By: Donnie Hirschfield, Vice President of RK Steel
The United States is the world’s largest importer of steel, importing approximately 35 million metric tons last year, which accounted for 33% of all steel used in the entire country. Nearly 60% of this total imported steel originates from five countries, 25% of which comes from Canada and Mexico.
Earlier this year, the Trump administration placed tariffs of 25% on steel imports and 10% on aluminum imports coming from various countries to the U.S. The goal of these tariffs is to incentivize U.S. companies to buy steel and aluminum from U.S. producers, with the idea being that this will make the domestic metal industry stronger.
What is a Tariff?
A tariff is a border tax or duty placed on a particular class of imports or exports. Tariffs have been used by governments since the 18th century. Originally, their main purpose was to raise revenue, now they are more often used in order to make foreign products less attractive to consumers; protecting domestic industries from competition.
Steel and Aluminum in the U.S. Construction Industry
Raw steel has many uses in the construction industry, including reinforcing steel in structural concrete, structural steel framing, miscellaneous metal framing and supports. Although the tariffs will affect all these, the single biggest impact will be on structural steel in steel framed buildings.
The cost of structural steel is typically composed of four main elements – raw material, fabrication, delivery and erection at the site. While the cost of these can vary over time and by geographic location, raw steel is typically around 30% of the total cost per ton of structural steel.
What Effect Do They Have?
For those involved in the construction industry, the tariffs raise direct and immediate issues. Contractors are often required to supply and use large quantities of various types of steel products. These tariffs present contractors with considerable uncertainty and financial risk.
These tariffs are a direct charge on imported steel and aluminum products, however, the effect of the tariffs is not limited to imported steel. Volatility is rising in the domestic steel market due to the anticipation of higher cost imported steel, as this will likely lead to an increased demand for domestic steel. The result has been a surge in domestic steel prices.
Challenges Facing Contractors Moving Forward
Contractors main concern will be in relation to price fluctuations between the time they submit a bid to when the contract is awarded. The most likely response to this heightened risk will be an inevitable increase in bid prices to cover the risk of fluctuation. In addition, they may add a clause which limits the amount of time a price can be held.