US Politics Mega-thread - Page 418

With tariffs driving up the price of stainless steel, the precision-part manufacturer Accu-Swiss in Oakdale, Calif., came up with a plan to save money: turn off the lights but keep the machines on.

“We are being hurt because of the cost increase,” said Sohel Sareshwala, the company’s owner and president. To squeeze more output from existing equipment, he is “running the machines in a lights-out operation.” After his regular 10-person staff leaves for the day at 6 p.m., Mr. Sareshwala said, the plant is experimenting with slowing down the machines and letting them run unattended for four more hours.

As every business school student learns, developing plans to deal with disruptions — from a hurricane to a rail strike — is as much a part of managing a company as billing or making payroll. The gathering storm of trade sanctions and retaliatory moves is forcing executives to put those lessons to use.

The 25 percent tariff on steel and 10 percent tariff on aluminum that President Trump first threatened in March and put into effect in June precipitated a string of retaliatory tariffs from trading partners like China, Germany, Mexico and Canada. On Friday, the administration is placing tariffs on $34 billion of Chinese products, many of them used in American manufacturing, and China has threatened to respond with sanctions of its own.

Mr. Trump has said that in the long run, the tariffs will protect jobs in the steel and aluminum industries, as well as safeguard national security. But the escalating trade war is forcing importers and exporters across the country, including apple growers in Washington, hog farmers in Minnesota and Harley-Davidson in Wisconsin, to depart from business as usual — either on the fly or according to a contingency blueprint.

Last week, the potential impact on American companies was thrust into sharp relief when General Motors warned that a new wave of tariffs under consideration by the administration could lead to “less investment, fewer jobs and lower wages” at G.M. While the company has not drafted specific contingency plans for job reductions, a spokeswoman said, such a move is “something that could happen.”

For Mr. Sareshwala at Accu-Swiss, Plan B is already the new normal.

In his 19 years at the company, which produces parts for devices and machines used in the biomedical, food and semiconductor industries, he has dealt with a few unanticipated events, from the dot-com bust to the Great Recession. But until recently, it probably would have made more sense for him to plan for an earthquake at his San Joaquin Valley plant than a hefty tariff on his primary raw material.

“It is very ironic to prepare for this kind of contingency in the United States,” he said.

Accu-Swiss doesn’t use imported steel, but the tariffs have ratcheted up the demand for domestic steel, making it harder to find and afford. So far, Mr. Sareshwala said, his priority is delivering orders on time, regardless of the cost.

“I use a lot of stainless steel, so I’m still trying to gobble up every bit of material that I can and not worry about the dollars and cents,” he said. That strategy may wipe out his single-digit profit margin or even bring on a loss, he said, but in the short term he would rather lose money than customers.

At the plant, in addition to the lights-out operation, Mr. Sareshwala has begun to stagger the starts of daytime shifts to stretch out the time in which operators are tending the machines.

Since the 2016 election, the president’s declarations about his readiness to wage a trade war have prompted heavy users of steel — foreign and domestic — to look into alternative supply lines. But some businesses said their contingency plans had not anticipated the extent of the shortages and rapidity of price increases, which started months ago.

“In a few days, domestic companies raised prices on stainless steel anywhere from 15 to 25 percent,” said Joe Carlson, president of Lakeside Manufacturing, a medical and food service equipment maker in Milwaukee with 175 employees. He is also president of the North American Association of Food Equipment Manufacturers, which represents more than 550 companies.

“I’ve been in this business 24 years, and I’ve seen price increases and tariffs,” Mr. Carlson said, “but haven’t seen this combination before.”

Edward Farrer, director of purchasing at Principal Manufacturing in Broadview, Ill., which produces automobile parts, has felt the same effect. His company, which employs 330 people and has $50 million in annual sales, is a purchaser of imported steel and has not been able to find a domestic alternative.

Even if one emerges, he said, “the tariffs have been a springboard for domestic producers to increase their price” — and those higher costs will put American companies like his at a disadvantage compared with foreign manufacturers. Moreover, he said, any change in Principal’s suppliers would require customer approval, an exhaustive process that would cause significant delays.

Like thousands of others, his company has filed with the federal government for an exclusion from the tariffs, but has not yet heard back.

Principal — whose customers include automotive suppliers and other major companies in the United States and abroad — accounts for contingencies like unexpected price swings in its contracts. “We have agreement for the ups and downs of markets,” Mr. Farrer said, “but the increases are so significant now, customers are pushing back. Some discussions are contentious.”

“Delivery dates are not changing, and product must be on time,” he said. “We are caught in the middle between politics, customers and steel producers.”

John Ferriola, president of Nucor, the largest American steel maker, said growing demand — driven by tax cuts and a rollback in federal regulation — was primarily responsible for the price increases.

“Tariffs will result in some long-term price increases as excess, artificially low-cost foreign material is taken out of the market,” he said, “but as steel buyers adjust to new supply chains and new domestic production comes online, we expect prices will normalize.”

Several manufacturers, however, said they were skeptical that domestic steel and aluminum makers had the capacity to meet the increased demand any time soon, and worried that prices would continue to rise — and even threaten jobs at their own companies. Mr. Farrer has halted all hiring, leaving about 30 positions unfilled, and has canceled, at least for now, a major capital purchase, two large machine tools.

Mark Vaughn has similarly put a brake on hiring at his metal stamping plant in Nashville. As the year started, he planned to add five or six new machinists in $28-an-hour jobs. His tax bill was going down, he had a fat backlog of orders, and one of his biggest clients, the Swedish appliance manufacturer Electrolux, was planning to invest $250 million to modernize its nearby Springfield plant.

But when the administration dangled the prospect of tariffs, Electrolux announced that it was postponing the upgrade, citing concerns about rising steel prices. “This is a message to the administration,” the company said in a statement.

Vaughn Manufacturing’s backlog has dwindled, and Mr. Vaughn said he would probably have to revise price quotes he promised six months ago. Instead of expanding his work force, which he described as “very highly skilled,” he is thinking of cutting five to 10 jobs out of his 50-person staff.

The first rule in his contingency plan, he said, is to “take care of what you got and not overexpand.”

“We were probably in line for $2 million to $3 million worth of work” making cooktops for Electrolux, he explained. And as for the new tax cuts, he pointed out, “Tariffs are a tax, so they took that advantage right back out of there.”

In Milwaukee, Mr. Carlson of Lakeside Manufacturing said he had contracts to get steel through the summer, but was worried about the fall. All the steel distributors, including his own, want to take care of their biggest customers first, he said. At the same time, the largest companies are hoarding as much steel as they can, making it tougher for smaller businesses to find alternatives.

Before the tariff threats, steel orders took six to eight weeks. Once the announcement was made in March, the wait time grew to eight to 12 weeks. “Now we don’t know when we’re going to get our orders filled,” Mr. Carlson said. “We’re hand-to-mouth.”