International tariff impact on Indiana may be $ubstantial
Indiana transportation businesses and consumers are bracing for the economic impact of assorted tariffs proposed by President Donald Trump (R).
For those who are struggling to keep up with the current federal economic milieu: tariffs on Canada and Mexico – originally set to activate on February 2, now set to be delayed until at least March 1 – along with a China tariff that triggered on February 4, are a key part of a Trump Administration strategy of promoting trade negotiations that, ideally, should better suit Americans.
A tariff is essentially a tax that governments charge on goods coming into or going out of a country. The point is to encourage businesses and consumers to buy products made in their own country while protecting local industries and creating revenue for the government. In this case, Canada and Mexico will be hit with 25%; and China faces a 10% tab.
So, what does this mean for us? For the Hoosier transportation industry, much – if not most – of the materials needed to create goods and keep them working have some attachment to overseas trade. Ball State University Economics Professor Michael Hicks, director of BSU’s Center for Business and Economic Research, informs Indianapolis Business Journal reporter Daniel Lee that he deems Indiana “if not the most at-risk state, one of the three most at-risk states” for negative tariff impacts because “we import a very large share of our manufacturing production that goes into finished products that leave the state.”
Dr. Hicks also explains to Indiana Public Radio reporter Thomas Ouellette that the variables attached to the tariffs will be a problem for Indiana. “So, [President Trump] may raise tariffs 10%, maybe 20%, maybe 60% on China. He may phase them in 2% to 5% a month for five or six months .… Those comments provide really high uncertainty about what his intentions are,” economist Hicks asserts to Ouellette.
For what it’s worth, Purdue University economics professor David Hummels expresses his disagreement to Lee, instead asserting that some Hoosier businesses could be bolstered by the blow to their international competition “assuming that [the businesses] have locked in [their] supplies of inputs and raw materials.”
Take our robust automotive industry, a significant economic generator for the Hoosier economy. For some cities, its significance is vital (the reliance on steel production for automobiles in Gary and East Chicago comes to mind).
This industry is particularly vulnerable to the impact of tariffs – even homegrown American cars (think of facilities in Lafayette, Greensburg, Fort Wayne, and Princeton, in particular) rely on foreign parts.
“Trump’s tariffs are scrambling global automakers’ reliance on the U.S.,” writes the Wall Street Journal’s Politics & Policy newsletter Wednesday, noting that one key concern is that “the requirements keep shifting.”
Indeed, we learned on Wednesday that the tariff tug-of-war related to vehicles could be even more acute, applying not only to vehicle components, but to the vehicles themselves. Bloomberg was reporting that the President “said he would probably impose tariffs on car, semiconductor and drug imports of about 25%, with an announcement coming as soon as April 2. The president didn’t specify which countries would be affected or if the measures apply to all vehicles imported to the US” – so the impact is, as yet, undetermined . . . but of major concern to both Hoosier auto manufacturers and dealers, as well, of course, as consumers. Average vehicle prices, new and used, are already at record prices, as are monthly vehicle payments for already financially stretched consumers.
As a brief review, in our first January issue, we discussed the growing concerns about the tariffs significantly spiking diesel/oil production costs. We’ve mentioned the Canada connection concerning diesel/oil production, but as a reminder, most of Indiana’s oil comes straight from our norther neighbor.
But there’s more at play, as reported by the New York Times Rebecca Elliott from on the ground in Whiting, where the BP Refinery, “Built around 1889 on the south shore of Lake Michigan, near Chicago, is a reminder of just how difficult it can be to undo trade ties that go back decades.” Elliott writes that “It boils down to this: No matter how much oil the United States pumps – and it already is the top producer in the world by far – its refineries were designed to run on a blend of different types of oil. Many can’t function well without the darker, denser, cheaper crude that is hard to find domestically.”
Elliott tells readers that “BP can tweak its recipe – but only so much. Too little of the viscous stuff and the company would need to cut back its production of the fuels that power cars, trucks and airplanes. The refinery normally makes enough gasoline in a day to fuel more than seven million cars, or about 3 percent of the gas-powered vehicles on American roads.” That means gas prices could soon soar. And, of course, oil is used in much more than just vehicles.
What’s more, all three countries President Trump is eyeing to tax are also Indiana’s top trading partners.
Thoughts on Incoming Indiana Impact
Tariffs on Chinese, Canadian, and Mexican transportation supplies could significantly disrupt transportation supply chains and force up costs for many manufacturers like General Motors, Subaru, Honda, Stellantis, Toyota, and Cummins. Indiana is the second most prosperous state in the U.S. in the automotive industry, generating 1.3 million trucks and motor vehicles yearly according to the Northeast Indiana Regional Partnership.
When we last spoke about the tariffs, it was still a hypothetical situation. We are now officially amid tariff implementation; the 10% tariff on all Chinese goods was activated on February 4. The fallout was swift and significant. Multiple sectors were affected, from manufacturing materials to electronic items. Many are directly germane to the construction of cars, trucks, EVs, steel . . . the list goes on.
The Indiana Manufacturers Association, which speaks on behalf of over 1,000 companies operating in Indiana, quickly sounded the alarm. “However the next few weeks or months develop, Indiana’s manufacturing industry and consequently the state’s economy will be impacted,” IMA President Andrew Berger explained in a statement. He tells Lee with IBJ that Indiana, considering its status as a “global auto-making center,” the state’s transportation industry is facing “some real exposure” to risks.
The statistics back Berger up: in 2023, manufacturing jobs accounted for 18% of Indiana’s workforce, many of those being automotive positions.
Here’s an example of how the tariffs are affecting trade already: For a single day, USPS declined to receive or deliver packages from China or Hong Kong, reversing the decision the next morning, but many Chinese businesses have put a hold on sending goods over to U.S. buyers due to the inability to tell their customers how much UPS or DHL fees will be.
How Do Hoosier Businesses Feel?
Cummins Inc. spokesperson Melinda Koski believes that the Columbus-based manufacturing company may see a significant impact on engine production and says that Cummins is keeping a close eye on the evolving situation.
Kimball Electronics in Jasper (the hometown of Governor Mike Braun (R)), a provider of “electronic manufacturing and contract manufacturing for automotive markets,” obtains up to 30% of its production from Mexico while importing.
The Indiana Chamber of Commerce is concerned and aware too, pledging to monitor the situation while seeking feedback from its members. Chamber President Vanessa Green Sinders tells the Indianapolis Star that the feedback will be used to issue recommendations to “Indiana’s congressional delegation.”
Experts estimate that tariffs, if imposed on all three countries, could cost Indiana households hundreds of dollars per month due to increased prices on a range of goods, from cars and electronics to clothing. This uncertainty could also lead to decreased hiring and investment in Indiana.
You may not think of electric bikes when the tariffs are brought up, but this industry stands to be one of the most heavily impacted. The 10% tariff on Chinese goods is the kicker; the e-bike market’s upward trend completely relies on overseas manufacturers keeping up with U.S. demand.
E-bike companies will be forced to make a choice: Will they cover the fees internally, or will the consumer have to come up with the cash? There isn’t really a good option between raising prices on models or absorbing tariff fees, given that both threaten companies’ bottom lines.
One of the most prevalent e-bike systems in Indiana is the Pacers’ Bikeshare program – which recently began offering free rides. Indianapolis Cultural Trail Inc. Executive Director Kären Haley tells us that the bikeshare program is bracing for impact, “especially for any bikeshare capital equipment [like] bikes, stations, [or] parts.” She further explains that “price increases will impact our ability to purchase additional equipment which is needed to grow and maintain the current equipment and system footprint.” Haley relayed that ICT has already heard from its supplier that pricing may be in flux and they’re monitoring the situation.
Regarding IndyRides Free, Haley doesn’t anticipate discontinuation of the program but acquiesces that “increases in equipment prices will limit our ability to add more stations and therefore serve more neighborhoods and residents.”
We also recently told you about a new Seymour manufacturer of non-electric bikes who was struggling to source components locally instead of from China. His crusade was also chronicled by the Wall Street Journal.
No Reprieve for Aluminum or Steel
A steep 25% tariff on aluminum and steel produced in Mexico or Canada was paused until March 1, but if it comes to fruition, the ripple effects will be severe for the transportation sector. To make cars, manufacturers need steel and aluminum, and President Trump has struck the small respite for the industry that was present in his 2018 attempt. In his administration’s past iteration, steel enjoyed a collection of exceptions and exemptions, while tariffs for aluminum were set at 10 percent.
Consider this: WSBT-TV South Bend’s Kyland Hall reminds viewers that Elkhart County produces almost 80% of the global recreational vehicle (RV) supply – the world’s largest family-owned RV business is Elkhart’s Gulf Stream Coach. Mexico and Canada are both large contributors to the steel industry in the Michiana area. Gulf Stream Coach President Phil Savari explains to Hall that tariffs would impact the Hoosier RV market significantly as Elkhart ships $1.7 billion of RVs to Canadian buyers.
The RV industry, of course, is often referred to as Indiana’s canary in the coal mine, with the perceived “luxury” recreation product typically the first to see sales declines and layoffs in tough economic times . . . and usually is also the last major Hoosier industry to recover.
While many Hoosier businesses and manufacturers are concerned, Lafayette’s semitrailer manufacturer Wabash sees things differently. Vice President of Global Supply Chain Richard Mansilla writes that if other manufacturers are unprepared and “scrambling to respond to tariffs and global supply chain volatility,” that may be their bad. “Wabash made the strategic decision years ago to prioritize domestic partnerships and build a resilient, U.S.-based supply chain,” Mansilla explains. Wabash CEO Brent Yeagy, during an earnings call on January 29, clarified that the semitrailer manufacturer made those moves in response to the 2018 tariff go-around. Yeagy asserts that “near-shoring activity” has been “ramp[ing] up” for years, and while tariffs will indeed act as an “ accelerant,” in Wabash’s case, “foreign imports of goods being replaced by North American manufacturing activity has an outside positive impact on dry van trailer utilization.”
Simon Property Group CEO David Simon, also on an earnings call, pointed out the “de minimis exception,” which would give overseas companies an out with the tariffs when shipping to U.S. consumers if the import is worth $800 or less. This provision was one of the reasons President Trump paused the tariff activation. Simon asserts that American and non-Chinese retailers would benefit from removing the exception as it would create a more “level playing field.” The tariffs were paused so the implications could be carefully considered before implementation.
The true effect on the transportation industry and Indiana’s economy, of course, can only be ascertained once the tariffs are actually implemented . . . and your favorite transportation newsletter will be monitoring assorted relevant industries to evaluate the Indiana impact.