How Trade Wars Affect Junk Car Yards
If you think of international trade wars in only abstract terms, it is time to think again. The recent trade war between the US and China is having a direct impact on scrap and junk car yards across the country. With metal tariffs imposed by the US and retaliatory tariffs imposed by China on aluminum waste and scrap in 2018, the effects are being seen in serious ways.
The tariffs initially brought benefits for scrap yards.
In March of 2018, President Trump imposed a 25% tariff on steel and 10% on aluminum imports. These tariffs initially caused a spike in the price per pound for scrap metal. More customers were encouraged by these increases to sell scrap metal, and junkyards did not have too much trouble moving their supply. When tariffs are imposed on countries that supply a large volume of materials, consumers are motivated to look for domestic solutions.
China imposed a retaliatory tariff on scrap metal.
Retaliatory tariffs are imposed by a foreign government as a method of punishing a country that imposed its own tariffs or taxes on exports. In April of 2018, China responded to the new US tariffs with taxes of their own. They imposed retaliatory tariffs on aluminum waste as well as scrap, which has had a significant impact on local US scrap yards and junk car yards.
China added a 25% tariff on scrap commodities, including copper and steel, that went into effect in August of 2018. These tariffs further exacerbated the existing trade war, threatening exports from all 50 states in the US. For example, $596 million in exports from Connecticut to China are at risk in the trade war, including scrap metal.
Local junkyards see a rise, then a decline.
Recycling centers, scrap yards, and junk car yards initially saw an increase in customers and traffic due to the higher prices for scrap metal. Word spread that the price of recycled metal was up, and the increase in sellers undoubtedly followed. However, this increase also brought about safety concerns.
Activities like dumpster diving and selling stolen materials become more prevalent after the price increase. Scrap yards had to deal with the legal issues surrounding stolen goods, taking extra precautions to protect their businesses. Also, the public was in danger of attempting to collect scrap metal from dumpsters or other trash receptacles using unsafe methods.
Local junkyards that purchased at higher volumes during the boom are now left sitting on massive quantities of materials due to a dip in prices. Selling large volumes of scrap metal now would result in major losses. In some areas, recyclables have decreased in price by 60% and junk cars have dropped in price by 30%. Buying high and selling low is not the way to turn a profit.
Both business-to-business scrap yards and business-to-consumer junkyards are feeling the pressure. Companies that purchase scrap directly from manufacturers are seeing reductions in price for domestic materials, like steel and aluminum. Junkyards that deal directly with the public are also seeing a decrease in price, making it harder to move their product at a profit. While these companies do not face a direct impact from the US-China trade war, they are impacted by the tariffs.
Only time will tell the true impact of tariffs on junk car yards.
A best-case scenario for metal recyclers and owners of scrap vehicles would be for the price of domestic steel to rise, so the demand for raw steel goes up. Vehicle owners could sell their scrap cars at higher prices, and metal recyclers could enjoy profits when selling raw material.
On the other hand, a worst-case scenario would involve domestic steel prices dropping with demand. Scrap vehicle owners would be less likely to sell and metal recyclers would have a harder time turning a profit. Unfortunately, only time will tell how the market is impacted by the trade wars.