American companies discover hidden costs of Trump tariffs
CLEVELAND — Bill Adler was invited last year to bid on a contract to make commercial sausage stuffers for a company that wanted to replace its Chinese supplier. The customer had just one nonnegotiable demand: match China’s price.
Adler, owner of metal-parts maker Stripmatic Products, thought he could. But as he readied his proposal, talk of President Donald Trump’s steel tariffs sent the price of Stripmatic’s main raw material soaring.
In April, with prices up nearly 50 percent from October and the first wave of tariffs in place, Adler’s bid failed.
His costs were too high.
Today, instead of taking business from China, Adler worries about hanging onto the work he has. He hopes that the president’s tariffs are just a negotiating tactic.
“It’s got to be short term, or I’ve got to find another way to make a living,” Adler said, only half joking. “It’s going to be an ugly scenario if it doesn’t end quickly.”
Stripmatic’s plight is an example of the hidden costs of Trump’s “America First” protectionism. During decades of increasing globalization, leaders of both political parties reassured critics that the gains from trade were dispersed across myriad less-expensive products — and thus often difficult to identify — while the costs were obvious every time a factory closed.
Now, as Trump seeks to unwind globalization, that logic operates in reverse. The gains from protectionism can be seen in the new solar plants and reopened steel mills that his various tariffs are encouraging and that the president often celebrates.
But the full costs of his policies — in investments foregone and workers not hired — escape casual scrutiny. If Stripmatic’s experience is any guide, protectionism might already be backfiring on Americans and undermining Trump’s stated goal of reclaiming manufacturing from China.
“That is absolutely the lesson,” said economist Phil Levy, who worked on trade policy in the George W. Bush White House. “It is a supply chain. The administration has favored the first link over the later links in the chain. The net effect helps neither American manufacturing nor national security.”
Commerce Secretary Wilbur Ross has minimized the economic cost of Trump’s tariffs, claiming the steel and aluminum tariffs will add a “very small fraction of 1 percent” to prices across the economy, he recently told CNBC. U.S. Trade Representative Robert Lighthizer has said that tariffs the administration may impose on Chinese goods have been selected to minimize the impact on consumers.
But tariffs on materials used to make other products ripple through the entire economy. Trump’s steel levies were designed to punish China for swamping global markets with state-subsidized metals and to promote U.S. manufacturing. From where Adler sits, they appear to be doing the opposite. By raising the cost of a key manufacturing input, the tariffs are making many U.S. companies less competitive.
Discouraging metal imports benefits U.S. steel producers. But it also translates into a surplus of steel in markets outside the United States and thus lower prices for U.S. competitors.
As steel prices in the United States rise, Adler worries they will pinch his employees’ bonuses and profit-sharing checks. The 25 percent increase in Stripmatic’s sales that he anticipated from the sausage stuffer-contract, the $1 million in new factory investmentand the 10 new jobs it would have created have evaporated.
“If it wasn’t for the increase that came on because of the threat of tariffs, then I honestly believe we’d be supplying these domestically,” Adler said of the machines that pack ground meat into sausage casings. “This directly affects my life, my employees, my investments.”
In a $20 trillion economy, 10 jobs may not seem significant. But Trump’s frequent use of tariffs has sparked protests from farmers and industry groups that will be hurt by the administration’s import levies or retaliation from U.S. trading partners. The cumulative costof the president’s higher import taxes will be a net loss of more than 400,000 jobs, according to a new study by the Trade Partnership, a pro-trade research consultancy.
A bipartisan group of 34 lawmakers wrote to Lighthizer on May 30 warning of “significant unintended adverse consequences for the United States” if the tariff wars continue. Republican senators including Bob Corker of Tennessee and Mike Lee of Utah are exploring legislation to limit the president’s ability to erect such trade barriers.
Yet if tiny Stripmatic demonstrates the doubleedged nature of tariffs as an instrument of economic policy, the company’s experience should offer minimal comfort to the president’s political adversaries.
Despite the market turmoil unleashed by the president’s actions, Adler remains appreciative of the business tax cut that Trump secured last year and the administration’s broader deregulation efforts.
He was a reluctant Trump voter in 2016 and remains wary of the president’s bombastic style. But Adler likes having someone in the White House who respects business owners in a way that he doesn’t believe leading Democrats do.
With a new General Motors order for SUV parts, business is good — for now. This year, Adler added eight workers and spent $1.3 million on new factory equipment.
But times would have been better if he had landed that big food-processing-equipment contract. Rising labor costs in China and Stripmatic’s increasing efficiency gave him a real shot at a major win. He blames Trump’s trade policies for costing him the job and for imperiling Stripmatic’s future, as almost one-quarter of his sales come from abroad.
“Our customers source on a global market,” he said. “I’m going to be at least 30 [percent] to 40 percent disadvantaged on steel. … I’ve lost my competitive advantage.”
Stripmatic, dating to 1946, is among thousands of mostly unknown manufacturing companies that make up the backbone of industrial America. From a 60,000-square-foot plant just off the highway a few miles south of downtown Cleveland, Adler’s roughly 40-person team churns outtubular metal products.
Most are unremarkable parts that fit inside larger components, such as shock absorbers, or structural spacers that support the frame of Dodge Ram trucks and Jeep Wranglers. The company specializes in mass production of carbon steel parts.
Adler, 61, a Cleveland native, worked briefly in a local steel mill while attending college and then sold aluminum for several years before buying the company in 1992 with his wife, Liz. In about five years, they built the company to about $8 million in sales from less than $1 million and retired their debt.
But Chinese factories emerged as low-cost competitors with China’s 2001 membership in the World Trade Organization. As several of his large customers turned to less expensive Chinese rivals, Adler fine-tuned his operations to reducewaste.
He introduced automatic sensors that could check more than 100 parts every minute, more than three times the number a human could handle, and shifted his workers into higher-skilled positions.
“We were able to become more competitive and maintain our profit margins,” he said.
Inside the factory, enormous metal presses rhythmically pound rolls of steel into auto and truck parts, the noises resounding like an industrial orchestra.
As he stands on the plant floor, a ruddy-faced Adler wonders what this scene will look and sound like in a few months. He’s in a fiercely competitive business, and his profits will melt if Trump’s tariffs remain indefinitely.
Already, prices for one type of steel that Adler uses — hot-rolled coil — are roughly twice what they were when Trump was elected, according to one widely used Midwestern index. And they are headed higher. “I don’t think they’re done yet. That’s the problem,” said Tony Scrima, 58, his plant manager, who’s worked here since he was 18.
Adler’s big worry is his Mexican customers. He hopes they won’t bolt for a cheaper, non-American alternative. But he can’t be sure what the president plans. “I try to erase what he says and look at the [economic] levers he’s pulling,” Adler said. “Is this all a negotiating tool to end up with a good result? I don’t know. But if it is, it’s got to go fast.”