The Compass Blog
Continuing Tariffs: The Impact on West Michigan Businesses
April 11, 2019
By: Rick Walawender and Chris Gartman, Miller Canfield
Beer, soybeans, automotive parts and vehicles, washing machines, apples, cherries, and boats are just some of the Michigan products and industries that will be significantly affected should the U.S. tariffs on imports continue. Conversely, foreign investment in the U.S. and Michigan could increase. Miller Canfield’s Aimee Jachym will join a panel of industry experts assembled by GVSU and the Van Andel Global Trade Center to explore the potential adverse and positive impact that continued tariffs may have on Michigan businesses. A preview of topics the panel will discuss at West Michigan World Trade Week includes:
Breweries, Auto Parts, and Washing Machines
The U.S. government’s imposition of Section 232 tariffs on imports of aluminum (10%) and steel (25%) has already caused aluminum and steel prices to increase significantly, impacting businesses across the state.
Large breweries that sell much of their beer in aluminum cans are facing significant cost increases that adversely affect profitability. Smaller breweries, already facing tight margins, may balk at adding cans to their offerings because of the cost uncertainties. If costs continue to increase, foreign, imported canned craft beer could become less expensive than locally canned craft beer.
A similar effect will be felt by companies using imported steel, which has an even higher tariff rate than aluminum. As the tariffs continue, the cost of imported steel used in making parts and durable goods will be passed up the supply chain to an even greater degree, leaving the seller faced with the choice of eating increased costs or raising their product prices.
Conversely, U.S. steel production could be expected to increase significantly. While in the current situation, U.S. steel prices have increased, in the longer term, as U.S. steel production rises, pricing should stabilize.
Soybeans, Apples, Cherries, and Boats
In response to the tariffs imposed by the U.S., China, the E.U., Canada, Mexico, India, and many other countries imposed retaliatory tariffs on U.S. goods. Most affected are certain U.S. agricultural products, especially soybeans, apples, and cherries.
Because China consumes 60% of the world’s soybeans, its 25% retaliatory tariff imposed on U.S. soy caused U.S. prices to drop to a 10-year low. At the same time Mexico, China and India (which account for about one-third of all U.S. apple exports) imposed 20%, 40% and 30% retaliatory tariffs, respectively, on U.S. apples. China (which accounts for about 20% of all U.S. cherry exports) has imposed a retaliatory tariff of 40% on U.S. cherries. These three agricultural products, which are very important to Michigan’s farmers and agricultural economy, will face continual downward pricing pressures.
Even Canada has retaliated with 10%-25% tariffs imposed on many U.S. products, including maple syrup, pizza, wood products, boats, and candies.
But that’s not all…
To complicate matters, the U.S. Department of Commerce is considering the imposition of even more tariffs. Recently, after conducting an investigation under Section 232 as to whether foreign imports of automobiles constitutes a threat to U.S. national security, the DOC submitted its findings to the President, who is expected to announce soon whether or not the U.S. will impose a 25% tariff on imported cars and car parts. If such a tariff is imposed, the E.U., China and other countries have already announced additional retaliatory measures against U.S. exports.
At the same time, foreign producers are becoming even more interested in exploring relocating production to the U.S., in order to hedge against the tariff uncertainty. However, this is complicated by the U.S. government’s increased scrutiny of foreign investment and acquisitions in the U.S. and greater export controls.
These business sectors are critically important for the West Michigan business community. We look forward to an informative and forward-looking discussion during West Michigan World Trade Week where our colleague, Aimee Jachym, will be a featured breakout session panelist.
About the Contributors
Rick Walawender is Co-Leader of Miller Canfield’s Corporate Group. As a leader in the firm’s International Practice, he has also been the lead attorney on numerous multinational M&A transactions for U.S., Canadian, European, Asian, Mexican, and other non-U.S. clients
Chris Gartman is a staff attorney for Miller Canfield’s Litigation and Dispute Resolution Group. Chris has experience assisting clients with business and succession planning, real estate conveyances, contracting, creative financing, leasing, government regulation, and other services.