Rochester area builders and manufacturers are feeling the ripple effects of a U.S. trade war, but so far the impact has not led to a decline in business activity or cutbacks in jobs.
Business leaders are seeing increased price volatility for materials, such as aluminum and steel, as a result of tariffs imposed by President Donald Trump’s administration, but the situation isn’t entirely an unfamiliar one.
And while there is no sky-is-falling sentiment in Rochester, there is uncertainty about how a trade war that shows no sign of abating will resolve itself.
"Material price fluctuations and volatility are not uncommon," said Mike Benike, executive vice president of Benike Construction in Rochester. "It’s like when there’s a national disaster, the price of lumber goes up."
The trade war got serious Friday when the U.S. slapped tariffs on $34 billion in Chinese imports and China punched back with levies of it’s own. Trump in turn has threatened a massive retaliation by imposing tariffs on more than $500 billion in Chinese imports.
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That would be equal to the total goods the U.S. imported from China last year.
Benike said the volatility around material prices is prompting some subcontractors to hold their bids for less time. A bid used to be good for 30 to 60 days. Now some bids, like those dealing with steel, are only good for 10 to 15 days because steel fabricators are fearful steel prices will suddenly shoot up.
"They are more at risk because the price of their good or their material could go up on them, and they would have to hold their lower price," Benike said.
David Graham, corporate accounts manager for McNeilus Steel, said the industry has seen a 50 percent price increase in all metals such as steel, aluminum and stainless steel. Steel is now $900 a ton, up from $600 a ton in November.
There was a shortage of certain steel products because some countries stopped shipping steel to the US after the tariffs took effect. Now, the trend is reversing. Prices have escalated in response to the shortages and foreign producers find they can afford to pay the 25 percent tariff.
Manufacturers are weighing how to offset the rising costs.
"I do know that in visiting with our customer manufacturers, they are struggling with ways to combat the cost. Some are speaking about surcharges," Graham said.
The biggest unknown: Will the tit-for-tat trade war ratchet up further, inflicting more damage on an economy that’s been chugging along nicely, and how will it end?
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"I think a lot of that is, we don’t know," Benike said.
The trade fight between the world’s two biggest economies began Friday as President Trump’s first round of tariffs hit $34 billion of Chinese imports. Trade penalties on steel and aluminum imports have also targeted Canada, Mexico and the European Union, some of which have voted to strike back at the U.S.
Soybean growers and farmers could be the biggest casualties to the trade dispute. As tariffs jeopardize demand for U.S. exports, Minnesota soybean producers have seen market prices plummet. Falling income could make it difficult for farmers to secure a loan for next year’s crop or purchase new equipment.
The U.S. Chamber of Commerce, usually a Republican-friendly bastion, has launched a campaign against Trump’s trade policy. Its website offers an analysis of how a global trade war could damage individual states.
Minnesota, for example, could lose $498 million in export business in everything from soybeans and whey to motorcycles, yachts and row boats to bread and pastries. Neighboring Wisconsin could lose $1 billion in export business, the chamber said.
"We should seek free and fair trade, but this is just not the way to do it," said U.S. Chamber President Tom Donohue.
The effects of the unfolding trade war have so far been localized, depending on the industry and the state. Some countries burned by America’s more aggressive trade policy have fought back by imposing levies in areas that form part of Trump’s base.
The motorcycle-maker Harley-Davidson said it would move some production to Europe to avoid retaliatory tariffs on its products. Mid-Continent Nail Corp., the largest nail manufacturer in North America, has warned it might soon go out of business after the Trump administration slapped 25 percent tariffs on imported steel.
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But in the Rochester area, the effects have so far been less pronounced, partly because the area is not as focused on manufacturing as other communities, experts say.
Rochester Area Chamber of Commerce President Kathleen Harrington said the group has not taken a formal position on the tariff policy, but continues to monitor it closely for "direct and indirect impact on our members in the region."
Terry Grendahl, vice president of operations for Gauthier Industries in Rochester, said the tariffs and the higher prices for steel and aluminum have impacted the business, but not in an unprecedented way.
"I guess the only good news out of the whole thing: It is such a national story that our customers are not surprised," Grendahl said.
Gauthier is a sheet metal manufacturer that makes parts for items such as stainless steel refrigerators and freezers. It services more than 300 companies across the U.S. Very little is shipped out of the U.S., but their customers ship internationally.
Aluminum pricing has been going "crazy all of a sudden," he said.
Grendahl said the price volatility is not anything new for the company, having been through similar situations several times before.
"It wasn’t tariffs before, but mills would kind of get together and conveniently shut down and supply would be impacted and prices would jump through the roof," he said. "This time, it’s not as much of a surprise to our customers as it has been in the past."
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The U.S. Chamber of Commerce said that $498 million in Minnesota exports are threatened by trade war.
The breakdown includes:
Canada - $272 million. Minnesota's hardest hit products: yachts, rowboat, canoes; bread, pastry, cakes, puddings; paper uncoated.
Mexico - $67 million. Minnesota's hardest hit products: meat of swine and fans.
China - $99 million. Minnesota's hardest hit products: whey and modified whey, soybeans and animal gusts, bladders, stomachs and parts.
Europe - $106 million. Minnesota's hardest hit products: motorcycles, kidney beans and white pea beans, dried shells and aluminum alloy plates.
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