Boat maker, farmer, auto parts CEO feel the pain of a growing trade war under Trump

Paul Davidson | USA TODAY

Show Caption Hide Caption What a trade war means for you President Trump‘s fresh tariffs on $34 billion in Chinese goods set the stage for price increases hitting American companies and consumers. So how does it affect the everyday American? We explain.

Corrections & Clarifications: An earlier version of this story incorrectly stated the countries where Correct Craft is paying dealers to offset the cost of tariffs.

An Illinois farmer’s profit is fast turning into a loss as corn, soybean and pork prices tumble.

A Florida boat maker is paying its dealers in Canada, Europe and Mexico millions of dollars to partly offset the cost of tariffs in those countries, jeopardizing U.S. employee bonuses this year.

A craft brewery is spending more on aluminum cans, forcing it to shelve plans to add workers.

They’re portraits of distress in an escalating trade war that has begun taking a toll on myriad businesses across the country. Many are paying more for imported supplies, enduring falling sales overseas, or both, forcing them to put hiring and investment plans on hold.

Trump administration officials argue the tariffs are necessary to protect U.S. steel makers that have suffered as foreign producers dumped metals in this country at below-market prices. The taxes are also aimed at prodding China and other countries to reduce longstanding high tariffs on U.S. imports, potentially opening those markets to American companies.

To be sure, the trade war has produced some winners, including American steel makers and washing machine manufacturers that have benefited from the tariffs placed on their foreign competitors' exports to the U.S.

Trump, EU inch toward trade war ceasefire President Donald Trump says the US and the EU have agreed to work toward "zero tariffs" and "zero subsidies" on non-automobile goods. EU Commission President Jean-Claude Juncker says he has made a deal with Trump to try to ease trade tensions. (July 25)

But their ranks are dwarfed by the losers. And the casualties among U.S. firms are mounting.

“I believe the (Trump) administration has good intentions,” says Bill Yeargin, CEO of Correct Craft of Orlando, Florida, one of the world's largest powerboat makers. But, as a country, “I feel like we shot a hole in the bottom of our own boat.”

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So far, the tariffs haven’t undercut a roaring U.S. economy, but they’re keeping it from growing even more robustly. And if President Donald Trump makes good on threats to levy duties on hundreds of billions of dollars more in imports, the pain for Main Street businesses will grow exponentially.

Trump has slapped tariffs on about $50 billion of imported steel and aluminum and $34 billion on an array of technology and other goods from China. Another $16 billion in duties on Chinese imports took effect Thursday. China, Canada, Mexico and the European Union have responded with tit-for-tat tariffs on U.S. shipments to their countries, from motorcycles and blue jeans to whiskey and orange juice.

If those taxes stay in place, it would shave a modest tenth of a percentage point off U.S. economic growth and reduce employment by 170,000 over the next year, says Mark Zandi, chief economist of Moody’s Analytics. The economy is expected to grow a solid 3 percent this year.

“It’s having an impact, but it’s not a big enough impact on the broader economy,” Zandi says, noting growth has been juiced by the sweeping Republican tax cuts.

But, he says, if Trump follows through with all $800 billion of his threatened tariffs, largely against China, and other countries retaliate as expected, it would slice growth by 1.6 percentage points and employment by another 2.6 million, tipping the economy into recession.

Already, thousands of businesses are feeling the effects. Here’s how some are coping.

Struggling farmer takes another hit

Brian Duncan, 53, a midsize corn, soybean and hog farmer with 4,000 acres in Polo, Illinois, already had been grappling with thinner profits. The culprit has been a surplus of global crop supplies fostered by favorable weather and the expectation of rising demand. Now, retaliatory tariffs by China and Mexico have crimped demand in those countries, reducing market prices for his products by 16 percent to 27 percent since April.

If the tariffs remain, Duncan expects his sales over the next year to fall by $1.5 million in his hog business, about $400,000 in corn and $100,000 in soybeans. Duncan has 3,500 acres of corn and 500 acres of soybeans. And he raises 70,000 hogs a year that are sold to giant pork producers such as Tyson Foods and Smithfield Foods.

“The trade war has swung me from a half-million-dollar profit to a half-million-dollar loss,” the 35-year, third-generation farmer says.

As a result, he’s putting off plans to buy a new tractor and combine.

“You’re always trying to expand and grow the business,” he says. But now, “that doesn’t seem like a wise thing to do.

“I recognize there’s trade issues that need to be dealt with,” he says. “But I think there’s a better way. … The way we’re going about it is like a bull in a china shop.”

Tariff is like anchor for boat maker

Correct Craft, the Florida boat maker, is getting hit by both sides of the trade skirmish.

After current contracts with suppliers expire in a couple of months, it will pay 20 percent to 30 percent more for the aluminum that makes up the shell of some of its boats, and 5 percent to 15 percent more for aluminum parts that go in the boats, says CEO Yeargin.

The company buys those supplies domestically, but the 10 percent tariff on aluminum imports is allowing U.S. makers to raise their prices as well, since they no longer have to compete aggressively with low-priced foreign rivals. And the tariffs are “giving them cover” to boost prices by even more than the 10 percent duty, Yeargin says.

The extra taxes will increase the company’s costs by hundreds of thousands of dollars a year, he says.

The bigger problem, Yeargin says, is that exports to 70 countries make up 30 percent of the company’s $500 million in annual sales. And Canada, Mexico and the European Union have slapped tariffs – of 10 percent, 15 percent and 25 percent, respectively – on all power boats from the U.S. Initially, he says, orders from overseas dealers came to a dead halt.

Customers “don’t want to be the ones who bought a boat with a 25 percent tariff,” Yeargin says, especially if the duty is temporary.

Then, the company decided to provide rebates to offset 20 percent to 50 percent of the tariffs. Now, Yeargin says, the hit to sales is modest, but “it’s costing us millions of dollars.”

Correct Craft has suspended plans to expand factories and hire dozens of workers in coming months. “We're not approving any new growth initiatives,” he says.

And the reduced sales and profits could crimp the annual bonuses of Craft’s 1,300 employees.

The strong economy has been a boon for U.S. boat makers, with Correct’s sales rising more than 20 percent annually in recent years. Yet Yeargin worries that customers who put off a boat purchase may take up another hobby instead.

“Once they get out, they may never get back to boating,” he says.

Beer-can costs add up

Even seemingly trivial increases can have outsize effects.

Octopi Brewing, a contractor in Waunakee, Wisconsin, that makes beer for other brewers, is paying 15 percent more for aluminum cans since the tariff took effect a few months ago. Its supplier has increased its price from 10.5 cents a can to 12 cents, says Isaac Showaki, president of the 3-year-old company.

That doesn’t sound like much, but it adds up to about $100,000 a year for a company that churns out a few million cans of beer annually. “When you’re talking about millions of units, you’re talking about real money,” says Showaki, 34.

Initially, Octopi absorbed the added cost, but now it’s passing it along to its brewing-company customers. Still, there’s a lag until Octopi can recover those extra costs – about $30,000 so far – from customers. That’s reducing the company’s cash flow.

“That’s money we could have spent on hiring people,” Showaki says, noting Octopi sales have been growing 50 percent a year and the company had planned to add two to three workers. “It just puts a brake on everything. It just makes you slow down.”

Auto parts maker fights for its life

Lucerne International, an auto parts supplier based in Auburn Hills, Michigan, already has absorbed one blow from the trade war, and it’s bracing for a much bigger one.

The company makes about $50 million in parts annually at eight plants in Asia, then ships them back to the U.S. for final production for large automakers.

Its part sales to BMW have fallen 20 percent because China raised its tariff on cars it imports from the U.S. to 40 percent in retaliation for Trump’s higher duties on Chinese goods. BMW builds SUVs in Spartanburg, South Carolina, and exports them to 140 countries, including China. It has scaled back the number of cars it plans to sell in that country because of the levy. And so it’s ordering fewer parts from Lucerne, says the company's CEO, Mary Buchzeiger.

The bigger impact will come if Trump follows through on threats to slap a 25 percent tariff on all imported vehicles and auto parts based on national security concerns. Long-term contracts with customers prevent Lucerne from passing along higher material costs or tariffs. And Lucerne’s profit margin is too thin to eat the added expense.

“I can’t sell the products for less than what it costs me to produce them, and that’s what would happen with the tariffs,” says Buchzeiger, who bought the 25-year-old company from her father in 2015. “We’d be out of business in three months.”

Lucerne’s revenue has been “gangbusters” the past three years, she says, and revenue of nearly $50 million is expected to reach $1 billion in nine years. As a result, the company has considered opening a U.S. plant to reduce its reliance on Asian imports, an initiative that would create 125 jobs. But with the company’s future hanging in the balance, those plans are on hold, Buchzeiger says.

Contributing: Jamie L LaReau of the Detroit Free Press

