Officials, experts say steel tariffs will hurt Kokomo industries

If there’s a city that is going to be hit hard by President Donald Trump's tariffs on imported aluminum and steel, it’s Kokomo. 

That’s according to Andreas Hauskrecht, clinical professor of business economics and public policy at Indiana University’s Kelley School of Business.

Trump’s 25-percent tariff on imported steel and 10-percent tariff on imported aluminum took effect last month. The administration said the move was aimed primarily at China, which has flooded the global market with cheap steel and aluminum. Trump said the tariffs were designed to protect and rebuild the U.S. companies that manufacture the metals.

But economists Joseph Francois and Laura Baughman estimated last month that although the tariffs would increase employment in the U.S. steel and aluminum industries by more than 26,000 jobs, they would also lead to the loss of 495,000 other jobs throughout the rest of the American economy.

And, Hauskrecht said, one of the biggest markets to take a hit from the tariffs and potentially see a cut in its workforce will be the automotive industry.

“If I lived in Kokomo, I would be very unhappy with these tariffs,” Hauskrecht said, who noted he’s been to Kokomo multiple times for his work with IU. “I’d take it as a slap in face. … These tariffs look to protect our old steel industry and risk our automotive industry, which isn’t a wise decision.”

The city’s largest employers are automotive companies Delphi Electronics & Safety and FCA Fiat Chrysler. Nearly 25 percent of employees in Kokomo work in manufacturing, according state data.

He said auto companies may not know yet exactly how the tariffs will impact business, but one thing is sure – it’s going to be bad as the price of imported steel and aluminum continues to climb.

“Chrysler and General Motors will tell you they don’t know what will be the exact result on their costs,” Hauskrecht said. “They will say they do not know yet. But they will tell you it can’t be positive. They know it will be negative, 100 percent.”

Indiana University Kokomo economics professor Kathy Parkison agreed. She said local companies have reason to be concerned about the future, especially Haynes International, Inc. one of Kokomo’s largest employers.

According to its website, Haynes is one of the world’s largest developer, manufacturers and distributors of high‐performance nickel‐and-cobalt‐based alloys.

Parkison specifically referenced a conversation she had with one Haynes representative who acknowledged the company is “worried” about the tariffs’ potential impact.

She said in general, companies reliant on steel and aluminum could be required by tariffs to make bottom-line adjustments or consider switching to different metals.

“We have a number of industries in Kokomo that use aluminum and steel, and I could see them getting hit pretty hard with this, because they use aluminum and steel, which means they buy aluminum and steel,” she said. “Which means the tariffs are going to raise the price of what they buy.”

As large manufacturing companies that use steel and aluminum brace for the long-term impact from the tariffs, some local companies are already feeling the sting.

Chuck Graves, president of Graves Sheet Metal Inc., which uses steel products to build industrial-sized ventilation systems at its facility on East Sycamore Street, said the price he paid for steel and aluminum shot up by around 50 percent right after the tariffs hit the market.

Since then, prices have leveled out. Now, they’re about 25-percent higher from what he had been paying, Graves said.

That means a job he bid out in January in which the cost of materials at the time came in at $63,000 would today cost him up to $110,000.

“That’s the kind of costs we have to pass on to our customers,” Graves said. “We have to.”

He said the tariffs have also made the price of steel volatile, which has made it a tough commodity to buy. In the past, the companies from which Graves bought steel would give him a price quote that would be good for 30 days. Now, those quotes are good for just one business day.

Graves said that’s made it very difficult for his company to put accurate bids out for projects. A quote they give a company today could be completely different in just a week since he can’t lock in a price from steel companies.

“If you’re bidding out work, it’s very difficult to manage that,” Graves said. “We’re just constantly forecasting where that sweet pocket is going to be for the market. It’s so uncertain sometimes, but you just do the best you can with the information you have.”

Tin Man Brewing Co., located in downtown Kokomo, could also feel the sting from the tariffs as the rising cost of aluminum increases the price beer canning.

Nick Davidson, Tin Man’s head brewer, said while the company cans its beer outside Kokomo – the local taproom offers primarily draft beer – a local effect could be experienced.

“The production brewery model has very tight margins to begin with, and when the cost of packaging goes up, we will either have to eat that increase or pass some of it on to the consumer,” Davidson said. “Either option is unappealing to us.”

But not every local manufacturer is worried about tariffs hurting business. 

John Routt, COO and vice president of the Kokomo-based Lorentson Manufacturing, said he’s cautiously optimistic about the tariff situation. He said if more industry is concentrated in the U.S. it could drum up more sales for local manufacturers.

“We’re hoping it’ll actually increase our sales side of the business,” he said.

Lorentson Manufacturing is a plastics supplier that builds molds and produces various parts from the molds. Routt said with much of their business being centered within the U.S., any potential tariff, while it could have some sort of negative affect, most likely wouldn’t be “devastating.”

“I won’t say that we’re not concerned about it,” he said, adding later: “We buy all-American steel – we always have, so that shouldn’t really change our purchasing of steel much.”

The same story could be told of their plastic purchases, which tallies to “literally millions of pounds of plastic a year,” but is mostly from U.S. sources, and some European sources. Whether or not their providers for certain steel components do business with China may result in some small effect, Routt said.

“I’m cautiously optimistic about what’s going on,” he said.

But IU business economist Hauskrecht said there’s little room for optimism as both China and the U.S. ramp up their rhetoric and exchange retaliatory blows.

After Trump initiated the tariffs on steel and aluminum, China responded by imposing tariffs on $3 billion in U.S. products, including apples, pork and ginseng.

Trump responded by adding more protectionist measures as punishment for Chinese theft of U.S. intellectual property. Beijing punched back by proposing tariffs on $50 billion in U.S. products including small aircraft and soybeans.

Hauskreckt said although the fallout from the current tariffs has already left a mark on Kokomo, it’s bound to get much worse if the two countries launch an all-out trade war.

“If it really came to a trade-ware-like scenario, then places that rely on manufacturing and exports – places like Kokomo – would be exactly the kind of place that would lose,” he said. “It would cost production and cost jobs. This isn’t what Kokomo wants.”

Charlie Sparks, president and executive director of the Greater Kokomo Economic Development Alliance, said he also worried the ripple effect created by the tariffs could harm local industries that use steel and aluminum.

He said GKEDA has contacted the staff of the city’s federal legislators and expressed concerns about the potential impact on local employers.

“Ultimately, the main concern is about the potential for loss of jobs,” Sparks said.