Tariffs and the industry

[Jim Heffelfinger]

With tariffs now looming large on key materials for not only experimental but all aircraft built in the USA - What is the reaction and response of the industry? Will the kitters have to impose higher prices on their products?

[Jim Heffelfinger]

Wow, sure quiet on this thread.

[Sam Buchanan]

Probably too soon to know what impact tariffs (that may or may not occur) will have on the kit industry.

[Floatsflyer]

Wow, sure quiet on this thread.

Jim, I didn't expect much here because this subject is 100% politics and we all know how our overseers feel about that.

However, I will add the following caveat. Your omnipotent leader has proven to be exactly like the old refrain about the weather. If you don't like it, stick around for 5 minutes, it'll change. GUARANTEED!

[Jim Heffelfinger]

Political today - more expensive tomorrow. Ripples to all of us. Caveat noted.

[cub builder]

I have no facts but will offer an opinion. Of course tariffs will trickle into the economy as higher prices. However, my experience with working with metals in an industrial setting was that if I wanted metals that met specifications, I had to buy US manufactured. The cheap foreign metals usually had so many contaminates that they rarely met spec. The sad part of this is that the market is so flooded with cheap material from overseas, that some materials we needed were no longer manufactured in the US. All that was available was the cheap stuff from overseas which proved to be unusable in an industrial setting.

Example: I needed to fabricate a new rack made of pure Molybdenum for a high temperature vacuum furnace used to heat treat various metals. Moly mesh is no longer manufactured in the US. Only available from China. Had to buy a case of the stuff to get the one sheet I needed. Once it arrived, I fabricated the rack I needed and ran one cycle in my furnace only to find the moly had so many impurities in it that it contaminated my vacuum furnace coating it with a dusting of Aluminum from the "pure" moly. I ended up scrapping the whole case of material as it was useless. It had close to 1% aluminum contaminate in the Moly, which would vaporize and coat the inside of the furnace at high temperature. From that point forward, everything that goes into that furnace would pick up a light dusting of Aluminum contaminates.

How does that apply to aviation? We build planes with materials that meet manufacturers spec. I could be wrong, but I don't think a lot of the aluminum or 4130 we are using comes from overseas. Based on my experience in industry, if it did, I wouldn't use it.

Those countries that were hit with tariffs are already charging us high tariffs to sell goods in their countries. So let's level the playing field. Free trade is only free when it's free in both directions. If our trade partners don't want a level field, then I would rather pay higher prices for quality products manufactured at home. In fact, you may find that with higher production numbers for US based manufacturing, the higher volume may equate to lower prices. That may be a pipe dream, but I'll hold on to that dream for a while. :)

[Jim Heffelfinger]

https://www.npr.org/2018/06/25/623140949/casualty-of-trade-tensions-harley-davidson-shifting-more-production-overseas?utm_source=facebook.com&utm_medium=social&utm_campaign=npr&utm_term=nprnews&utm_content=20180625

[Jim Heffelfinger]

This from Fox - https://www.youtube.com/watch?v=i_WcZ4pExNw

[Frank Giger]

I think it depends on amount and duration.

If the change of the end cost to the kit supplier isn't huge, chances are they'll eat it. When they figure materials into a published price for a kit, they allow for wiggle room in the market.

Certainly if aluminum suddenly dropped in price they're not going to immediately notify everyone of it and adjust overall kit prices; the same works in reverse.

[Bill Greenwood]

Harley Davidson and Mercury aren't in the aviation business directly, but they are part of EAA/Oshkosh and it feels like they are our roots. Harley has headquarters in Milwaukee and Mercury has their plant as well as a test lake right there in Fon du Lac. When I drive up from FLD to Osh each morning of the convention I pass Mercury right there beside the freeway.
Anyway Harley says the new tariffs from China agiainst U S made motorcycles will cost them $90 million yearly, hard to believe but may be true. If they tried to pass this cost onto the buyers they say it would raise cycle prices by $2200 and hurt sales.
I dont know the facts on tariffs. I have a degree in finance with a course in economics and my impression was that tariff wars hurt American consumers and most industries and are to be avoided. I dont think they have been a issue for most years and most Presidents.
Sort of an aside, but most small pleasure boats, not ships, are still made here in America.

[rwanttaja]

Sort of an aside, but most boats, not ships, are still made here in America.
Even those boats built in the US can be tripped up by the complexities of international politics. There's a shipyard in the Puget Sound that built a new fishing boat (think "Deadliest Catch," not catching crappies on Lake Fitz) that used too much foreign steel in its construction. Because of that, it won't be allowed to fish in US waters. This stems from the ~100-year-old Jones Act.

Ron Wanttaja

[Frank Giger]

Well, Bill, the issue we face isn't exporting a finished product overseas (which is HD's issue), but using raw materials coming in, namely aluminum.

[cub builder]

Well, Bill, the issue we face isn't exporting a finished product overseas (which is HD's issue), but using raw materials coming in, namely aluminum.

Sheet aluminum would be a finished product. As I alluded previously, I don't know that we are building with inexpensive foreign aluminum. I also don't know that we aren't. That would be a good question for Aircraft Spruce to answer. But I do know from working in industry that imported metals often times didn't meet spec, so my expectation is that Aircraft suppliers are selling primarily US manufactured Aluminum and steel.

I'm not a fan of tariffs and trade wars, but the reason they are being implemented is that we have been playing on an uphill field all along. It's OK for other countries to restrict US manufactured items, but it's not OK for us to restrict their sales here? Once the field is leveled to where we can sell as well as buy, the tariffs will go away. In the mean time, it's the only way to get our trading partners that don't want to play nicely, to play. Nobody wins in the short run, but in the long run, it may be what's needed to level the field. I'd like to think I'm looking at what's good for the country in the long haul rather than what's good for me today. I'll be happy to pay extra and buy American while the governments spend some time posturing and pounding their chests until they reach an agreement.

HD is in a tight spot, but by moving a part of their manufacturing overseas and laying off folks here, they risk loosing a lot of their core support at home. It's a no win situation for them. They may have to do some serious spin control to keep their US base while they are trying very hard to protect 16% of their sales impacted by European tariffs. Of course HD is also assuming the tariffs will be in place for a long time. The president clearly doesn't think that will be the case, but is willing to make it happen to get the partners to the negotiating table if necessary.

[Frank Giger]

I'll have to dig into it, but I suspect the good people at Alcoa buy raw billets of aluminum and then do the fine metallurgy themselves, whether making ducting sheets, metal for cans, or more exacting alloys and hardness ratings. So it's really unclear how tariffs would be applied, and by how much, to predict an impact.

Not to deny that I have more than a couple sheets of "mystery metal" in my airplane where it's not structural, mind you. The aviation section at Lowe's sells sheets of aluminum and steel by gauge and a rough stab at quality only. ;)

As to HD, they're doing exactly what foreign car manufacturers learned a long time ago - the surest way to avoid a tariff is to build it in the country one would normally import to. Here in Alabama we have just about every automobile company, foreign and domestic, running factories.

[FlyingRon]

GM pretty much told Trump to knock it off. The tariffs aren't helping them.

[Al 1976]

As I'm a millwright at United States Steel in Portage IN, theses tariffs are needed simply for some steel companies in the United States to survive. We don't produce aluminum all flat rolled steel. The problem comes from top management in these large companies not putting the PROFITS made by the company back into the mills by maintaining and upgrading equipment and they fill their pockets with large bonuses by not spending money on the plants. Union steelworkers at United States Steel and Arcelor Mittal have been working for over 4 years without raises while upper management takes multi million dollar bonuses. It's hopeful management will do the right thing and invest in the plants when the company turns profitable. These tarriffs may raise prices but in my opinion are needed simply for us mills to survive. If I have to pay a couple of thousand more on the price of a new vehicle or a vans kit I'm willing to do that.

[Jim Heffelfinger]

This from Belite........... extracted from their most recent notice......




"Our next price raise of the year will be July 9th, where the Airframe kit will raise to $12,495 from the current $11,995.

We've already seen the recent 5-year high price of raw aluminum impacting our sourcing. Our recent buy of aluminum spars was about 35% higher than the prior purchase! Ouch!

Even so, Chipper is by far the best two place utility aircraft value in the kit plane market.

If you want to beat the next price increase and are ready to start building this summer or fall, let us know now. We have kits available to ship in July. See pricing and what's included. (http://r20.rs6.net/tn.jsp?f=001dMtP3RLsmye2Tf7G4t-C7GsQvDdsR2FA7yheSKNM1vXUofFkaWfbwnU3BZISZbVl1AzWq ufDj1lmz82d6W5t4xJ04jYsbP05e5EiYtMEBMC4lcaClVBAZ0B KzpK0Lbfl-6m9hj_hvvgN6evk8tLJ2RiiauH1DxOip7rIYxG_LpMGhTe06IY hPtD0H5dS8OLH1i-UQfwn6Pv2DNPZv2wrIw==&c=_u604k8u123MFXe391A4GbM-6YguKc9yLukvCozgLEW53Dh0RAhdwQ==&ch=1xxJIvhNQ8qp5JLH8s1yGw3QdgPBGaB0l8wOVHVtBCjqjnY HzEqWDg==)

Remember, a deposit of $500 holds your kit pricing through the end of this year. "

[Jim Heffelfinger]

I am very pleased with the contributors sharing their experiences, expertise and opinion in a civil manner. We all know that trade wars are globally destabilizing and the markets are showing that. As a consumer and observer I hope that this "shake up" is short.

[FlyingRon]

You better top to your Union reps. They think some aspects of the tariffs, especially not exempting Canada is hurting them. Not saying that tariffs can't be helpful, but Trump is going all willy nilly on them.

https://www.usw.org/news/media-center/releases/2018/usw-canada-must-be-exempt-from-tariffs

[cub builder]

Of course you know the whole tariff thing is about getting our trade "partners" to open their markets to our products so we can trade on a even playing field. Of course they love restricting their markets to our goods while our markets have been open to them. As soon as they agree to open their markets to us, our markets will be open to them and the tariffs will cease to exist. In the mean time, everyone pays more, both here and abroad. So who gets to collect the tariff funds, and where does that money go? As for a $500 price increase on a $12K kit, that seems pretty reasonable to me. Especially if the current "trade war" eventually clears the tariffs and opens the markets on both sides.

[FlyingRon]

If that was indeed what was happening, however Canada, Mexico, and the EU pretty much have open markets to us (at least until they retaliate against Trump's one-sided tariffs). We'd have an more open trade with China, Japan, and Korea if we'd negotiate. Being a bully is not negotiation and despite what Trump thinks worked for him in business, it isn't (and will not) work for foreign policy.

[Floatsflyer]

If that was indeed what was happening, however Canada, Mexico, and the EU pretty much have open markets to us (at least until they retaliate against Trump's one-sided tariffs). We'd have an more open trade with China, Japan, and Korea if we'd negotiate. Being a bully is not negotiation and despite what Trump thinks worked for him in business, it isn't (and will not) work for foreign policy.

Better than most here, you have demonstrated superior truthful knowledge as well as the implications of starting stupid, ignorant trade and tariff wars with your friends, the most economically advanced countries in the world.

With respect to Canada, the US and Canada are each other's biggest trading partners to the tune of over $2 billion dollars PER DAY in goods and services. Trump initiated 25 and 10 percent tariffs on Canadian steel and aluminum under the pretext of Canada being a national security risk to Us interests. This is the most absurd, insane utterance in the history of our 200 plus years friendly nations relationship. We are each others greatest friend. For over 100 years our militaries have fought and died side by side in too many wars.

Today is July1 which is Canada's birthday. We call it Canada Day, 151 years strong. Today is also the day that Canada's retaliatory tariffs against the US come into full effect. In addition to identical tariffs on US steel and aluminum, Canada has placed 10%+ tariffs on a very long and varied list of US consumer goods that include such items as chocolate, whiskey, boats, ketchup, pizza and toilet paper. Tariffs on A total of $16.7 billion worth of US products.

All of these products have been strategically identified and targeted to extract maximum political pressure and impact on those Trump sycophant administration and congressional leaders who come from those red states that produce these products. For example: whiskey from Kentucky, where Mitch McConnel will have to explain why people are losing their jobs in the spirits manufacturing industry; why Hersheys chocolate in Pennsylvania will be laying off so many workers; frozen pizzas and boats from Wisconsin, where Paul Ryan will be forced to explain why so many of his Trump supporting constituents are losing their jobs; why steel mill workers in Ohio will be applying for unemployment insurance benefits.

Tariff wars are just plain stupid, dangerous, counter-intuitive, and economically devastating. They lead to nothing but lower GDP, stagnant and negative economic growth, mass unemployment and great hardship for workers and companies alike. If they escalate, it can quickly lead to a recession or even a depression.

The retaliatory tariffs from the EU, China, Japan and Mexico just compound the reality laid out above.

It's time to end this madness well before the point of no return is upon us. Our very lives and well being are at great risk. It's time for friends to be friends.