Companies Ponder Moving to Mexico to Escape Trump Tariffs

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Published : January 07th, 2019
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Category : Opinions and Analysis

Electronics, furniture, and specialty steel companies are hit hard by Trump Tariffs. Some ponder moving operations.

EBW Electronics: “It’s killing us,” said the chairman of the company, Pat LeBlanc, 63, a Republican who voted for Mr. Trump. He now expects the president’s tariffs will chop his 2019 profits in half. “I just feel so betrayed. If we fail because the company is being harmed by the government, that just makes me sick.”

“It’s a tax that comes right off the bottom line,” said EBW’s president, Cory Steeby. “It totally incentivizes you to move out of the United States and build either in Canada or Mexico. These are active conversations right now.”

If Mr. Trump follows through on threats to raise tariffs to 25 percent, EBW and its 230 employees could face dire circumstances. “At 25 percent, we are not making money,” Mr. Steeby said. “There’s a threat that you cease to exist, or there’s a threat that jobs move to Mexico.”

Bilco Products: “Even though it’s hurting me, I hope we have the guts to stick it out,” said Tom Sligh, president of Billco Products, which makes cabinets, dressers and other furniture for hotels at three factories in Holland. Mr. Sligh relies on imported quartz countertops and metal parts — door handles, gliders and other hardware — much of it made in China. The tariffs have increased his costs by 10 percent, he said, but he has not been able to pass them on. He recently lost a bid to outfit a hotel in Grand Rapids when a Chinese competitor offered less than half his price.

Supporting Trump on tariffs is downright idiotic, but Tom Sligh is one of those true believers. Ironically, Sligh shifted to suppliers in Vietnam, Malaysia and India because the parts he needs are not available in the United States, or are wildly expensive, he said.

Agritek: Larry Kooiker president of Agritek, a factory that makes a range of metal parts, says the tariffs on components have been poorly conceived. Kooiker also voted for Trump, and shares the sense that China’s trading actions require an aggressive response. “It’s just been a disaster,” he said, as clattering machinery pounded sheets of steel into brackets that hold shelves.

“Trump is killing us,” Mr. Kooiker said. “His bang for the buck is horrible.”

The steel tariffs were supposed to give American steel makers protection in the face of unfair competition from China. But Mr. Kooiker accuses American steel makers of profiteering at his expense, using the tariffs as an opportunity to raise prices by 25 percent.

Holland, Michigan

Those three companies are in the Holland, Michigan area. But there is nothing special about Holland. These same scenarios are underway countless times across the country.

Price Impact

The New York Fed investigates the Impact of Import Tariffs on U.S. Domestic Prices.

The authors concluded "In sum, our analysis suggests that that producer and consumer prices are about a third of a percent higher in 2018 as a result of higher import tariffs."

That analysis was based on the tariffs so far. It Trump triples tariffs, figure a full percentage point higher, or more. That could put the Fed in a bind.

Small Price Theory

Some suggest these tariffs are a "small price to pay" for benefits down the road.

But there won't be net benefits down the road. The steel industry benefited, for now, but at huge expense to manufacturers who use steel as an input.

Also, who gets to judge whether the "price" is small or large. It's easy for the average consumer to say they would pay an extra 10% to "save jobs". For starters, it won't save any jobs. But even if it did save jobs in the future, what if it was your business on the line today? Would that still be a "small price to pay"?

Look at the hypocrisy of Bilco president Tom Sligh who says " I hope we have the guts to stick it out.”

What did Sligh do? He shifted to suppliers in Vietnam, Malaysia and India. It seems Sligh did not want to pay his small price by buying US-made components.

There was no gain anywhere in the US for that, only losses. And what if Trump put tariffs on Vietnam, Malaysia and India? Would Sligh still want Trump to have the guts to stick it out?

 

Source : moneymaven.io
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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
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