US firms begin to tap the brakes with Trump’s tax
Encouraged by a booming demand for construction equipment, Mike Haberman was planning in early February to hire at least 30 more workers for the manufacturing facility of his Gradall Industries in Ohio. That plan now is shelved, Haberman said, because the cost of steel used in Gradall’s telescopic excavators and vacuum trucks shot up by one-third following President Donald Trump’s crackdown on steel imports.
As steel costs account for 35 per cent of his cost of production, he fears rising prices would not only hurt his export sales, but also give an edge to foreign rivals at home.
“At this point, we really need more visibility before we would bring in more workers,” he said.
When Trump signed a $1.5 trillion package of tax cuts at the end of 2017, supporters predicted businesses would respond this year with a burst of hiring and investment.
But interviews with small to mid-sized manufacturing executives and recent US economic data reveal Trump’s protectionist trade policy is starting to lead some of them to take a more cautious approach, and forcing them to put new investment and hiring plans on hold.
While these manufacturers lauded the administration’s push to make US businesses globally competitive through measures such as the tax overhaul and a deregulation drive, they complained that the steel and aluminium tariffs along with the escalating trade spat with China were undercutting those benefits.
Trump has proposed a separate 25 per cent import tariff on some 1,300 Chinese products to try to force changes in Beijing’s intellectual property practices. If the tariff comes into effect, they would upend Haberman’s components supplies from China, he said.
The steel and aluminium import tariffs imposed in March were designed to protect the American industries and its workers from global overcapacity and unfair trade practices.
Trump justified the measure saying protecting the industries was important to the country’s national security. He argued that the tariffs would re-open closed mills, sustain a skilled workforce, and maintain or increase production.
But the tariffs, which came into effect on March 23, have driven up raw material costs and caused supply delays, rendering the manufacturers’ “Made in the USA” products uncompetitive against their foreign rivals, according to these manufacturing company executives.
Mike Schmitt, President at The Metalworking Group in Ohio, said his metal fabrication company has lost around a thousand hours repricing and renegotiating contracts because it can’t honour the old prices.
The company has delayed plans to spend around $500,000 on equipment this year and bring on new staff to expand.
“It’s going to be 2019 before we buy anything because we don’t have enough confidence to do it. There’s just too much uncertainty out there right now,” Schmitt said.
The Institute for Supply Management survey showed how widespread that sentiment is: Manufacturers slowed down hiring for a second straight month in April amid complaints that the tariffs have brought business planning to a standstill.
Nicole Sahin, Chief Executive at recruitment firm Globalization Partners in Boston, says a large multi-national client of hers recently pulled back from an $800 million investment in a Us-based energy project after rising steel costs made the investment not viable.
Sahin said all her clients who are exposed to steel prices have put their investment plans on hold because of the business “uncertainty” caused by the tariffs. Big manufacturers are looking to manage cost increases by controlling expenses through their supply chains or raising prices for their products.
But not all small manufacturers have those options.
Take Florida Marine Tanks, which makes fuel, water and holding tanks for yachts. Company President Orestes Monterrey said aluminium accounts for 70 per cent of the company’s cost of production, which has risen 26 per cent since December.
When the Henderson, North Carolinabased
WHEN TRUMP SIGNED A $1.5 TRILLION PACKAGE OF TAX CUTS AT THE END OF 2017, SUPPORTERS PREDICTED BUSINESSES WOULD RESPOND THIS YEAR WITH A BURST OF HIRING AND INVESTMENT
company tried to pass along rising aluminium costs, customers slowed down orders.
The company has shelved a $2.2 million plan to expand its North Carolina facility and hire 46 new workers. It also fired four workers that were hired in December for the project, Monterrey said.
“(We) don’t know where business is going to go,” said Monterrey. “Customers are reducing their orders.”
In a March study, Trade Partnership Worldwide, LLC estimated the steel and aluminium tariffs would result in a net loss of nearly 470,000 US jobs. The proposed tariffs on Chinese imports, the Washingtonbased consulting firm estimates, would put 134,000 jobs at risk.
“There is just no way to sustain expansion, develop new products and bring on new employees — as we thought we were going to do this year,” said Troy Roberts, Chief Executive Officer at Colorado Springs-based Qualtek Manufacturing.
Roberts’ company provides stamped parts to the medical device and aerospace industries. Qualtek was planning to invest up to $1 million in new capital equipment and expand its workforce by 17 per cent this year.