In the wake of tariffs, companies execute Plan B
Published 12:00 am Friday, July 6, 2018
With tariffs driving up stainless steel prices, the precision-part manufacturer Accu-Swiss in California came up with a new plan to save money.
“We are being hurt because of the cost increase,” said Sohel Sareshwala, the company’s owner and president.
After his 10-person staff leaves for the day at 6 p.m., Sareshwala said, the plant is experimenting with slowing the machines and running them unattended for four more hours, to squeeze output from existing equipment. For large and small businesses around the nation, the impact of tariffs is expected to grow Friday, when the Trump administration places additional duties on $34 billion of Chinese products, many used in American manufacturing. China said it will respond.
Sareshwala is among a number of importers and exporters departing from business as usual because of trade sanctions.
The 25 percent tariff on steel and 10 percent tariff on aluminum President Donald Trump first threatened in March and put into effect in June precipitated a string of retaliatory tariffs from China and other trading partners including Germany, Mexico and Canada. Trump said in the long run, the tariffs will save jobs and safeguard national security. But many businesses are scrambling to adjust.
Last week, the potential impact on American companies was thrust into sharp relief when General Motors Co. warned a new wave of tariffs could lead to “less investment, fewer jobs and lower wages” at GM. The company has not drafted specific contingency plans for job reductions, a spokeswoman said it is “something that could happen.”
For Sareshwala at Accu-Swiss, Plan B is already the new normal.
In his 19 years at the company, which produces parts for devices and machines used in several industries, he has dealt with a few unanticipated events, from the dot-com bust to the Great Recession. But until recently, it probably would have made more sense for him to plan for an earthquake at his San Joaquin Valley plant than a hefty tariff on his primary raw material.
“It is very ironic to prepare for this kind of contingency in the United States,” he said.
Since the 2016 election, the president’s declarations about his readiness to wage a trade war have prompted heavy users of steel — foreign and domestic — to find alternative supply lines.
But some businesses said their contingency plans had not anticipated the extent of shortages and price increases, which started months ago.
“In a few days, domestic companies raised prices on stainless steel anywhere from 15 to 25 percent,” said Joe Carlson, president of Lakeside Manufacturing, a medical and food service equipment maker in Milwaukee with 175 employees.
“I’ve been in this business 24 years, and I’ve seen price increases and tariffs,” Carlson said, “but haven’t seen this combination before.”
Edward Farrer, director of purchasing at Principal Manufacturing in Broadview, Illinois, which produces automobile parts, has felt the same effect. His company, which employs 330 people and has $50 million in annual sales, purchases imported steel and has not found a domestic alternative.
Even if one emerges, he said, “the tariffs have been a springboard for domestic producers to increase their price.”
Those higher costs put American companies at a disadvantage. Any change in Principal’s suppliers require customer approval, an exhaustive process that would cause delays, he said.
His company filed with the federal government for an exclusion from tariffs, but has not heard back.
Principal — whose customers include automotive suppliers and other major companies in the United States and abroad — accounts for contingencies like unexpected price swings in its contracts.
“Delivery dates are not changing, and product must be on time,” he said. “We are caught in the middle between politics, customers and steel producers.”