Tariff Scare: How the U.S.-Chinese tariff war is affecting local manufacturing
The fallout from U.S. tariffs – and China’s counter tariffs – have already impacted northern Michigan companies, say regional business leaders.
“The impact to many local companies to the steel and aluminum tariffs has been significant and swift,” said Kent Wood, director of government relations at the Traverse City Area Chamber of Commerce. “The tariffs have absolutely raised prices on steel and aluminum products across the board, but the bigger issue is that most of these small companies in our area have little to no negotiating power.”
Northern Michigan companies are sandwiched between large, multi-national companies on both sides – the supplier and the customer – and neither are interested in letting those increased costs be passed along to them, according to Wood.
“It has put many of our manufacturers in a very tough spot,” he said. “Either eat the increased cost or lose the customer. What’s also frustrating is I’ve heard of a few scenarios where our companies use a special kind of steel that is only made off-shore, and that domestic steel suppliers have refused to make. They are being punished for using a product domestic companies don’t even make or wish to supply them.”
The U.S. tariffs on China will initially hit about $34 billion of goods, with plans in place to eventually raise that total to $50 billion, according to The Wall Street Journal. They fall mostly on Chinese aerospace products, information technology, auto parts and medical instruments. Beijing is retaliating with tariffs on $34 billion of American goods, aimed at farm products, cars, steel, aluminum and crude oil.
According to the Trump administration, China engages in unfair trade practices with the U.S. that must be countered, even though it may cause pain to the U.S. economy.
Hayes Manufacturing in Fife Lake makes stub shafts, flywheel couplings and drive coupling products. From its plant on U.S. 131, the company ships products to more than 2,000 clients around the globe. Customers include such John Deere, Toro, Zamboni, Case-New Holland, Cummins, Porsche racing cars and others. Hayes products are found in skid-steer loaders, street sweepers, industrial lawn mowers, ice resurfacing units, road pavers, cranes and more.
“Nearly everything we make, or purchase, is made from aluminum or steel, so we need to raise our prices to customers or cut somewhere else,” said CFO and co-owner Penny Challender. “The complications caused by the tariffs cannot be understated. The time it takes to manage the extra costs, communicate and negotiate new pricing with customers and investigate how the daily developments in the ‘trade war’ will affect our growing exporting business is wasted time that could be used to grow our company.”
Frontier Computer Corp. distributes new network connectivity products in both North America and Europe. The Traverse City firm also buys, refurbishes, recycles and resells IT servers, storage and networking products worldwide.
“To this point, none of the primary products we deal in have been targeted,” said Frontier Computer President Paul Wieland. “It is possible that if things get a little crazier on the international stage, tariffs could impact the products that Frontier imports and exports, and that could be of concern.”
Although Frontier has not yet been directly affected, other businesses such as manufacturing may be hit hard, according to Wieland.
“It’s my belief that reciprocal tariffs targeting various industries fail to help anyone in the long run,” he said. “Free trade should reign, and world leaders should not act like impetuous children. Thirty years of international trading tells me that in general, people will get along and find acceptable solutions to real trade problems. It’s time to talk, get to know each other, and put a halt to the grandstanding.”
Aster Brands of Petoskey was formed a couple of years ago when Redi-Rock was merged with sister companies Rosetta Hardscapes and Pole Base. The company licenses proven brands in the concrete manufacturing industry.
“The steel tariffs, along with supply chain issues, affect our business a lot,” said Aster Brands’ President Jake Manthei. “Our business is growing to the point where our vendors are struggling to keep up, many of which are also northern Michigan companies. Much of the growth is coming from new account acquisition, much of which has been in Europe and Oceania.”
At the same time, Manthei said, the price of steel is “going up.”
“These economic forces are forcing us to raise our prices and we are still very much back-ordered,” he said.
Manthei said the solution is threefold: “Broaden out our supply chain, buy in parts, and start fabricating ourselves, in-source the entire process … and the solution that we haven’t thought of yet,” he said. “Each option comes with a different set of high quality issues to manage.”
So What Are Tariffs and How Do They Work?
Tariffs are a tax on imports. Typically they are a percentage of the price of an item that a buyer pays to a foreign seller. For example, if an American retailer buys 100 pairs of sunglasses from a supplier in China for $5 each, or $500, the U.S. tariff rate for the sunglasses is 6.5 percent. The retailer would have to pay a tariff of $32.50 on the shipment. That raises the total cost from $500 to $532.50.
Tariffs accomplish a couple of things: They raise revenues for government and protect U.S. industries from foreign competition. For fiscal year 2017, which ended in September, the U.S. collected $34.6 billion in tariffs. The White House’s Office of Management and Budget projects it to increase to $40.4 billion this year. Tariffs discourage imports by making them more expensive, thus protecting U.S. industries.