as derivative effects<\/strong> of these actions on their business. Fortunately, we saw a similar situation play out in 2017, so companies can refresh their playbooks and pursue strategies that may have been successful in the past<\/strong>.<\/span><\/p>\n

In communicating with the investment community, clarity and transparency are key to maintaining and building credibility<\/strong> in uncertain times. And for those politicians and regulators implementing tariffs, we are reminded of the words of Walter Morrow in his \u201cEconomics in Eight Words\u201d published in June 1938: \u201cThere ain\u2019t no such thing as free lunch.\u201d
\n<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

With a second Trump administration, tariffs have been all the rage in Washington for the past few months. We have heard the soundbites and sloganeering from political partisans \u2013 tariffs pay for themselves, tariffs don\u2019t cause price increases, we can replace the income tax with tariffs \u2013 these all-sound reassuring, but they don\u2019t reflect the […]<\/p>\n","protected":false},"author":23,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[133],"class_list":["post-192858","post","type-post","status-publish","format-standard","hentry","category-corporate-affairs"],"acf":[],"yoast_head":"\nSteel and Aluminum Tariffs: Sloganeering vs. Strategy - LLYC<\/title>\n<meta name=\"description\" content=\"Tariffs return to Washington\u2019s spotlight, but their economic impact is complex. 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