{"id":197649,"date":"2019-01-14T02:41:52","date_gmt":"2019-01-14T07:41:52","guid":{"rendered":"https:\/\/canadianinquirer.net\/v1\/?p=197649"},"modified":"2019-01-14T02:41:52","modified_gmt":"2019-01-14T07:41:52","slug":"trade-wars-wounded-companies-improvise-to-dodge-cost-hikes","status":"publish","type":"post","link":"https:\/\/canadianinquirer.net\/v1\/2019\/01\/14\/trade-wars-wounded-companies-improvise-to-dodge-cost-hikes\/","title":{"rendered":"Trade war’s wounded: Companies improvise to dodge cost hikes"},"content":{"rendered":"
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Trump frequently boasts that the taxes he’s imposed on imports \u2014 steel and aluminum and nearly half of all goods from China \u2014 have showered the U.S. Treasury with newfound revenue. \u201cWe are right now taking in $billions in Tariffs,\u201d he tweeted last month. \u201cMAKE AMERICA RICH AGAIN.\u201d (File Photo<\/a> by Gage Skidmore\/Flickr<\/a>\/CC BY-SA 2.0<\/a>)<\/figcaption><\/figure>\n

WASHINGTON \u2014 In Rochester, New York, a maker of furnaces for semiconductor and solar companies is moving its research and development to China to dodge President Donald Trump’s import taxes \u2014 a move that threatens a handful of its 26 U.S. jobs.<\/p>\n

In California’s San Joaquin Valley, the CEO of a company that makes precision parts for the biomedical and chip making fields jokes bitterly that he’s running \u201ca non-profit\u201d and might have to cut jobs.<\/p>\n

And west of Detroit, a metal stamping company that supplies the auto industry is losing business to foreign rivals because Trump’s steel tariffs have raised metals prices in the United States.<\/p>\n

Trump frequently boasts that the taxes he’s imposed on imports \u2014 steel and aluminum and nearly half of all goods from China \u2014 have showered the U.S. Treasury with newfound revenue. \u201cWe are right now taking in $billions in Tariffs,\u201d he tweeted last month. \u201cMAKE AMERICA RICH AGAIN.\u201d<\/p>\n

Yet tariffs like Trump’s account for barely 1 per cent of federal revenue. It’s actually companies like Linton Crystal Technologies in Rochester, Accu-Swiss Inc. in Oakdale, California, and Clips & Clamps Industries in Plymouth, Michigan, that are paying the price for his\u00a0trade\u00a0wars.<\/p>\n

Tariffs tend to swell the cost of these companies’ materials and leave them at a competitive disadvantage to foreign rivals unburdened by import taxes. And their exports can be taxed when other countries retaliate with their own tariffs.<\/p>\n

\u201cWars are messy,\u201d said Todd Barnum, chief operating officer at Linton Crystal Technologies. \u201cAll the troops get hurt.\u201d<\/p>\n

Back in December 2017, Trump gave those companies and others a gift when he signed a measure that slashed the corporate tax rate from 35 per cent to 21 per cent. The next month, though, he started slapping tariffs on imports \u2014 beginning with solar panels and dishwashers, before moving on to steel and aluminum and then hitting $250 billion in Chinese goods.<\/p>\n

\u201cThank you for the tax cut,\u201d said Jeff Aznavorian, president of Clips & Clamps. \u201cHowever, I’m not going to be benefiting because I’m not going to have any profits to pay tax on.\u201d For his company, \u201ctariffs have completely undermined everything good that those tax cuts brought.\u201d<\/p>\n

The higher costs resulting from Trump’s tariffs have yet to inflict much overall damage to a still-robust American economy, which is less reliant on international\u00a0trade\u00a0than most other countries are. Fueled by lower taxes, the economy grew at an impressive 3.4 per cent annual rate from July through September after having surged 4.2 per cent in the previous quarter. And employers added 2.6 million jobs last year, the most since 2015.<\/p>\n

And while numerous companies are hurting from the president’s confrontational\u00a0trade\u00a0stance, some are benefiting from it. An aluminum smelter in Missouri reopened under new ownership this year, for instance, and credited the aluminum tariffs for reducing foreign competition and bringing 450 jobs to New Madrid County.<\/p>\n

But for many businesses, the tariffs are escalating costs, creating hardships and magnifying uncertainty. The Institute for Supply Management’s manufacturing index plunged last month to its lowest point in more than two years partly because of the tariffs. And the Federal Reserve appears increasingly worried that damage from the\u00a0trade\u00a0war will undercut the economy.<\/p>\n

The potential costs of Trump’s tariff campaign became clear early this month when Apple warned that\u00a0trade\u00a0hostilities with Beijing were hurting its business in China \u2014 a key reason why its first-quarter revenue would fall below expectations.<\/p>\n

\u201cIt’s not going to be just Apple,\u201d Kevin Hassett, chairman of the White House’s Council of Economic Advisers, acknowledged to CNN. Companies with significant sales in China will \u201cbe watching their earnings downgraded next year until we get a deal with China.\u201d<\/p>\n

Trump’s tariffs are, in theory, supposed to help U.S. producers by raising the prices of goods their foreign competitors ship from abroad. But tariffs, a tax paid by importers, can backfire. They tend to hurt American companies that buy foreign goods for resale or for use as components in U.S.-made products.<\/p>\n

Many U.S. importers face a wrenching choice: They can pass their higher costs on to their customers and risk losing business. Or they can absorb the extra costs themselves and sacrifice profits.<\/p>\n

And tariffs, of course, invite retaliation. The European Union, Canada, Mexico and others have retaliated against U.S. products as payback for Trump’s steel and aluminum tariffs. China has imposed tariffs on $110 billion in American goods.<\/p>\n

Among the products on Beijing’s hit list are American soybeans, an important export among Trump supporters in the U.S. heartland. To ease the pain, the administration last year handed farmers relief worth $11 billion \u2014 money that reduces the\u00a0trade\u00a0war’s contribution to the Treasury. Peter Meyer, head of grain and oilseed analytics at S&P Global Platts, said the payments allowed soybean farmers to recoup their losses from the\u00a0trade\u00a0war.<\/p>\n

But the damage could prove longer-lasting. Before the\u00a0trade\u00a0hostilities erupted, China bought 60 per cent of U.S. soybean exports. Now, it’s turning to Brazil and other countries for soybeans.<\/p>\n

\u201cIt takes you months to years to cultivate a client and only weeks to piss them off,\u201d Meyer said. \u201cThe concern now is that we’ve pissed off the Chinese and they’re going to go away.\u201d<\/p>\n

Linton Crystal Technologies is being walloped by tariffs both coming and going. The components it sends to an assembly plant in Dalian, China, are subject to import taxes when they arrive in China. And the assembled furnaces it ships back to Rochester for sale are hit with Trump’s tariffs at the U.S. border.<\/p>\n

The U.S. import tax on a $2 million furnace amounts to $500,000. So, in desperation, the company has decided to move operations to China to avoid the tariffs. And it plans to lay off four or five American workers.<\/p>\n

\u201cIt just doesn’t make any sense for me to ship it back here so I can be penalized half a million dollars,\u201d Barnum said.<\/p>\n

In the meantime, the higher costs are hurting Linton’s business. It expects revenue to drop 25 per cent in 2019.<\/p>\n

Accu-Swiss, which buys imported stainless steel on the tariff list, is negotiating with customers to split the higher costs. It’s also trying to make its operations leaner. It has, for example, reengineered its California factory so production can continue at night when the lights are off and employees are gone. Still, it, too, expects a 25 per cent drop in revenue this year.<\/p>\n

\u201cI’m just hoping against hope that this thing will go away,\u201d said CEO Sohel Sareshwala. \u201cI’m just sustaining myself, almost becoming a non-profit organization.\u201d<\/p>\n

Clips & Clamps, the Michigan auto supplier, buys steel from U.S. producers that don’t have to pay the tariffs. But domestic steel suppliers have been able to sharply raise their prices because Trump’s tariffs have priced out foreign competition.<\/p>\n

\u201cI am losing business to competitors outside the United States,\u201d Aznavorian said, \u201cand I am losing it due to raw materials pricing.\u201d<\/p>\n

Initially, Sareshwala and Aznavorian say, they assumed that Trump’s metals tariffs were just a negotiating tactic, intended in part to pressure Canada and Mexico to embrace a new North American\u00a0trade\u00a0pact. But the tariffs remained intact even after Trump signed a revamped regional agreement in November.<\/p>\n

\u201cMy jaw dropped,\u201d Aznavorian said. \u201cI thought, ‘You’ve got to be kidding me.’ \u201c<\/p>\n

Now, he can’t tell whether the tariff squeeze is ever going to end. \u201cThe uncertainty is horrible,\u201d he said.<\/p>\n

\u2014\u2014\u2014<\/p>\n

Follow Paul Wiseman on Twitter at
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