Companies Ponder Moving to Mexico to Escape Trump Tariffs

Mish

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

Trump promised to bring manufacturing jobs back to the US. In reality, Trump Tariffs Send Jobs Away.

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?

Mike "Mish" Shedlock

Comments (34)
No. 1-16
Stimpson
Stimpson

"Also, who gets to judge whether the "price" is small or large." Good question. Let's stick it to China as long as it costs others, not me.

Carl_R
Carl_R

Yes, when you tax manufacturing inputs, such as steel, aluminum, lumber, and chips, you crush American Manufacturers that use steel, aluminum, lumber, and chips. Yes, when you put a 25% tariff on steel, steel prices in the US will rise 25%, but not elsewhere, so the cost to manufacture in the US will rise, but the cost to manufacture elsewhere will not rise, so that American manufacturers will be unable to raise prices despite rising costs. Yes, there are perhaps 100 jobs in industries that use those inputs for every job that is involved in producing steel, aluminum, lumber, and chips. So, what is surprising about this story? Nothing.

That leads to the more interesting question, why you feel you need to post the obvious. The answer? Because you do need to post the obvious, and you need to keep posting the obvious. There are still people out there that think that tariffs on manufacturing inputs will protect jobs, and lead to more net employment.

2banana
2banana

Are these companies pondering the insane corruption and out of control crime they are going to have to deal with in Mexico?

flubber
flubber

Referencing the info regarding BILCO Products in the story, please note that they stated their costs increased 10% due to tariffs. They would have lost the contract for hotel furniture anyways as the Chinese had underbid them by more than 50%. Depending on the industry and product, raw materials costs are not the major factor of increased prices. On average, raw materials are 30% of input costs. A 10% increase in raw materials costs would result in a 3% price increase if passed thru to the consumer. 3% can be a big factor on some items that may already be sold at thin margins.

I had one customer years ago (Fortune-500) that held a huge meeting for all of their vendors. The meeting was on a Thursday. They demanded a 10% reduction of all prices on all goods with shipments starting the following Monday. As soon as that was said, people left the huge ballroom to call their factories to shut down production. Unfortunately the purchasing management of the Fortune-500 firm did not have a back up plan if you did not submit to their demands for the 10% reduction. If I recall correctly, our firm reviewed pricing on the approximately 100 parts we produced for them. We probably gave back about 3% on average. We ran parts for their product line for over 23 years. Everything was eventually jobbed to China, Korea, and Taiwan. Such is life in a highly competitive world.

We had one other customer (also Fortune-500) and we produced parts for them for years. Was re-bidding a job that we had run for years and now it was ramping up into higher quantities. The purchasing manager told me that my company's pricing was competitive within the United States, but they had a plant in India where they were going to source because they were about 35% less expensive. Again....such is life in a highly competitive world.

Esclaro
Esclaro

Every one of the bozos in the story voted for Donny Boy in 2016. I hope they all go bankrupt - they are getting just what they deserve!

Curious-Cat
Curious-Cat

"I have squandered my resistance For a pocket full of mumbles, such are promises All lies and jests Still a man hears what he wants to hear And disregards the rest"

The Boxer - Simon and Garfunkel 1970

The more things change the more they remain the same.

KansasDog
KansasDog

Sometime it makes you wonder if the conspiracies aren't correct in that they are tying to destroy the US because the things they do are so obviously stupid! And what will we do about it? Probably vote in a Hillary like president the next election. How comforting.

stillCJ
stillCJ

Editor

Mish: 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. If Trump triples tariffs, figure a full percentage point higher, or more. That could put the Fed in a bind."

So that means that even in the worst case scenario, the price increases are less than the rate of inflation.

stillCJ
stillCJ

Editor

Mish, I have asked you this question several times, but still waiting for your answer: Since you don't like the Donny method, what solution do you propose to force China to stop stealing US technology? I am glad somebody is finally doing something about that.

wootendw
wootendw

Let Trump's downfall be the tariffs. I didn't vote for Trump but I'm still glad warmonger Hillary isn't in there (in which case Russia would have had to nuke US by now, in legitimate self-defense).

wootendw
wootendw

Soybean farmers in the midwest have been crushed by China's boycott in response to Trump's trade war. Russia will supply China with soybeans, instead:

RB2
RB2

I suggest Cook-y from Aapl should move to PR stat. The results would be super.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"Mish, I have asked you this question several times, but still waiting for your answer: Since you don't like the Donny method, what solution do you propose to force China to stop stealing US technology? I am glad somebody is finally doing something about that."

I did answer that. Once again: If corporations don't want China stealing technology, then perhaps they should not move their business to China.

If there is another answer I am open to it, but Tariffs on Steel surely does not solve the problem, does it?

Mish

pi314
pi314

"Trump promised to bring manufacturing jobs back to the US. In reality, Trump Tariffs Send Jobs Away." - Mish

"Manufacturing employment fell by 210,000 during Barack Obama’s two terms. It has risen by 473,000 jobs in Donald Trump’s first two years." - WSJ Editorial Board, Jan 4, 2019

Enough said.

RonJ
RonJ

I keep looking the goal line. The tariffs are part of what bigger picture? Are people missing a forest, watching the trees?

Webej
Webej

That will teach those Chinese to stop subsidizing components for American manufactures !! Manufacturing is really winning !!


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