With tariffs driving up the price of stainless steel, 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 owner and president. To squeeze more output, he is “running the machines in a lights-out operation” — running the machines unattended for four hours after staff leaves for the day.
For large and small businesses around the nation, the impact of tariffs is expected to grow Friday, when the Trump administration is scheduled to place additional duties on $34 billion of Chinese products, many used in U.S. manufacturing. China has said it will respond immediately with sanctions of its own.
Sareshwala is among a growing number of importers and exporters departing from business as usual because of the gathering storm of trade sanctions. The 25 percent tariff on steel and 10 percent tariff on aluminum that President Donald Trump put into effect in June precipitated a string of retaliatory tariffs from China and other trading partners including Germany, Mexico and Canada.
Trump has said that in the long run, the tariffs will save jobs in the protected industries, and safeguard national security. But many businesses in other sectors, including apple growers in Washington, hog farmers in Minnesota and Harley-Davidson in Wisconsin, are scrambling to adjust.
Last week, the potential impact on U.S. companies was thrust into sharp relief when General Motors Co. warned that a new wave of tariffs under consideration by the administration could lead to “less investment, fewer jobs and lower wages” at GM.
For 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.
Trump’s declarations about his readiness to wage a trade war have prompted heavy users of steel to look into alternative supply lines. But some businesses said their plans had not anticipated the extent of the shortages and rapidity of price increases.
“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 but haven’t seen this combination before.”
Edward Farrer, director of purchasing at Principal Manufacturing in Broadview, Ill., which produces automobile parts, agreed. His company, which employs 330 people and has $50 million in annual sales, has not been able to find a domestic-steel 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 U.S. companies like his at a disadvantage compared with foreign manufacturers.
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 accounts for contingencies like unexpected price swings, “but the increases are so significant now, customers are pushing back,” Farrer said. “Some discussions are contentious. … We are caught in the middle between politics, customers and steel producers.”
John Ferriola, president of Nucor, the largest U.S. steelmaker, said growing demand — driven by tax cuts and a rollback in federal regulation — was primarily responsible for the price increases. “As steel buyers adjust to new supply chains and new domestic production comes online, we expect prices will normalize,” he said.
But several manufacturers said they were skeptical that domestic steel and aluminum makers had the capacity to meet the demand any time soon, and worried that prices would continue to rise — and even threaten jobs. Farrer has halted all hiring, leaving about 30 positions unfilled.
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 Springfield, Tenn., plant.
But when the administration dangled the prospect of tariffs, Electrolux said it was postponing the upgrade, citing concerns about rising steel prices. “This is a message to the administration,” the company said.