Scraponomics Episode 126: How tariffs and currency manipulation affect US manufacturing

Mar 31, 2016, 01:50 PM

“Domestic policy can only defeat us; foreign policy can kill us.” — John F. Kennedy

Here’s a little update in the world of commodities.

We feel like the commodity market for ferrous iron has finally bottomed out, and has slowly begun to rise again. The question is why?

One reason may be because the US Commerce Department has approved a tariff on certain types of steel imported from seven other countries. The largest tariff has been placed on China, which is at about 266%. While this likely won’t make the market skyrocket in the short term, we’re hoping it helps the scrap industry and the whole economy in the long run.

So what is the tariff on imported steel suppose to accomplish?

Well, one of the biggest problems we’ve seen over the years, and the reason you see goods from China, for example, costing much less than they could be manufactured for here, stems from a few reasons.

1) The government of whatever country manipulates its currency to appear less valuable.

2) Said country’s cost of labor is much lower because it doesn’t have nearly the amount of standards and regulations we have in the US.

A sad, but perfect, example of this was the Wohlert Corporation right here in Lansing. The Wohlert Corporation manufactured gears for nearly all of the auto industry for many years. Eventually, they couldn’t afford to compete because it cost them double than what it cost a Chinese manufacturer to make the gears overseas and ship them here. Wohlert’s Lansing plant eventually went out of business.

The tariff is suppose to help offset foreign countries manipulating their currencies in order to sell goods here for cheaper. Will a tariff alone actually prevent it from happening? It’s hard to tell.

In my personal view, something needs to be done to help level the playing field to encourage growth in domestic manufacturing. What do you think?

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