Ag equipment manufacturers are sorting through how recently announced tariffs of steel and aluminum imports are impacting bottom lines, both for them and their customers.

The Trump Administration in late May announced it would enact a 25% tariff on steel and 10% on aluminum for imports to the U.S. from the European Union, Canada and Mexico. In many cases, this effectively raises the price of products made in the country, such as ag equipment, that rely on steel imports from other countries.

For manufacturers and distributors, the solution to costlier steel imports is not as simple as switching to a domestic supplier, explains Terry Flanary, branch manager at National Tube Supply, a University Park, Ill., carbon and alloy mechanical tubing distributor.

“One of our issues for daily challenges with any kind of steel tariff is so much of our product that we distribute into North America is not made in the United States,” Flanary told attendees of the Farm Equipment Manufacturers Assn.’s Spring Supply Summit & Showcase this spring. “When you get mechanical tubing above 12 inch O.D. [outside diameter], it is not made in the U.S. So this 25% original tariff across all steel products affects a lot of products that you cannot buy in the United States.”

Mike Bergmeier, president of Shield Agricultural Equipment, says he will have to pay 25% more on certain products he imports from Canada and elsewhere. “My costs on certain raw materials and semi-finished products are going up 25%,” he says.

Specifically, tariffs are raising costs on alloys, semi-finished goods, agricultural ball bearings and completed casting products. The castings are now costlier due to tariffs on China that are separate from the steel and aluminum tariffs, Bergmeier says.

One product that will become particularly expensive is the V-blade, which is used on undercutter sweep plows for conservation tillage.  This product is made using specialty steel he imports from a company in Manitoba, Canada.

The tariffs will mean his annual purchase of this specialty steel will jump $85,000. “In the end, we have to pass those costs onto our consumers, which are ultimately farmers. We sell through dealers and distributors.” he says.

The cost hike translates to an additional 5 cents per acre in operating costs for farmers, he adds.

Just the uncertainty of what the tariffs mean for the industry has some companies changing their habits, Joe Bruner, senior associate at consulting and CPA firm K-Coe Isom, told summit. People are responding in different ways, he says.

“Some sit back and see the lay of the land, and see how things are going to shake out,” Bruner says. “Some respond immediately and both U.S. steel producers and foreign producers have [been] reacting under that uncertainty, as far as mainly adjusting the pricing and experiencing a demand. So, I’d say uncertainty is a big driver of the impact.”

Flanary says steel mills, for instance, have reacted by raising prices.

“There’s no doubt that the domestic mills are taking advantage of the situation. And they’re raising prices,” he says. “And that was the whole point of them filing for the tariffs.”

Published reports indicate other companies, such as manufacturers of grain storage bins and drying equipment, are similarly feeling the bite of the tariffs. A maker of such products says steel mills reacted to just the mention of tariffs by raising prices.

Another consequence of this uncertainty has been the rush to buy steel products.

George Moustis, sales manager with Independence Tube Corp., told FEMA conference attendees that recently they’ve been taking phone calls from all kinds of people they’ve never heard from before to buy from them directly. This happens often when inventories are tight, he says. He advises callers to keep buying from the service centers where they have a working relationship.

“We generally say to them, ‘You know what? If you can buy from your service center, you should keep doing that. Because that’s where you have a relationship.’ So, that’s the really important thing, is that you have a relationship,” he says. “ … We got much busier than we ever thought we would. Are our inventories down some? Yes, they are. Do we not have as much stock as we normally have? No, we don’t. But we’ll catch up.”

The steel and aluminum tariffs are one of a number of trade measures President Donald Trump has acted on in recent months. His administration's actions have been enough for some analysts to warn against investing in companies that are being impacted.

For instance, as early as March investment firm R.W. Baird downgraded machinery makers such as The Manitowoc Co. and Terex.

“You should take President Trump seriously and literally,” Mircea Dobre, senior research analyst at Baird, said in a note to investors in June. “This is something we have argued since our March 2 steel tariff related machinery downgrade.”

Dobre says this thinking is based on two points: “First, we believe tariffs are not a negotiating tool but a desired outcome given Mr. Trump’s longstanding views on the matter; second, tariffs are an attractive political tool heading into midterm elections given the President’s wide ranging ability to decide outcomes, thus driving ‘economic nationalism’ without input from Congress.”

Many companies are asking for exemptions to the steel tariffs, including ShieldAg and National Tube Supply. Flanary notes his company has to file for an exemption for each size of the pipes it carries, from 13 inches to 36 inches in outside diameter.

“It’s quite tedious and you have to dot every ‘i’ and cross every ‘t’ or they’ll throw it back at you,” he says. “It’s a challenge that we have to take because if our competitors file for the exemptions and we don’t, they get the exemption because it’s a case-by-case basis.”

Other than applying for exemptions, speakers from the FEMA convention advised attendees to make sure they have a plan in place in case certain steel products suddenly are in short supply due to the tariffs.

“You have to plan and realize that this is a real situation,” says Dewayne Holmes, outside account manager at Steel and Pipe Supply, Manhattan, Kan. “You have to prepare and be strategic with who you’re partnering with from the supply chain side because there is a possibility that what was available 6 months or 12 months ago may not be available 12 months from now.”

According to a report from the International trade Administration dated March 2018, the U.S. is the largest steel importer, with 34.6 million metric tons entering its borders in 2017. Canada is the largest steel exporter to the U.S., accounting for 17% of all U.S. steel imports last year. Brazil, South Korea and Mexico follow, with each accounting for 14%, 10% and 9% of steel imports for the year, respectively.