Com­pa­nies pay­ing for trade wars

Tar­iffs es­ca­late costs, cre­ate hard­ships, mag­nify uncer­tainty

The Detroit News - - NEWS - BY PAUL WISE­MAN AP Eco­nomics Writer

Wash­ing­ton – In Rochester, New York, a maker of fur­naces for semi­con­duc­tor and so­lar com­pa­nies is mov­ing its re­search and de­vel­op­ment to China to dodge Pres­i­dent Don­ald Trump’s im­port taxes — a move that threat­ens a hand­ful of its 26 U.S. jobs.

In Cal­i­for­nia’s San Joaquin Val­ley, the CEO of a com­pany that makes pre­ci­sion parts for the bio­med­i­cal and chip mak­ing fields jokes bit­terly that he’s run­ning “a non­profit” and might have to cut jobs.

And west of De­troit, a metal stamp­ing com­pany that sup­plies the auto in­dus­try is los­ing busi­ness to for­eign ri­vals be­cause steel tar­iffs have raised met­als prices in the United States.

Trump fre­quently boasts that the taxes he’s im­posed on im­ports — steel and alu­minum and nearly half of all goods from China — have show­ered the U.S. Trea­sury with new­found rev­enue.

Yet tar­iffs like Trump’s ac­count for barely 1 per­cent of fed­eral rev­enue. It’s ac­tu­ally com­pa­nies like Lin­ton Crys­tal Tech­nolo­gies in Rochester, Accu-Swiss Inc. in Oak­dale, Cal­i­for­nia, and Clips & Clamps In­dus­tries in Ply­mouth, Michi­gan, that are pay­ing the price for his trade wars.

In De­cem­ber 2017, Trump gave com­pa­nies a gift when he signed a mea­sure that slashed the cor­po­rate tax rate from 35 per­cent to 21 per­cent. The next month, though, he started slap­ping tar­iffs on im­ports — be­gin­ning with so­lar pan­els and dish­wash­ers, be­fore mov­ing on to steel and alu­minum and then hit­ting $250 bil­lion in Chi­nese goods.

“Thank you for the tax cut,” said Jeff Az­na­vo­rian, pres­i­dent of Clips & Clamps. “How­ever, I’m not go­ing to be ben­e­fit­ing be­cause I’m not go­ing to have any prof­its to pay tax on.” For his com­pany, “tar­iffs have com­pletely un­der­mined ev­ery­thing good that those tax cuts brought.”

For many busi­nesses, the tar­iffs are es­ca­lat­ing costs, cre­at­ing hard­ships and mag­ni­fy­ing uncer­tainty. The In­sti­tute for Sup­ply Man­age­ment’s man­u­fac­tur­ing in­dex plunged last month to its low­est point in more than two years partly be­cause of the tar­iffs.

Many U.S. im­porters face a wrench­ing choice: They can pass their higher costs on to their cus­tomers and risk los­ing busi­ness. Or they can ab­sorb the ex­tra costs them­selves and sac­ri­fice prof­its.

Lin­ton Crys­tal Tech­nolo­gies is be­ing wal­loped by tar­iffs both com­ing and go­ing. The com­po­nents it sends to an assem­bly plant in Dalian, China, are sub­ject to im­port taxes when they ar­rive in China. And the as­sem­bled fur­naces it ships back to Rochester for sale are hit with Trump’s tar­iffs at the U.S. bor­der.

The U.S. im­port tax on a $2 mil­lion fur­nace amounts to $500,000. So, in des­per­a­tion, the com­pany has de­cided to move op­er­a­tions to China to avoid the tar­iffs. And it plans to lay off four or five Amer­i­can work­ers.

Accu-Swiss, which buys im­ported stain­less steel on the tar­iff list, is ne­go­ti­at­ing with cus­tomers to split the higher costs. It’s also try­ing to make its op­er­a­tions leaner. It has, for ex­am­ple, reengi­neered its Cal­i­for­nia fac­tory so pro­duc­tion can con­tinue at night when the lights are off and em­ploy­ees are gone. Still, it, too, ex­pects a 25 per­cent drop in rev­enue this year.

“I’m just sus­tain­ing my­self, al­most be­com­ing a non­profit or­ga­ni­za­tion,” CEO So­hel Saresh­wala said.

Clips & Clamps, the Michi­gan auto sup­plier, buys steel from U.S. pro­duc­ers that don’t have to pay the tar­iffs. But do­mes­tic steel sup­pli­ers have been able to sharply raise their prices be­cause Trump’s tar­iffs have priced out for­eign com­pe­ti­tion.

“I am los­ing busi­ness to com­peti­tors out­side the United States,” Az­na­vo­rian said, “and I am los­ing it due to raw ma­te­ri­als pric­ing.”

Ini­tially, Saresh­wala and Az­na­vo­rian say, they as­sumed that Trump’s met­als tar­iffs were just a ne­go­ti­at­ing tac­tic, in­tended in part to pres­sure Canada and Mex­ico to em­brace a new North Amer­i­can trade pact. But the tar­iffs re­mained in­tact even after Trump signed a re­vamped re­gional agree­ment in Novem­ber.

Now, Az­na­vo­rian can’t tell whether the tar­iff squeeze is ever go­ing to end. “The uncer­tainty is hor­ri­ble,” he said.

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