Tariff turmoil ‘cuts legs off’ manufacturers

Keith Laing
The Detroit News
Chris Temple, director of B&W North America in Livonia, said it is much easier for large corporations to bear the cost of tariffs than small businesses. His company makes cases for bikes, outdoor supplies and tools.

Washington — Chris Temple runs the U.S. division of a German company that makes heavy-duty cases for cameras, handguns and bicycles. He says President Donald Trump’s tariff-heavy trade strategy is complicating an already difficult trade environment for companies like his that rely heavily on online sales. 

Temple is director of B&W North America in Livonia, which customizes the foam inserts of polypropylene cases that are engineered and manufactured in China for U.S. customers who want specific inserts for fragile equipment, like drones and microphones. Polypropylene is on the latest list of $300 billion worth of Chinese goods that could be subject to 25% tariffs as the trade war escalates between the two countries.

Many businesses and trade groups are pushing back against proposed import duties in hearings in Washington this week.

Temple said he was already facing stiff competition from international companies who took advantage of a 2016 increase — from $200 to $800 — in the amount of merchandise that can be imported tariff-free by individuals. That made it more profitable for overseas sellers on Amazon and other sites to ship cases to U.S. customers.

"With shipping companies like DHL, it costs less to ship from the (United Kingdom) than it costs me to ship from Detroit to Miami," he said, noting that Trump's proposed tariffs will make a bad situation worse. 

The earlier change in import rules put his company at a 10% price disadvantage. "We were able to absorb that during the manufacturing process," he said. "But when it goes to 25%, we’re at a disadvantage. It effectively cuts my legs off with online customers.”

Temple is one of several business owners speaking out as the U.S. Trade Representative's office begins a week-long public hearing on the latest proposed Chinese tariffs. The trade office received 2,012 written comments ahead of the hearings, which started Monday and continue through June 25.

Acknowledging that China is a nonconventional foe in trade negotiations, the National Association of Manufacturers said its members are encouraging the Trump administration to take "a smart, strategic approach that incorporates both carrots and sticks, leverage and direct negotiation, existing trade enforcement tools and new ones crafted to China’s market-distorting behaviors." 

But the group warned against leaning too heavily on tariffs.

"Tariffs cause both direct harm and significant uncertainty for manufacturers and workers here at home, impacting the United States as much as China," the group said. "Escalating tariff actions will only compound the challenges for manufacturers and force irreversible decisions related to jobs, communities and investment."

Matthew Shay, president and CEO of the National Retail Federation, added that the administration's latest proposed list includes clothing, shoes, toys, consumer electronics, household appliances and thousands of other products. Retailers will have little choice but to pass on to consumers much of a 25% price increase.

"While we agree with the administration’s goal to change China’s trade practices, we do not believe tariffs are the appropriate approach," Shay said. "..The current and proposed tariffs will only harm U.S. businesses, workers and consumers."

Ahead of the hearings, a group of 661 businesses signed a letter to the president.

"We know firsthand that the additional tariffs will have a significant, negative and long-term impact on American businesses, farmers, families and the U.S. economy," the companies wrote. "Broadly applied tariffs are not an effective tool to change China’s unfair trade practices."

Lawmakers have also chided Trump for his tariff-heavy trade approach, with Democrats in particular clamoring for legislative action to block  the president's ability to unilaterally impose tariffs under the guise of protecting the nation's security. 

"This is upside-down policymaking that will be extraordinarily detrimental to the American manufacturing base, particularly Michigan's auto sector," said U.S. Rep. Haley Stevens, D-Rochester Hills, who meets regularly with manufacturers in her district as part of an initiative to spotlight issues affecting southeast Michigan businesses. "I'll be darned to see our American manufacturing base, particularly Michigan's manufacturing base, take a hit like this."  

Automakers are likely to also feel the pinch. The Center for Automotive Research estimates that 1-3% of the value of U.S.-assembled vehicles is composed of vehicle parts imported from China that would be subject to duties under Trump's proposals. New tariffs would hit the price of aftermarket parts much harder.

The uncertain trade environment is taking a toll on automakers who want consistency as they seek to plan for the future, said Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive.

"It's difficult to do any kind of long-term planning," he said. "Because of the uncertainty, manufacturers are likely going to stick with their existing supply chains." 

Chesbrough said the U.S.-China trade relationship is vital to automakers, especially as the industry turns toward electrification and autonomous vehicles. 

He said carmakers got a little relief when the president pulled back from recent threats to hit all Mexican goods with duties that could have escalated to 25% by October. But he said the continuing threat of Chinese tariffs — along with separate 25% tariffs that could be imposed on all cars and parts from Europe and Asia due to a claimed national security threat — is still hanging over the industry. 

"That's the hammer," he said. "...We dodged one bullet, but there's still more rounds in the chamber."


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Twitter: @Keith_Laing

Detroit News Staff Writer Melissa Nann-Burke contributed to this report.