Purchasing managers across the United States face enough challenges procuring everything they need to deliver results on time and under budget. On top of that, tariffs on aluminum and steel threaten to turn the market for essential materials on its head. However, even in tumultuous and uncertain times for global supply chains, there are still deadlines to meet and budgets to be conscious of. With prudent steel procurement strategies, however, you can stick to your budgets and minimize the effects of geopolitical and economic decisions on your operations.
With extensive PVF supply chain experience and deep knowledge of the steel industry, American Stainless is here to help you understand how to avoid tariffs on steel or at least ensure minimal impact on your project pipelines.
Steel and Aluminum Tariffs: What You Need to Know
The White House has announced that all steel imports will be taxed at a minimum of 25%, removing the exceptions, exemptions, and quotas that had been previously agreed on in earlier trade agreements. Aluminum tariffs are also rising from the 10% rate placed into effect in 2018 to 25%. These tariffs are expected to go into effect on March 12, and will affect trading partners previously exempt from earlier tariffs, including Brazil, Canada, Mexico, South Korea, and Japan.
Tariffs can significantly upset the prices of raw materials, leading to a knockdown effect that can increase prices and decrease supply for critical products made with those raw materials. That includes the pipe, tubing, valves, fittings, and other PVF accessories you may need for your construction and fabrication projects.
Avoiding the Effects of Tariffs on Aluminum and Steel
For construction contractors and pipe fabricators, these new tariffs on steel and aluminum mean a lot of uncertainty in the near term about their ability to make good on promised project outcomes without overrunning their timelines or budgets.
Now, let’s explore how to avoid these tariffs with strategic procurement:
Buy From Domestic Steel Suppliers
The intended purpose of the federal government’s tariffs on imported steel and aluminum is to strengthen domestic steel manufacturing. Higher prices on steel imports, in theory, encourage investment in the American steel industry, as the domestic steel supply is unaffected by the import tax, increasing demand for domestic steel and aluminum over foreign sources.
As a result, the simplest way to avoid the tariffs on aluminum and steel is to purchase raw materials from domestic steel suppliers—that is, manufacturers based in the United States. This is a situation in which contractors with diversified supply chains have the clearest advantage—with a more flexible supply chain, it’s easier to pivot from one supplier to the other as economic winds shift from one’s favor to another. That’s why we always recommend having diverse sources for raw materials that include domestic producers, instead of putting all your eggs in one basket.
Take Advantage of Foreign Trade Zones
An FTZ (Foreign Trade Zone) presents another opportunity to minimize the effect of tariffs on your project budgets. These zones are designated areas in the US where goods can be imported duty-free with deferred or reduced tariffs.
If you’ve ever visited a duty-free shop while traveling internationally, FTZs work on the same principle. However, companies are prohibited from retail trade in an FTZ—rather, these zones are for storing and distributing goods.
A company that operates in an FTZ can delay paying duties until goods are sold or used domestically. As a result, a PVF manufacturer strategically using FTZs can minimize the effects of tariffs on their budgets and pass that along to customers. Historically, many tariffs have included this exception.
However, keep in mind that these new steel and aluminum tariffs have more restrictions on FTZs than most tariffs have had in the past. While steel and aluminum products can be admitted into an FTZ, they will still be subjected to 25% duties unless designated as “domestic status.”
In short, while the applications of FTZs may be more limited for avoiding or offsetting the impact of these tariffs, you can still take advantage of them in your steel procurement strategies.
Stockpile Steel and Aluminum Products
As of March 12, the US government’s 25% tariffs on steel and aluminum are currently in effect. Some manufacturers and contractors have prepared for these tariffs by buying raw materials from international trading partners and stockpiling them before the tariffs could come into effect, ensuring a supply, at least for the near term, of cost-effective foreign steel. A proactive customer can use this stockpile as a buffer, providing ample time to adjust their steel procurement strategies.
Tariffs come and go as the political winds shift. If you didn’t have the option to stockpile ahead of the current import taxes, keep this strategy in mind the next time the federal government announces tariffs on other essential materials.
Other Steel Procurement Strategies for Import Tariffs
Knowing how to avoid tariffs is about knowing your options for offsetting the price increases these tariffs bring. In addition to the three strategies discussed above, you can also minimize your costs and risks by:
- Negotiating long-term contracts with international and domestic steel suppliers or buying in bulk to secure stable pricing or take advantage of volume discounts, which can offset tariff costs and blunt cost spikes
- Consulting with trade experts to explore if you can source materials that have been reclassified under a lower tariff category
- Implementing leaner inventory management practices to balance supply chain costs and free up capital to absorb tariff-related price hikes
American Stainless: Navigating the American Steel Industry So You Don’t Have To
As the name suggests, at American Stainless, we know stainless steel. Over the years, we’ve worked to build partnerships between a broad, diverse range of PVF manufacturers both domestic and international to supply contractors and fabricators with high-quality products at competitive prices.
In light of new tariffs on steel and aluminum, we’ve been keeping our ear to the ground and taking proactive steps with our manufacturing partners to ensure we can continue to provide cost-effective stainless steel pipe, tubes, valves, fittings, structural and support materials, and more.
Contact us for same-day or next-day quotes on steel PVF products.