Tom Rosenof deals in metal. His machine shop in Casper didn’t get hit by the oil downturn like some of his neighbors because IPA Machining is not fully dependent on the oil and gas fields. But Rosenof is dependent on those who provide him with metal. And he’s worried now about what a sudden increase in taxes on foreign steel and aluminum will do for business.
President Donald Trump wants to win a trade war over steel and aluminum and is proposing a dramatic increase in taxes for buying those metals from other countries — 25 percent on steel, 10 percent on aluminum. The tariff, he argues, is retaliation on China for dumping cheap products on the market driving down global prices. He says it could bring about a renaissance of metal mills and jobs in the United States.
From the oil and gas firms in Louisiana to craft beer producers in Montana, states are measuring the full impact of the president’s suggested tariffs, with most expecting their costs to jump and droughts to show up for certain products not made in the USA.
Wyoming does not create steel, but it uses it. The fossil fuel industries that make, and sometimes break, Wyoming’s economy rest on metal girders. Steel goes down the well bore in the oil fields in eastern Wyoming, and into the widgets manufactured at IPA Machining. Aluminum, too, is key, found in heat exchangers at natural gas processing plants and oil refineries.
For Rosenof in Casper, the international trade war has already hit home, he said. His steel providers raised prices last week.
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Wind developers, gas providers, manufacturers, pipelines operators and oil and gas producers could all experience an increase in costs or a shortage of key goods as a result of the broad tariffs, they say.
Sinclair Oil Corporation, which operates two refineries in Wyoming, says rising prices are a concern. The developers of what will be Wyoming’s largest wind farm, Chokecherry Sierra Madre, are concerned. The oil and gas industry is concerned.
Coming off a high from a Republican-led tax overhaul that graced oil and gas earnings, industry is trying to get through to the President the severe repercussion of his decision.
The Independent Petroleum Association of America penned a letter to Trump on Thursday, before he had signed off on the tariffs, arguing that industry fresh out of a downturn does not need a shock to one of the key products used to do business — steel.
“Oil and natural gas production facilities require certain quality surface, intermediate and completion tubing, but as much as 30 percent of specific products are simply not made in the U.S. and must be imported,” the group wrote.
Part of Trump’s platform when running for the president was on bringing back the steel industry and winning this fight with China, said vice president of the Petroleum Association, Lee Fuller in an interview.
Dealing with China certainly needs to be on the agenda, he said. But the president needs to move past that big picture and understand the steel and energy industries to achieve his goals with trade without damaging other priorities, he said.
“There is a risk to his entire energy agenda, energy dominance, national security, if the steel tariffs have the effect of suppressing the development of U.S. oil and natural gas,” he said. “That’s not consistent with his other objectives.”
Other industry groups are singing the same song of skyrocketing costs and shortages ahead. The Interstate Natural Gas Association of America represents midstream and downstream natural gas operators. Its officials argue that there is a shortage of goods in the U.S. today, and the tariffs will only exacerbate the problem.
“For certain steel products used in pipelines, there is zero domestic availability,” said CEO Don Santa in a statement Thursday. “The ability to expand pipeline infrastructure in an efficient and predictable manner is critical to the United States realizing the full potential of its domestic energy abundance.”
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High Country Fabrication of Casper sits off a highway and most days the squeal of metal on metal can be heard above the wind. It is a Wyoming focused business and much of what the workers manufacture goes into refineries, pipelines and processing plants.
They are expecting their cost of material to go up 15 to 25 percent with the tariffs, said Ryan Noel, sales manager. For their large metal projects, materials account for about half of their costs, he said.
“It’s a huge shock to us,” Noel said. “Initially it’s going to raise our costs quite a bit to build anything.”
Noel said he understands the desire to support metal industries, and the push to bring back those jobs. The problem as he sees it, however, is that those industries don’t exist right now. U.S. steel and aluminum mills aren’t making what the business needs.
High Country buys from distributors, who procure the parts overseas.
It’s not just that the mills don’t make the steel, though. It’s that the steel workforce has shrunk, he said.
“A lot of people fought for generations to get the bachelor’s degrees and get the office job. That was the dream,” he said. “Now, a lot of people can’t even use their hands anymore.”
The business supports trying to bring those jobs back, but in the meantime, it will be hard to get parts, he said.
“It’s going to be a wild ride if this goes through,” Noel said.
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The tariffs are meant to address China, and most agree that China is the source of trouble worldwide when it comes to steel.
But the tariffs, which will exclude Canada and Mexico, don’t hit China exclusively, industry groups and many economists argue.
They do intimidate everyone else, said Rob Godby, director of the Center for Energy Economic and Public Policy at the University of Wyoming.
“It’s just the wrong approach to trying to address the problem,” he said. “All it’s doing is creating much larger problems with respect to our allies, because they have the same problems we do.”
The U.S. is backing countries into a corner by threatening their economies, Godby said.
Trump has held firm in his position that the tariffs will benefit the U.S., tweeting early last week that the country is on the losing end of trade deals and its steel and aluminum industries are “dead.”
But he has failed to garner many allies in his own party for his tariffs position.
The president’s economic advisor, Gary Cohn, resigned last week over the proposed tariffs, and 107 House Republicans sent a joint letter to Trump urging him to desist for the sake of the U.S. economy.
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In some ways, China may be facing the same domestic steel industry challenges the U.S. has faced, Godby said.
The steel industry in China grew in large part to meet the country’s meteoric growth. It needed that initial infrastructure, but as growth slowed it had too much capacity and not enough demand.
China’s steel industry now it has a large steel workforce that it may not know what to do with, he said.
“If they were just to say, ‘Well, we don’t need that steel anymore we are just going to throw those workers out of work, that could create significant political discontent,” he said.
China could also be dumping cheap steel on the market to push out competition until it dominates, he said.
The dumping argument is the one used by the president and many others.
But there are ways to address that globally, which would target China for driving down prices for its own gain, Godby said.
The bottom line is that the tariffs are likely ineffective against China, because the U.S. is such a minor customer, he said.
“You don’t typically deal with a distortion (in the market) by creating another distortion that is so widespread like this one,” he said. “You’d like to be a little more surgical about it.”
In economic terms, protecting U.S. steel means taking away resources from somewhere else in the country.
“For every one of those steel workers this might help, you have to ask yourself, how does it threaten oil field workers, or the suppliers of the oil fields and any other sector that uses steel?” Godby said.
The Trade Partnership, an international economic consulting firm, said the tariffs would increase jobs in the steel and aluminum industries by about 33,000, at the price of 179,000 jobs in other sectors of the economy.
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Back in Casper, Rosenof is worried about price quotes. Until the steel suppliers secure their numbers, he can’t honor a price contract with his own customers.
In the short term, shops in central Wyoming with product on hand are going to have a competitive advantage. As inventory is used up, the costs are going to go up for everyone, he said.
Rosenof expects to be hit by both the short and long term effects of the tariffs.
“It will become a new norm,” he said of higher costs. “But then people are going to buy less because the parts cost more. I think it’s going to have a direct impact on our business for sure.”
The Associated Press contributed to this report.
Editors note: The original version of this story incorrectly named Tom Rosenof’s business WyoNebraska Machining. That shop was closed and relocated to Michigan. Rosenof’s current business is IPA Machining.
