Feeling the ‘ripple impact’
Trump’s tariffs to hit Tennessee’s auto sector
President Trump’s decision to move forward with steel and aluminum tariffs on U.S. allies holds sweeping implications for Tennessee’s booming auto sector.
Commerce Secretary Wilbur Ross said Canada, Mexico and the European Union would be subject to a 25 percent tariff on steel and a 10 percent tariff on aluminum as of midnight on Thursday. European trade officials have previously threatened to retaliate with duties on U.S.-made goods.
Nearly 1,000 auto suppliers operate in Tennessee and manufacturers built more than 830,000 vehicles in the state in 2016, with exports approaching $6 billion, according to the Tennessee Economic & Community Development office. More than 135,000 Tennesseans work in the auto sector.
“You are putting a major uncertainty around a significant commodity market,” said Bradley Jackson, CEO of the Tennessee Chamber of Commerce & Industry. “You can imagine some disruption that can occur, and that will have a ripple impact especially in Tennessee with the base that we have for automotive manufacturing.”
Jackson pointed to the auto sector as the state’s main focus for economic growth. As new requirements have been issued on fuel consumption and companies have sought to make vehicles lighter, demand for aluminum has significantly increased in Tennessee.
“Aluminum has become a major component of the automotive industry,” Jackson said.
U.S. Senator Lamar Alexander, a Tennessee Republican, denounced the tariffs Thursday and said they would hurt the Tennessee workforce.
“This is a big mistake,” Alexander said in a statement. “These tariffs will raise prices and destroy manufacturing jobs, especially auto jobs, which are one third of all Tennessee manufacturing jobs. I have urged President Trump to focus on reciprocity — do for our country what our country does for you — instead of imposing tariffs, which are basically higher taxes on American consumers.”
U.S. Senator Bob Corker (R-Tenn.), chairman of the Senate Foreign Relations Committee, also spoke out against the tariff measures.
“Imposing steel and aluminum tariffs on our most important trading partners is the wrong approach and represents an abuse of authority intended only for national security purposes,” Corker said.
Ross said the tariff action was meant to reduce the nation’s trade deficit.
“We believe that this combined package achieves the original objectives that we had set out, which was mainly to constrict the import of steel and aluminum,” he said.
Trump had temporarily excluded allies from the tariffs in March, a move welcomed by European officials. French Finance Minister Bruno Le Maire said Wednesday that the European response to increased tariffs would be “united and firm.”
Volkswagen, which has operations in Chattanooga, did not respond to requests for comment. Nissan and General Motors Co., with Middle Tennessee facilities, referred to statements from auto associations asking the administration to re-evaluate the tariffs.
“It is not just auto assembly plants like Volkswagen and Nissan and General Motors but it is also these parts manufacturers which would also be using metal products,” said University of Tennessee at Knoxville economist Bill Fox. “They are spread all over Tennessee and so the impact on Tennessee is broader than just the Chattanaooga and Nashville area.”
Metal price increases could lead to higher costs for making parts and cars, which could lead to fewer cars made, Fox said.
John Bozzella, Global Automakers’ CEO, described the tariff as harmful to U.S. consumers.
“The President’s decision to impose significant tariffs on steel and aluminum imports from the European Union and our NAFTA trading partners is disappointing and counterproductive,” he said in an emailed statement. “A tariff is a tax and this action will raise prices and hurt American auto producers and their customers. Any retaliation by our trading partners will multiply this harm and do nothing to encourage U.S. exports.”
Earlier this week, the Trump administration announced $50 billion worth of new tariffs on Chinese imports, after officials had earlier said it was “putting the trade war on hold” with Beijing. Ross told reporters Thursday that he still expects to travel to China to continue trade talks this weekend.
The U.S. imported 34.6 million metric tons of steel last year, a 15 percent increase from 2016, according to the U.S. Department of Commerce. Canada is
the largest exporter of steel to the U.S., followed by Brazil, South Korea and Mexico.
Aluminum demand requires deals
Matt Meenan, senior director of public affairs for the Aluminum Association, said his organization supports trade action on China, but not on the U.S. allies targeted for these particular tariffs.
“The focus of the administration for our industry ought to be very specifically on China and Chinese overcapacity,” Meenan said. “We are not in favor of tariffs or quotas on countries that operate as market economies like the EU or Canada or Mexico or many of our trading partners we rely on for metal.”
The majority of aluminum industry jobs are tied to mid and downstream manufacturing, such as those who roll or extrude metal, Meenan said. He pointed to record demand for aluminum in 2017 and the need for non-U.S. suppliers.
“The problem comes in the fact that we simply don’t produce enough primary aluminum here in the U.S. to meet that demand,” he said. “You have to fill that gap somehow and the only way you can fill it is by working with partners around the world, who in our view are operating fairly and appropriately.”
Impact on farming, bourbon
On Thursday, a spokeswoman for Gov. Bill Haslam emphasized his belief in free trade and said the impact of the tariffs could extend to the state’s agricultural sector as well.
“The governor has said there is no question tariffs will lead to cost increases and as a believer in the free market, he is not certain that putting tariffs on steel and aluminum for national security reasons is the right path,” said Haslam spokeswoman Jennifer Donnals. “The governor is also concerned about the impact on goods that Tennessee exports to other countries, particularly our agricultural products.”
European trade officials have previously threatened to respond to Trump’s move with duties on U.S.-made motorcycles, orange juice and bourbon, among other things. Jean-Claude Juncker, president of the European Commission, reiterated that position Thursday, saying Europe would impose duties on “a number of imports from the U.S.”
The Mexican economic ministry said it would move to place tariffs on U.S.made pork, flat steel, apples, cheese and other products.
“We hope the U.S. and its trading partners can resolve their differences without subjecting U.S. whiskey exports to retaliatory tariffs,” Frank Coleman, of the Distilled Spirits Council, said. “A trade war will harm consumers, the hospitality sector, small businesses and the U.S. farmers that grow the grains used to produce iconic U.S. whiskeys that are enjoyed around the world.”
In a March earnings call Paul Varga, CEO of Brown-Foreman, which owns Jack Daniel’s in Lynchburg, said that the company could become an “unfortunate and unintended victim” of the tariffs.
“Brown-Forman could be an unfortunate and unintended victim of the policy,” Varga said in March. “The overwhelming majority of our products are made here in America and over the last few years, I’d just cite, we’ve been investing heavily in our American manufacturing expansion.”
The whiskey and bourbon industries are key economic drivers and employers in both Kentucky and Tennessee. In 2015, whiskeys exported from Tennessee were valued at $691 million, ranking as one of the state’s top exports. Tennessee-based Jack Daniel’s sells whiskey to more than 160 countries, with foreign sales accounting for 60 percent of the company’s overall market share.
FedEx wasn’t commenting Thursday on the new tariff action, but the Memphis-based company’s founder, chairman and chief executive Frederick W. Smith has long been an outspoken advocate of free trade.
“FedEx is concerned about the prospect of increased protectionist tariffs,” Smith told analysts in the company’s last earnings call. “History has shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services and to reduce barriers to trade.”
FedEx doesn’t routinely carry the types of commodity shipments affected by Trump’s planned steel and aluminum tariffs, though it’s a move toward proposed tougher restrictions on Chinese imports, which could strike at the heart of FedEx’s international business.
Wayne Risher and Lizzy Alfs of the USA Today Network - Tennessee and USA Today contributed to this report.
Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.