CEOs say trade war would be destructive
Companies brace for retaliation after Trump approves new tariffs
If it seems like Wisconsin is caught right in the middle of the debate over President Donald Trump’s plans to impose tariffs on foreign metals this past week, that’s only because it is.
Trump announced his intentions to impose tariffs of 25% on imported steel and 10% on imported aluminum.
Critics immediately accused the president of initiating a trade war that would prompt reciprocal tariffs on U.S. products being exported to other countries.
Wisconsin manufacturing executives disagree with Trump’s claims that trade wars are “good, and easy to win.”
Sure enough, European Union leaders threatened to retaliate by imposing tariffs on motorcycles manufactured by Milwaukee-based Harley-Davidson Inc. and cranberries grown in Wisconsin.
Keep in mind, about 16% of Harley’s sales are to Europe, and the region is a key priority for the company’s global growth strategy.
In response, Harley didn’t mince words: “Import tariffs on steel and aluminum will drive up costs for all products made with these raw materials, regardless of their origin. Additionally, a punitive, retaliatory tariff on Harley-Davidson motorcycles in any market would have a significant impact on our sales, our dealers, their suppliers and our customers in those markets.”
Meanwhile, Europe is the largest export market for U.S. cranberries, and Wisconsin is the world’s top
“Other countries are going to retaliate. You end up with this back and forth. In the end, this isn’t good for the economy or the consumer. … It’s going to lead to negative consequences.” Aaron Jagdfeld Executive chairman, CEO and president of Generac
cranberry producer.
EU tariffs “would significantly hinder our ability to compete in these markets,” said Tom Lochner, executive director of the Wisconsin State Cranberry Growers Association.
Likewise, MillerCoors, which operates a brewery in Milwaukee, called Trump’s tariffs “misguided.”
By the end of the week, the White House indicated that countries such as Canada and Mexico would be temporarily exempted from U.S. tariffs.
Bracing for retaliation
The prospects of U.S. tariffs and foreign retaliation are a major concern for CEOs at many Wisconsin manufacturing companies.
Generac Power Systems Inc., the Waukesha-based manufacturer of power generators for residential, light commercial and industrial markets, imports machined steel and aluminum parts from all over the world, but primarily Europe, Asia and Mexico.
“Other countries are going to retaliate,” said Aaron Jagdfeld, executive chairman, chief executive officer and president of Generac. “You end up with this back and forth. In the end, this isn’t good for the economy or the consumer. … It’s going to lead to negative consequences.”
I asked Jagdfeld to explain his top four concerns about the fallout from a trade war:
❚ Higher costs across the board will result in reduced business investments. “Not only consumers, who will ultimately pay higher prices, but higher base material cost means greater upfront cost for businesses, limiting their ability to invest elsewhere,” Jagdfeld said. “Higher costs dampens demand. You don’t have to be an economics major to get that one.”
❚ Potential material shortages could exacerbate the base tariff ’s cost impact. “The U.S. doesn’t come close to producing enough aluminum or steel for its own needs. Therefore, the laws of supply and demand could drive up domestic commodity costs significantly further than the amount of the tariff itself as penalized countries find higher bidders for their product,” Jagdfeld said. “You’ll have a hoarding mentality that will occur ahead of the tariffs. That’s definitely something that could happen.”
❚ A supply chain disruption of base/ raw materials has an outsized impact on the broader economy. “A tariff on a finished product or product category is fundamentally less impactful than that of a tariff on a raw material,” Jagdfeld said. “It could lead to some unintended consequences. Maybe we end up moving more production offshore (to avoid U.S. tariffs).”
❚ Reduced affordability would force a contraction of the domestic market, leading to a contracted economy. “Politicians, what they’re trying to do is to protect. We would caution not only the administration, but everybody.”
Generac is in the midst of a $73 million expansion that includes renovating its buildings and equipment at its facilities in Waukesha, Oshkosh, Jefferson, Eagle, Whitewater and Berlin. The company is attempting to fill 200 job openings in Wisconsin.
It would not be an overstatement to say those plans could be greatly curtailed by the fallout of a trade war, Jagdfeld said.
Aaron Jagdfeld
Title: President, CEO and executive chairman
Company: Generac Power Systems Inc., Waukesha
Previous experience: Deloitte & Touche
Education: Bachelor’s degree in business administration and accounting, the University of Wisconsin-Whitewater
Family: Wife, Christy, and children, Abby, Adam and Meghan
Best advice ever received: “Never argue with a person with a microphone.”
Favorite movie: Ron Howard’s “Rush”
Favorite band: U2
Favorite Wisconsin restaurant: Ristorante Bartolotta in Wauwatosa
Point after: “I’m a huge sports fan – anything Milwaukee- or Wisconsin-related. Go Packers, Brewers, Bucks, Badgers and Golden Eagles!”
“Over time, that would present an issue, should the economy contract,” he said. “You end up with winners and losers. I think, overall, everyone is a loser in the end.”
Trade wars are ‘stupid’
The news about proposed tariffs struck home with Strattec Security Corp. President and CEO Frank Krejci, who was in China this past week negotiating with his Milwaukee-based company’s strategic partners in the automotive parts industry abroad.
“Generally, it may modestly increase prices and therefore dampen some of the growth in the economy. … Trade wars would not benefit Americans or the rest of the world,” Krejci said by email Thursday. “These tariff threats are likely to be a catalyst for broader negotiations on fairer relations. While other countries may retaliate in limited ways for political reasons, it would be stupid for everyone to allow the trade wars to snowball. I don’t think that China, which is the main target of these actions, is likely to overreact. They already have a very strong economy and should be able to adjust and absorb the impact.”
Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, said the manufacturing executives in his organization are concerned about the impacts of a trade war.
“Top of mind for MMAC’s manufacturing membership is fair trade,” Sheehy said. “In a world market where Milwaukee’s manufactured products are shipped across the globe, where these same companies also make product in a foreign country for that market and where parts and raw materials are imported, fair trade is critical to leveling the playing field . ... It is worth a targeted fair trade battle where violations occur, but a broad-based trade war has no winners.”