Trump trade war trouble
Already, thousands of businesses are feeling the effects. Here’s how some are coping.
Already, thousands of businesses in the United States are feeling the effects of President Donald Trump’s tariffs. How do they cope?
An Illinois farmer’s profit is fast turning into a loss as corn, soybean and pork prices tumble.
A Florida boat maker is paying its dealers in China millions of dollars to partly offset the cost of tariffs in that country, jeopardizing U.S. employee bonuses this year.
A craft brewery is spending more on aluminum cans, forcing it to shelve plans to add workers.
Trump administration officials argue the tariffs are necessary to protect U.S. steel makers that have suffered as foreign producers dumped metals in this country at below-market prices. The taxes are also aimed at prodding China and other countries to reduce longstanding high tariffs on U.S. imports, potentially opening those markets to American companies.
President Donald Trump has slapped tariffs on about $50 billion of imported steel and aluminum and $34 billion on an array of technology and other goods from China. Another $16 billion in duties on Chinese imports took effect Thursday. China, Canada, Mexico and the European Union have responded with tit-for-tat tariffs on U.S. shipments to their countries, from motorcycles and blue jeans to whiskey and orange juice.
If those taxes stay in place, it would shave a modest tenth of a percentage point off U.S. economic growth and reduce employment by 170,000 over the next year, says Mark Zandi, chief economist of Moody’s Analytics. The economy is expected to grow a solid 3 percent this year.
“It’s having an impact, but it’s not a big enough impact on the broader economy,” Zandi
says, noting growth has been juiced by the sweeping Republican tax cuts.
But, he says, if Trump follows through with all $800 billion of his threatened tariffs, largely against China, and other countries retaliate as expected, it would slice growth by 1.6 percentage points and employment by an additional 2.6 million, tipping the economy into recession.
Already, thousands of businesses are feeling the effects. Here’s how some are coping.
Struggling farmer takes hit
Brian Duncan, 53, a midsize corn, soybean and hog farmer with 4,000 acres in Polo, Illinois, already had been grappling with thinner profits. The culprit has been a surplus of global crop supplies fostered by favorable weather and the expectation of rising demand. Now, retaliatory tariffs by China and Mexico have crimped demand in those countries, reducing market prices for his products by 16 percent to 27 percent since April.
If the tariffs remain, Duncan expects his sales over the next year to fall by $1.5 million in his hog business, about $400,000 in corn and $100,000 in soybeans. Duncan has 3,500 acres of corn and 500 acres of soybeans. And he raises 70,000 hogs a year that are sold to giant pork producers such as Tyson Foods and Smithfield Foods.
“The trade war has swung me from a half-million-dollar profit to a half-million-dollar loss,” the 35-year, third-generation farmer says.
As a result, he’s putting off plans to buy a new tractor and combine.
“You’re always trying to expand and grow the business,” he says. But now, “that doesn’t seem like a wise thing to do.
Choppy waters for boat maker
Correct Craft, a Florida boat maker, is getting hit by both sides of the trade skirmish.
After current contracts with suppliers expire in a couple of months, it will pay 20 percent to 30 percent more for the aluminum that makes up the shell of some of its boats, and 5 percent to 15 percent more for aluminum parts that go in the boats, says Bill Yeargin, CEO of Correct Craft of Orlando, Florida.
The company buys those supplies domestically, but the 10 percent tariff on aluminum imports is allowing U.S. makers to raise their prices as well, since they no longer have to compete aggressively with low-priced foreign rivals. And the tariffs are “giving them cover” to boost prices by even more than the 10 percent duty, Yeargin says.
The extra taxes will increase the company’s costs by hundreds of thousands of dollars a year, he says.
The bigger problem, Yeargin says, is that exports to 70 countries make up 30 percent of the company’s $500 million in annual sales. And Canada, Mexico and the European Union have slapped tariffs – of 10 percent, 15 percent and 25 percent, respectively – on all power boats from the U.S. Initially, he says, orders from overseas dealers came to a dead halt.
Customers “don’t want to be the ones who bought a boat with a 25 percent tariff,” Yeargin says, especially if the duty is temporary.
Then, the company decided to provide rebates to offset 20 percent to 50 percent of the tariffs. Now, Yeargin says, the hit to sales is modest, but “it’s costing us millions of dollars.”
Correct Craft has suspended plans to expand factories and hire dozens of workers in coming months. “We're not approving any new growth initiatives,” he says.
And the reduced sales and profits could crimp the annual bonuses of Craft’s 1,300 employees.
The strong economy has been a boon for U.S. boat makers, with Correct’s sales rising more than 20 percent annually in recent years. Yet Yeargin worries that customers who put off a boat purchase may take up another hobby instead.
“Once they get out, they may never get back to boating,” he says.
Beer can costs add up
Even seemingly trivial increases can have outsize effects.
Octopi Brewing, a contractor in Waunakee, Wisconsin, that makes beer for other brewers, is paying 15 percent more for aluminum cans since the tariff took effect a few months ago. Its supplier has increased its price from 10.5 cents a can to 12 cents, says Isaac Showaki, president of the 3-year-old company.
That doesn’t sound like much, but it adds up to about $100,000 a year for a company that churns out a few million cans of beer annually.
Initially, Octopi absorbed the added cost, but now it’s passing it along to its brewing-company customers. Still, there’s a lag until Octopi can recover those extra costs – about $30,000 so far – from customers.
“That’s money we could have spent on hiring people,” says Showaki, 31.“It just puts a brake on everything. It just makes you slow down.”
Auto parts maker fights for its life
Lucerne International, an auto parts supplier based in Auburn Hills, Michigan, already has absorbed one blow from the trade war, and it’s bracing for a much bigger one.
The company makes about $50 million in parts annually at eight plants in Asia, then ships them to the U.S. for final production for large automakers.
Its part sales to BMW have fallen 20 percent because China raised its tariff on cars it imports from the U.S. to 40 percent in retaliation for Trump’s higher duties on Chinese goods. BMW builds SUVs in Spartanburg, South Carolina, and exports them to 140 countries, including China. It has scaled back the number of cars it plans to sell in that country because of the levy. And so it’s ordering fewer parts from Lucerne, says the company's CEO, Mary Buchzeiger.
The bigger impact will come if Trump follows through on threats to slap a 25 percent tariff on all imported vehicles and auto parts based on national security concerns.
“I can’t sell the products for less than what it costs me to produce them, and that’s what would happen with the tariffs,” says Buchzeiger. “We’d be out of business in three months.”
Lucerne’s revenue has been “gangbusters” the past three years, she says, and revenue of nearly $50 million is expected to reach $1 billion in nine years. As a result, the company has considered opening a U.S. plant to reduce its reliance on Asian imports, an initiative that would create 125 jobs. But with the company’s future hanging in the balance, those plans are on hold, Buchzeiger says.