Washington, D.C. — History shows the imposition of tariffs has the potential to increase the price of imported commodities and products. Steel is an important input for transportation construction — for every $1 spent on highway and bridge construction, 10 cents goes toward steel-related materials. As such, if President Trump’s new tariff on steel leads to price increases, there will be adverse effects on the transportation construction industry’s ability to deliver needed infrastructure improvement projects, the American Road & Transportation Builders Association (ARTBA) said. Among them:
- If prices increase for imported steel because of the tariff, economic theory suggests prices would also increase for domestic steel. This would cause a direct increase in project costs at a time when transportation infrastructure investment dollars at the federal and state level are generally constrained.
- The uncertainty of the steel market will also likely lead to costlier projects. Transportation contractors incorporate various types of risks and contingencies into their bids. Going forward, contractors will account for the possibility of steel price increases or volatility in their bids even if it is not certain these will occur in the market.
- For contractors working on existing projects, or those that have already been let, they will generally have to absorb the responsibility for steel price increases, unless their state department of transportation includes a steel price escalation clause in the contract. As of the American Association of State Highway and Transportation Officials’ most recent state survey in January 2016, just 13 states had some type of steel price adjustment clause available for use. Federal policy prohibits retroactive price adjustments on federal-aid projects.
- If prices increase for steel—whether domestic or imported—costs will also likely rise for construction and mining equipment, along with parts needed for maintenance. Examples include:
— One U.S. equipment manufacturer, Terex Corp., announced March 6 it would implement a steel surcharge on its equipment to recoup the cost of steel price increases caused by the administration’s tariff.
— Increased costs of purchasing and maintaining mining equipment that has steel components will result in increased costs of construction aggregates that are integral to projects;
— Similarly, contractors use various types of heavy equipment extensively on projects; and
— Moreover, fuel tanks are commonly used by contractors and increased prices for this type of equipment will still lead to increased project costs.
- Increased prices may also be a disincentive for contractors to invest in new equipment, to the detriment of many U.S.-based manufacturing companies.