More Than a Tariff War
Three specific points emerged in the comments of business leaders after our last article on tariffs and their effect on local manufacturing:
• What manufacturers are fighting against is the unfair advantage enjoyed by foreign manufacturers in US markets
• Tariffs represent a specific strategy that is dangerous if not used effectively
• The lack of a shared, clear vision by our government jeopardizes the chances for success by regional manufacturers
Ultimately, the ability of local, small manufacturers to survive hinges on their ability to gain some type of advantage when competing for American business. The complicating factor in all of this is that the customers, for the goods produced by these US manufacturers, are generally global corporations. These corporations often play by their own set of rules. For example, global manufacturers of automobiles imported $335 billion in cars and parts in 2017. Tariffs can have the effect of significantly increasing the price for these automobiles which can then cause consumers to delay purchases. If the consumer pull back is significant enough, auto industry experts predict that US production facilities will be cut back and the ramp up will be at their foreign locations.
Sadly another example of global rules overriding domestic intentions, a 2017 executive order seeking to bolster “made in America” efforts was used against a US producer of American zippers. The complaint was filed by a foreign manufacturer producing product in the US. The issue hinged on the fact that the US based company could not find an American producer of a critical component at a cost competitive price. Because many supply chains are global in nature, sourcing US only parts and products is extremely difficult, sometimes impossible, and often times expensive. The irony of this situation is that the foreign corporation, which lodged the complaint against the zipper manufacturer, is the largest producer of this component.
Jobs loss remains the focus of those discussing the current tariff strategy. The Precision Metal-forming Association and the National Trade Metal Association issued the following joint statement when the issue of tariffs was first discussed: “The steep tariffs on steel and aluminum imperils the U.S. manufacturing sector, and particularly downstream U.S. steel and aluminum consuming companies, who alone employ 6.5 million Americans compared to the 80,000 employed by the domestic steel industry. The tariffs will lead to the U.S. once again becoming an island of high steel prices resulting in our customers simply importing the finished part. The lost business to overseas competitors will threaten thousands of jobs across the United States in the steel consuming manufacturing sector.”
Finally, the fact that there has been no business benefits from the tariffs so far was reinforced recently by a comment from Andy Schlotter, President of AA Machine Company in Southampton: “A lot of our former high volume customers still only buy parts when their China source is late on deliveries or their customer demands a made in America product. A recent request for a re-quote revealed that even with all that has happened as a result of tariff protection, the finished product from the China source was 40% cheaper than our raw material cost.”
One of the biggest laments from business leaders is not knowing how and where we stand regarding progress in the war against foreign manufacturing influence on our domestic business. John Shegda, President of a Bucks County Company, Meron Medical: “Hopefully there is a long-term vision for success with the tariff strategy. The short-term consequences to small manufacturers has been overwhelmingly negative. If this were equated to building a poker hand, it would be nice to know what a winning hand would look like.” Lacking a focused vision of success and no specific competitive advantage, regional business owners are forced to rely on each other to overcome foreign manufacturing advantages. Networking and outreach remain the most viable options on the table.
For free, professional succession planning and many other small manufacturing enterprise services in the Southeast region, call Greg Olson, SEWN Regional Director at 215-776-0130 to set up a no-cost, no-obligation consultation regarding your business transition. Or, if you prefer, you can email Greg at sewnse@steelvalley.org with your questions. And be sure to visit our web site at www.steelvalley. org for more information regarding all of SEWN’s services, our newsletters and success stories, and interesting, relevant blog articles to help you navigate today’s manufacturing environment.
SEWN was founded in 1989 to support the region’s manufacturers and preserve jobs. The Department of Labor embraced and sponsored the program in 1993 to protect Pennsylvania companies and jobs. Since then, we have expanded to five regional offices, helping hundreds of companies and saving thousands of jobs statewide. Today, SEWN is one of the most cost-effective jobs programs in the United States. Over the last five years SEWN’s job saving services have saved Pennsylvania more than $34.8 million in unemployment benefits (over $836 million if jobs/payroll multipliers are included). Since its inception, SEWN has contributed to the retention and revival of more than 900 industrial enterprises within Pennsylvania, impacting more than 20,000 jobs.
