University of Houston-Victoria officials were forced to eliminate most of the expansion space for the university’s new science, technology, engineering and mathematics building because of increasing steel prices.
The building costs about $28 million to build, and officials found ways to cut costs, doing away with shell, or expansion, space because of the 20 percent increase on steel materials, or more than $300,000, said Matt Alexander, university director of capital projects. They were able to keep the cost of the building at $28 million.
“It does reduce our potential to expand within this building,” Alexander said. “Future expansions will have to go in other buildings.”
The steel price increases come after the Trump administration rolled out tariffs for Mexican, Canadian and European Union importers June 1. The tariffs include an additional 25 percent tariff on steel imports and 10 percent duty on aluminum goods.
Crossroads businesses, manufacturers and consumers will likely pay more for products used in industries including construction, automotive, manufacturing and anything that uses steel because of the tariffs. Experts expect most countries to retaliate against the tariffs with their own, which will strongly impact agriculture exports.
The steel industry
Since three months ago, when the Chinese steel tariffs were announced, steel prices have increased for South Texas Steel, ranging from 15 to 45 percent, said owner Carlisle Maxwell. The company provides steel for construction and mainly uses reinforcing steel, which saw a 25 percent price increase.
The price increases created shortages, and sometimes the company can’t get some products at all, such as square tubes, Maxwell said.
Maxwell prepared for the price increases and shortages by stocking up on steel but couldn’t disclose how much for proprietary reasons.
Regional Steel general manager Chad Hall said steel prices have increased about 50 percent.
In November, Regional Steel officials began stockpiling inventory to have a five-month supply and have been maintaining as much as possible, Hall said.
The shortages are the biggest challenges for the company. Steel can now take months to acquire instead of weeks, said Elton Calhoun, owner and president of Regional Steel.
Officials have to ensure they’re able to provide steel to fabricators and manufacturers and keep their inventory at the right level, Hall said.
“Upscale domestic mills have seen a big boost because now we’ve eliminated all the competition for them,” Hall said. “The problem is everything has happened so fast. They’ve not been able to keep up with key competencies, filling jobs, having human resources to meet demand, being able to get the products and raw materials.”
Regional Steel is a global company and hasn’t been able to purchase steel from the countries it normally does business with, which has disrupted its supply chain, Hall said.
Calhoun said the tariffs are creating the biggest problem he’s seen in his 40 years in the steel industry.
Industrial construction, such as the Formosa expansion, will continue strong through the tariffs, Maxwell said, but private developments such as multi-story apartments, hotels and condominiums could be strongly hurt. As the price of steel increases, the overall price of construction increases.
Developers will have to increase rent prices because of the increase of construction costs, and some buildings could exceed their budgets and not get built at all, he said.
“They can’t increase that rent that much because there is other competition and existing builders,” Maxwell said.
Manufacturers such as Caterpillar will also be impacted, he said. The cost of appliances, vehicles and machinery will increase, especially in cases where manufacturers have to compete with foreign industries.
“It will increase the prices of everything, and I think that’s bad for the economy,” Maxwell said. “These tariffs are an added cost to people, and in most cases, they will have to pass them on (to the customer), and that will increase the inflation ... It’s generally a bad situation.”
Caterpillar officials declined to comment.
The Associated Press reports manufacturers such as Caterpillar, which makes construction machinery, and Deere, which makes farming equipment, have taken losses because investors expect they will have to pay more for aluminum and steel parts and that tariffs on their products will hurt sales overseas.
Deere was down 2.6 percent and Caterpillar was off 1.5 percent as of May 31 as investors anticipated manufacturing costs could rise, according to the Associated Press.
Hall agreed with Maxwell that prices will increase in multiple industries.
“Even if you’re trying to build a home right now, this is going to be the most expensive time there is to build a home in many, many years,” he said.
Ben Keating, who owns 18 automotive dealerships across Texas and several in the Crossroads, said manufacturer officials told him the average price of a vehicle will increase by about $300. Although the price of vehicles could go up, Keating supports President Donald Trump’s decision, which he said will bring more manufacturing to the U.S. along with jobs.
He said if other countries are going to charge the U.S. tariffs to export goods, the U.S. should do the same.
“It has always really bothered me to know how much of a Ford or a Chevrolet or a Dodge is built in Mexico,” he said. “I (also) don’t have a lot of confidence that the U.S. is competing on a level playing field in terms of the quality of the steel.”
Keating said automotive manufacturers are concerned about prices increasing because there will be no additional value to customers, causing fewer people to buy vehicles. He said the tariffs won’t have that impact.
“In doing something that may make it more difficult on the manufacturer ... in my belief, it will drastically impact for the good of the economy for the U.S.,” he said. “It’s got to be a 10-year outlook on looking at opening up steel plants and aluminum plants again in the U.S.”
Impact on agriculture
In the wake of the steel tariffs, Mexico and China already have retaliated with their own tariffs on exported U.S. goods, including agriculture products, said Luis Ribera, professor and director for the Center for North American Studies at Texas A&M University. Mexico retaliated with $3 billion of tariffs, and China retaliated with $50 billion of tariffs.
“Even if the tariffs are not implemented, the prices of those products already moved,” Ribera said.
The retaliations will most likely cause the demand for agriculture products to go down, decreasing their value, he said.
Texas exports the third-most agriculture products of any state to Mexico. About 37 percent of agriculture products from Texas are exported to the southern border country, making it the largest market for the state’s agricultural goods, Ribera said.
A third of the income for farmers comes from sales overseas, he said.
“When you start having this trade war, you’re going to have less demand for products from the U.S.,” Ribera said. “Because they’re more expensive, their farming income is going to be affected.”
The U.S. has competitors for agricultural products around the world, and with the new tariffs, Mexico will look at cheaper options, he said.
“That’s the big problem with trade wars – there are no winners,” Ribera said. “Consumers for sure lose. You’ll have to pay more for products.”
This story was updated June 12 to correct Matt Alexander's title to University of Houston-Victoria director of capital projects.