A lot of people continue to talk about the tariffs, and how they are going to affect the whole scrap markets…and the short answer is (insert drum roll please), negatively but then positively. Things have to go through rocky turbulent times in order to get to smoother waters and that is what we are seeing with all of the talks of steel and different metal tariffs.
We spoke during one of our Weekly Reports about a pond analogy and it seems to fit in nicely with what is going on with the scrap markets. Imagine a nice still pond, no wind, no bugs, no fish, just completely still like a mirror…then a big excavator drops a big piece of steel in the middle of it. What’s going to happen? Well, of course, there will be an initial wave and then smaller waves and they will bounce back and forth, back and forth…well, you get the picture.
The question is not what is going to happen with the waves, but when will the pond return to a still, mirror-like state? Obviously, the markets are never completely still, but for years we saw a steady stream of overseas buyers taking any and all types of materials from scrap yards, and this hopefully will return again.
When Will The Scrap Markets Steady?
That is a question that is going to be very difficult to figure out and will take a long long time to happen. What we need to see is the US Government start to have active conversations with the Chinese governments and then we can start to hope for smooth waters. The thing is that this will take a long time and we will not see the markets stabilize, possibly for years. These tariffs, while many people will dislike them in the short term, in the long term they may be a very positive thing.
It is going to take a long time to get to that point, but all trade deals eventually need a reset button to make sure that one side is not being taken advantage of by the other.
What Is A Tariff?
Tariffs are just another word or phrase for customs on certain imports. Let’s say one country is selling raw steel to another, then tack on 5% on top of the sales price in order to keep some money inside of the country that is selling the material to consistently advance their economy.
What was (is) happening is that many other countries were charging the US, but the US was not charging them, and the unfair trade balance went into effect.
Have Tariffs Happened Before?
Many people have referred to this tariff battle as the “Biggest Trade War in Economic History,” and there is not a reason to believe otherwise. The amount of money that is involved certainly makes it the largest dollar amount (of course inflation has something to do with this) of all time. There have been other times with tariffs, some with the European Union (or certain countries in it before the EU was officially formed), and then there have been deals that eliminate tariffs.
There have been deals talked about like NAFTA (North American Free Trade Agreement) which allows the US, Canada, and Mexico to sell/buy goods from each other without additional fees tacked on and also other deals put into place.
Over time though, the US has been buying more and more goods from overseas and the exporters have been charging money to the US (which will get pushed to the consumers), while the US has not been charging near as much to other countries, thus creating an unfair trading environment.
Scrap Metal and Tariffs Together
With steel and aluminum being the hot topic of the tariff war, let’s talk about those because, we do love our metals! These have been two of the more talked about items in the tariff disputes, even as whiskey and Harley Davidson’s have been thrown into the mix, so let’s dive in.
With so much scrap metal being exported to other countries from China to Pakistan and other countries within Europe, many of these countries that process this scrap and make it into new products want to sell it back to the US.
The tariffs that are going into effect are directly changing how these transactions are taking place and the US is implementing a 25% tariffs on steel (higher tariff number mostly due to lower value yet higher weights) and a 10% tariff on aluminum (lower tariff due to the higher value and lighter weights).
These tariffs are aimed at affecting the countries that the material is coming out of and showing them that if they want to have tariffs on the US-Made products, then we can do the same to them.
Suggested Reading: Could Electric Motor Prices Drop As Low As Steel?
How Will This Shake Out?
Who knows. How’s that for a realistic answer? We don’t know, nor do many of the experts in trade, foreign policy, economics or even psychologists. These tariffs are going to be very weird, tough, confusing, and crazy trade times and we don’t know what and when things are going to happen.