CONSUMER BUYING PRICES

Manufacturers have been hit with Section 232 metal tariffs of 50% on steel and aluminum. These tariffs are intended to help the U.S. steel mills and the very few producers of primary aluminum. Manufacturers that buy steel and aluminum to make their products have seen the metal prices go up. This hurts their margins and makes them less competitive selling their products in the U.S. and exporting to other countries.  

Firms that depend on global supply chains have also been hurt by the tariffs. The aviation sector, one of United States’ biggest export industries, have been vehemently arguing against tariffs on aircraft and parts. Large companies, like Apple, have been able to rid themselves of tariffs by offering to invest $100 billion in the U.S. and POOF! Their tariffs are eliminated. Smaller companies that have reliance on the Chinese supply chain to make their products have been devastated.  

The auto industry is the largest sector of manufacturing in the United States. Since 2023, the sales of light vehicles have been between 15 and 17 million per year. The following headline was shocking and deserves further attention. 

AUTO INDUSTRY TAKES $12 BILLION HIT FROM TRADE WAR
YIKES!

That was the headline from the Wall Street Journal on August 6 - I added the yikes. This was for the first six months of 2025, and the number is forecasted to be between $35 and $40 billion by the end of the year.  

This headline made me want to dig deeper and research the real effects. The auto industry has a tremendous impact on the economy. Direct employment in the manufacturing of cars is about 1 million. The indirect broader automotive employment (including parts suppliers, logistics, dealerships, and service/maintenance tied to autos) is another 5 million people. For comparison, the GDP auto impact is about $400 billion, which is also the net worth of Elon Musk.  

Toyota forecasts $9.5 billion tariff loss for its fiscal year, drastically reducing its worldwide profits. GM’s tariff loss will be $4.5 billion and Ford $4.0 billion. About 55% of cars sold annually are produced in the U.S., 20% are produced in Mexico and Canada, and 25% are from other countries. These tariffs, which can be up to 25% on cars not produced in the U.S., can either be passed on to the consumer or eaten by the manufacturers.  

Not all cars sold in the U.S., including GM and Ford, are made in the U.S. Even though cars can be tariffed at 25%, the weighted average increases of these tariffs vary. So far, foreign cars with zero American made parts are being tariffed at around 15%. Cars imported from Mexico and Canada that have a high percentage of U.S. parts are being tariffed at 25-35%.  

Determining the weighted average tariff cost per car is complex but I’ll give it a try:

Tariff Effects:
 

• GM, historically the top U.S. car importer, is moving some car production from Canada back to Ft Wayne, Indiana.

• In June, GM also announced a $4 billion expansion to move auto production from Mexico to the U.S. in 2027.

• Honda and Nissan are increasing U.S production. 

• Unwinding climate change regulations allowed Ford to scale back its purchases of regulatory credits and saved them $1.5 billion. Other car makers will have similar savings.

• The top three car producers in the U.S. have been earning near record profits since 2021. 

Will car tariffs be passed on to the consumers? So far, this hasn’t happened. Some say the manufacturers don’t want to incur a Trump Tweet. We will see.

What has been happening to the rest of manufacturers? Unfortunately, the manufacturing PMI for July fell again and remains in contraction for the fifth straight month. The main reason is, you know...

VUCA: Volatility, Uncertainty, Complexity and Ambiguity. 

INFLATION

In line with expectations and should lead the Fed to cut rates in September
 

• The Consumer Price Index (CPI) for July rose to 0.2%. Year over year it is 2.7%.

• Core inflation for July rose 0.3%. The annual rate for the year climbed to 3.1% slightly more than expected.

• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure for June was 0.3% and are 2.6% year over year. Core prices (which exclude food and energy) were 0.3% in June and are up slightly at 2.8% versus a year ago. Inflation-adjusted consumer spending edged up last month after declining in May and a gain in June-spending reflected a rebound in outlays for non-durable goods. Tariffs are now starting to show up.

• The Producer Price Index was the same in June as the revised 0.3% gain in May, and U.S. wholesale prices rose 2.3% from a year earlier.

MANUFACTURING

Weaker due to tariff uncertainty and a decline in business confidence
 

• The Manufacturing PMI® ISM dropped in July to 48 from 49 in June and is still in contraction. This contraction was driven by a slowdown in new orders and output, as well as a weakening in business confidence. The production index was up 1.1 to 51.4. Most of the other indices were in contraction with new orders at 47.1, backlog of new orders at 46.8 and employment at 43.4 is the lowest in 5 years. This uncertainty over the ever changing tariffs continues to cause economic weakness.

• PMI also reports that these industries that affect metals remained in contraction: Machinery; Fabricated Metal Products; Computer and Electronic Products; Transportation Equipment; Electrical Equipment, Appliances and Components.

• U.S. non-defense capital goods new orders, excluding aircraft, rose 0.2% in June and up 2.2% annually.

• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.4% in June and were up at a 3.1% annualized rate in Q2 versus the Q1 average.

• Construction spending declined 0.4% in June. Home mortgage rates for 30 year loans are at 6.7% and demand is tepid.

• Car and light truck sales in July rebounded from 15.3 million annual to 16.4 million. This is a 3.7% increase year over year.

• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes for July fell 11%.

CHINA

Trade negotiations extended for another 90 days

There is also a double-edged sword for the U.S. and China. They need our markets to export their goods. We need China because they supply us with 90% of our rare earth minerals and metals that are critical for our defense industry. 

A Bloomberg Economics analysis found that only five of 33 industrial sectors accounting for just 2.4% of China’s GDP can absorb the current tariffs and remain profitable. Chinese goods that can no longer be sold to the U.S. may get channeled elsewhere where they’d likely push down prices but also pose a threat to domestic producers. 

For the first half of the year, China reported 5.3% year-over-year economic growth, driven by a 5.9% increase in exports. China’s exports grew 7.2% in July, outpacing June’s 5.8% increase, despite U.S. tariffs, but trade with the U.S. has fallen. Exports to the U.S. fell 22% in July from the year prior, according to the government data. That compared with a 16% decline in June and a 35% drop in May. 

The official PMI dropped to 49.3 in July from 49.5 in June. The Caixin PMI also dropped into contraction in July to 49.5 from 50.4 in June. 

These negotiations will continue for some time and keep in mind that China does not have elections nor need their peoples’ approval.

METALS

50% tariffs make U.S. a recycled aluminum magnet

On May 30, Trump announced a 50% aluminum and steel tariff effective June 4. The Midwest premium rose from $0.385 on May 30 to over $0.70 today. Recycled aluminum is tariff free. This differential has made the U.S. a worldwide recycled aluminum magnet.

With this 50% tariff, Century Aluminum announced on August 7 the decision to restart over 50k mtpy (metric tons per year) of idled smelting capacity at their Mt. Holly, South Carolina facility. Aluminum is expected to be produced in Q1 of 2026. The restart is expected to cost $50 million, with a payback period projected within 10 months. Not bad!

Century is also looking to start its Hawesville, Kentucky smelter with 250k mtpy idled capacity that might be announced by the end of September. Meanwhile, Alcoa is considering a $100 million investment to potentially restart a 50k mtpy potline at the Warrick, Indiana smelter that is currently operating at around 150k mtpy.

On the other hand, U.S. producers of aluminum cans, rolled mill products for cars, boats, RV’s, HVAC, foil, extrusions and other aluminum parts have seen prices rise. When will this start showing up in inflation is still to be determined.

Because of the 50% tariffs and the inflow of foreign scrap, U.S. scrap prices have been falling on most grades of prime materials. August secondary aluminum scrap is about the same and so are stainless and ferrous prices.

Trump announced a 50% tariff on copper in late July. Copper spiked 25%, which is over $1.00 a pound increase, but U.S. scrap remained the same. On July 31, Trump eliminated the 50% tariff on prime copper and the price promptly fell back to where it was before.

Edward Meir points out that while the auto tariffs on Japanese, South Korean and the EU autos are 15%, the tariffs on Mexican and Canadian autos are 25% to 35%. He forecasts that if those tariffs are lowered to 15%, “the Midwest Aluminum Premium will look vulnerable.” Harbor believes that, “the Trump administration will continue to hold the line on its new Section 232 Tariff regime.” They forecast that the premium will be $0.78 by year end and $0.87 in 2026. I, on the other hand, have given up trying to predict what Trump will do. Hang on!

CLOSING

The economy continues to be solid, and we have not yet felt the true impact of the tariffs. I’m always interested in your thoughts. Looking forward to your comments. 

“If you really want to be a better person, do something to make the world a better place.”
- Andy Stanley