Last week our Commander/Businessman-in-Chief, President Donald Trump, indicated that he is willing to put a 25% tariff on steel imports from foreign countries. It is interesting to note that, at this time, we don’t know if he will follow thru with such or is using the threat to get Mexico and Canada back to the table to renegotiate the North American Free Trade Agreement (NAFTA).
I’m also not a macro-economist, but just a well-versed businessman who has happened to be in the death care industry and will look at this tariff issue and how it might affect my mortuary.
First of all, lets do a little review and understand that, while shrinking, the casket industry in America is a $657 million industry that is still highly profitable. The market is highly concentrated with 79% of the market share going to the top three companies — and about 75% goes to the top two companies, Batesville and Aurora. I’m also assuming that these companies, based in America’s industrial heartland prefer to buy American made steel — although I do not know this for a fact. Finally, we know that about 61% of caskets sold are metal caskets.
So, with that backdrop, and assuming that the big players in America prefer buying American made steel, would a tariff on foreign steel raise prices at the consumer level? My guess, is that the answer is yes. Even though American steel would not see an increase in the price because of the tariff, my guess is that they would be able to (and want to) raise their prices to close to the level of competitor’s prices (the foreign tariff prices) and gain margin and profitability for shareholders. That would cause a price increase to the casket shell makers and would in turn be reflected in wholesale metal casket prices to funeral homes.
So, I believe that a steel tariff would eventually raise end prices to the consumer of caskets just as is predicted in other steel products like washing machines. In the funeral industry, it would just be another headwind that funeral home owners would face in their battle to hold on to the full service funeral clients over the cremation client. i.e. full service funeral costs with metal casket would go up with no visible margin increase for the funeral home owner.
I’m not an expert on tariffs, nor do I know what will really happen. This is my thought process on what I might see happen at my funeral home. I do believe that trade has to be fair. . . . I read an article today that we have a 2.5% tariff on European automobiles that come into America, yet the European Union has a 10% tariff on automobiles that we send to those countries. That makes our automobiles made in America much less competitive to sell in Europe as compared to their automobiles in the U.S.A.– and just does not seem fair to me.
In any case, no real answers here but always food for thought.