BUSINESS

Trump's trade war sweeps across Wisconsin, raising prices and putting jobs at risk

Milwaukee Journal Sentinel

President Donald Trump’s trade war is sweeping across Wisconsin — with manufacturers, farmers and soon the rest of us bracing for the impact.

Dairy products, cars, motorcycles, appliances, electronics and sporting goods are just a few things subject to new tariffs, or threats of tariffs, in trade disputes that have engulfed the U.S., Canada, Mexico, China and the European Union.

More:Harley-Davidson profit falls as company warns of damage from Trump's trade war

In Milwaukee, Mike Darrow, president of the Russ Darrow Group of automotive dealerships, says sales of cars and trucks could hit a wall if Trump follows through on a threat to impose a 25 percent tariff on imported vehicles and parts.

It would raise the price of a typical new car sold in the U.S. by $4,400, according to the Center for Automotive Research in Ann Arbor, Mich.

That’s an estimated $2,270 for U.S.-built vehicles, since they have foreign parts, and up to nearly $7,000 for luxury imports.

“There would probably be quite the flurry of people purchasing vehicles before the tariffs would go into effect,” Darrow said.

The auto industry has pleaded with Trump not to impose the tariff, but if he does, it could come as early as this fall.

Craig Koenings of Russ Darrow Honda details a 2017 Honda Civic Monday, July 23, 2018.

Vehicle sales would likely plummet, wiping out hundreds of thousands of jobs in the industry, the Center for Automotive Research predicts.

“There are a lot of unintended consequences,” Darrow said, that could cascade through the U.S. economy.

Jobs at stake

Husco International, a Waukesha manufacturer of vehicle components, says more than 100 jobs at its plants in Wisconsin and Iowa are at risk from the tariffs on foreign metal the company purchases.

“Husco is not able to absorb the magnitude of this cost increase,” said Chief Executive Officer Austin Ramirez.

Austin Ramirez, chief executive officer of Husco International.

The company’s competitors in Europe and Japan are the ones who stand to benefit, Ramirez said.

This spring, Trump sparked the global trade war when he announced tariffs, essentially a tax on imported goods and foreign steel and aluminum. The objective of the metal tariffs, according to Commerce Secretary Wilbur Ross, was to reduce the trade deficit and shore up American metal producers.

The administration also has placed tariffs on billions of dollars in Chinese imports — most of which are industrial goods the administration contends receive subsidies or other unfair support from Beijing.

China has retaliated with tariffs on billions of dollars in U.S. products in the global tit-for-tat trade fight that's hitting hundreds of everyday items.

“Tariff upon tariff upon tariff. It’s hard to see how this wouldn’t spill over into retail prices,” said Alex Boian, vice president for government affairs at the Outdoor Industry Association, whose members include North Face, Patagonia and other outdoor equipment companies.

Higher metal prices have forced The Vollrath Co., a Sheboygan manufacturer of food-service equipment with 1,400 employees, to reassess where it makes products.

“These tariffs are now forcing us to aggressively look at foreign sources and potential acquisitions abroad,” said company Chief Financial Officer Steve Heun.

“We have always purchased our raw metal from U.S. suppliers, not imports. However, once the tariffs went into place, domestic suppliers immediately raised prices,” Heun said.

Vollrath, in business for 144 years, says it is the only remaining U.S. manufacturer of stainless-steel steamtable pans used in restaurants.

“Historically, we have manufactured approximately 80 percent of our products in the U.S.,” Heun said.

'...We want to grow here'

Waukesha Metal Products says four of its 10 largest customers have asked the company to move production to Mexico to get lower material costs.

“The alternative is that they move the business to another offshore supplier,” said Chief Executive Officer Jeffrey Clark.

Waukesha Metal Products has a plant in Mexico where it makes components for Mexican customers. The company is in the automotive, consumer-product, defense and other industries.

“We are growing in Mexico, and that’s great. But Wisconsin is our home base, and we want to expand and grow here,” Clark said.

American Packaging Corp., in Columbus, says more than 125 jobs are at risk from a loss of aluminum-foil business threatened by the tariffs.

“Our foreign competitors are able to avoid the increased costs,” purchasing manager Donald Dewar said in a recent meeting with U.S. Sen. Ron Johnson.

The company has built two facilities in the past two years and says it has “invested over $100 million in the future” of its employees.

But with the tariffs, “a high percentage of our business becomes at risk and certainly endangers our plans for growth and expansion,” Dewar said.

Regal Ware, a West Bend manufacturer of cookware with 322 employees, says about 50 jobs are at risk from the tariffs.

“We are now in a position where we need to explore the possibility of manufacturing some of our product overseas,” said Doug Reigle, a company vice president in supply chain management.

“It is doubtful we would put any more major investments into our facilities as long as the current conditions exist. We have slowed down hiring even though we have 13 open manufacturing positions,” he added.

U.S. consumers to feel effect

Companies and industry groups are returning to Washington this week in an increasingly futile effort to get relief from tariffs on Chinese imports.

More than 80 witnesses are scheduled to testify during the two-day hearing starting Tuesday on the $16 billion in Chinese goods targeted for 25 percent duties, which could be imposed after a comment period ends July 31, Bloomberg Business News reported.

The administration imposed tariffs on $34 billion of products on July 6, after similar hearings in May.

Expect price increases on a wide range of goods, even if they’re not big increases, closer to Christmas.

“I think we’ll probably get past the back-to-school period,” said Joseph Daniels, economics department chairman at Marquette University.

This could be a good time to buy big-ticket items, such as furniture or a garden tractor, before prices rise from the tariffs and higher raw material costs.

In 2017, when Trump announced a tariff on imported washing machines, it took about six months for the higher prices to hit the stores. But when they did, people paid about 10 percent more.

Low-income households are especially hurt by price increases because they can least afford it, according to Daniels. This time around it could include car repairs, which will be more expensive because of rising costs for parts.

Kyle Meyer, a technician at Russ Darrow Honda, works on the tires of an automobile at the dealership Monday.

“Tariffs are a very regressive tax. That’s been shown over and over,” he said.

Retailers are in a tough spot, not knowing how long a trade war will last, how they will handle price increases or how it will affect consumer spending.

“How long is anybody’s guess,” said Jonathan Gold, a vice president with the National Retail Federation, the world’s largest retail trade association, based in Washington, D.C.

Most businesses can’t change suppliers on short notice, at least not without consequences, in order to sidestep tariffs.

“It typically takes retailers, and manufacturers, years to find the right suppliers to meet all of their requirements including quality, quantity, product safety and price,” Gold said.

There’s a lot at stake in the North American Free Trade Agreement negotiations, besides what's happening in trade disputes with China and the European Union.

“American consumers could face $5.3 billion in higher costs if the agreement is terminated. Countless products that U.S. consumers use every day would be impacted, including chocolate, asparagus, watermelon, beef and jeans,” Gold said.

Wisconsin has hundreds of millions of dollars in farm product sales at risk in a global trade fight, including sales of bull semen, beef, pork, cheese, corn, soybeans, vegetables and ginseng.

There's also a spillover effect into the general economy.

Danny Strupp, owner of Strupp Implements in Slinger, is feeling it as farmers have less money to spend on equipment — because of low commodity prices — and equipment prices are rising.

“Our sales are slow now,” Strupp said.

When the tariff on foreign steel was announced, one of his equipment suppliers raised its price 18 percent.

And the price “was already too darn high,” Strupp said.

Seneca Foods, a Janesville-based fruit and vegetable processor, says retaliatory tariffs imposed by China are hurting the company that has 8,000 year-round and seasonal employees and is the largest vegetable canning operation in the U.S.

Farmers are getting hit by a loss in overseas markets.

The potential for a long-term trade war is increasing, given the administration’s “belligerent approach” to negotiations, said Michael Slattery, a Manitowoc County farmer who spent nearly 20 years working in domestic and international finance.

“Historically, trade tariffs and trade wars destabilize domestic and international markets and place the burden of the tariffs on consumers,” Slattery said.