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American shipbuilders brace for impact of tariffs on steel, aluminum

Sep 27, 2018 04:43 PM
A shipyard worker at Vigor in Seattle grinds a weld on the keel of the ferry Chimacum during the early stages of construction in 2014. Many yards in North America can expect production costs to rise due to new U.S. tariffs on metal materials and retaliatory Canadian levies.

Courtesy Washington State Department of Transportation

A shipyard worker at Vigor in Seattle grinds a weld on the keel of the ferry Chimacum during the early stages of construction in 2014. Many yards in North America can expect production costs to rise due to new U.S. tariffs on metal materials and retaliatory Canadian levies.

Shipbuilders in the United States are still assessing the impact of the Trump administration’s tariffs on steel and aluminum imports, but many yards are preparing to absorb higher costs as the levies take effect.

In March, President Trump announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. The number of countries subject to the tariffs has changed as the administration works out deals with the European Union and offers exemptions to other trading partners.

While the Shipbuilders Council of America (SCA) hasn’t taken an official stance on the tariffs yet, they are becoming a factor for the group’s members.

“As the shipyard industrial base, we’re now seeing the impact of the tariffs on steel and aluminum impacting the costs of vessel construction,” said Matthew Paxton, president of the SCA. “Where that all plays out, we don’t know. We just know that many of our yards are having to quickly pivot to make sure they can do this work and still eke out a profit.”

Steel and aluminum for defense and other U.S. government projects must be domestically sourced under provisions of the Buy American Act, so the direct impact may not be significant for major components such as steel plates for hulls and superstructures.

For instance, Huntington Ingalls Industries procures its steel from U.S. sources that are not subject to the tariff, said Beci Brenton, spokeswoman for the shipyard. Meeting U.S. military needs for steel and aluminum represents only about 3 percent of each for the nation’s production, according to published reports.

The broader impact on the supply chain is still not known as foreign steel and aluminum can be used in many of the minor components that go into a vessel, so the cost of fixtures, fittings and other parts may rise accordingly.

The impact on shipyards involved in government-funded projects could be minimal in the long term because they may be able to recover higher costs according to their contracts, compared to some privately funded builds that may not have a cost escalator built in. However, even shipyards building government projects may be stuck carrying the higher costs for materials during the contract payment cycle.

Meanwhile, market competition is expected to drive up prices for domestically produced steel and aluminum because U.S. mills can’t meet the demands of the entire economy. U.S. producers will be able to raise prices and still be less expensive than foreign steel and aluminum subject to the tariffs.

In Canada, new naval supply ships are being built with steel from a mill in Alabama. British Columbia-based Seaspan won the $66 million government contract to build two new ships that are expected to cost at least $3.4 billion, according to the latest budget estimates.

Canada, the largest exporter of steel to the U.S. in 2017, has slapped retaliatory tariffs on U.S. exports worth $12.5 billion, including steel products, maple syrup and coffee beans.

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