No sensationalism, just facts and context. 
Whether or not a business can pass along the cost of tariffs depends on who its customers are
Whether or not a business can pass along the cost of tariffs depends on who its customers are
In less than a month, if everything goes according to the plans that President Donald Trump announced last week, the U.S. will impose 25% tariffs on imported steel and aluminum. (Here is your obligatory reminder that the cost of any tariff is paid by the importer and ultimately, by extension, the U.S. consumer.)
Recent research from S&P Global found that the impact of higher tariffs will be uneven. In other words, some businesses will pass along the cost but others might not. Which side of that dichotomy a business falls on depends on who its customers are.
Take Mavericks Manufacturing Partners in Escondido, California, which makes metal components for the energy and defense sectors. Steel is set to get hit with higher tariffs next month and the price aluminum is already rising, said CEO Chris Blench.
“The tariffs don’t even have to be in effect. It’s just the threat of them. And that’s creating a tremendous amount of uncertainty,” he said.
As a result, Blench said he’s going to have to ensure that the prices he’s charging his clients account for that uncertainty.
So now, when he writes up a bid for a project: “We’ll just have that one little asterisk on the material component that says, you know, depending on the price of that particular material at the time of award, we’re going to pass on whatever our cost is,” he said.
Blench said he can do that because his customers — largely the Defense and Energy departments — are so big they’re not going to sweat the increase.
And besides, his competitors do the same thing.
“We’re trying to compete on our efficiency and other credentials of our businesses. But when it comes to the raw materials, if the price goes up 25%, all of the other competitors are going to be passing that along,” he said.
Not every business has the leverage to do that.
Satyam Panday, chief U.S. and Canada economist at S&P Global Ratings, said if your customers are small businesses, “you would probably want to think twice, before doing that, in your renegotiations of the contract. You probably have to share the costs.”
There’s also a third kind of business, one where passing along the cost of tariffs might not make sense at all.
“You know, beer has always been this affordable luxury. It should be very accessible,” said J.C. Hill, the owner of Alvarado Street Brewery which operates a few locations in the Monterey Bay area of California.
Because he sees beer as an affordable luxury, Hill doesn’t want to pass along any cost increases to his customers. Especially after all of the inflation in recent years.
“And in the past we have been able to raise prices to not take that hit directly. You know, before inflation. And I think now, people are less likely to want to pay more,” he said.
Hill is expecting the price of aluminum cans to rise, along with the price of stainless steel fermenters, kegs and other equipment.
He’s keeping an eye out for used equipment and said he doesn’t want to have to do anything drastic, like lay off employees.
“It might just be one of those things where we just have to wear it on the chin. And hopefully ride it out,” he said.
In the meantime, Hill said his goal is to keep growing the brewery’s capacity a little bit every year, so he can cover his costs by selling more beer.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
