As tariffs continue, panic beginning to sink in among Wisconsin manufacturers

Rick Barrett | Milwaukee Journal Sentinel

Rob Parmentier has weathered some rough times in the boat building business, but the trade wars with China, Europe, Canada and Mexico have shaken him to the core.

“It’s been catastrophic,” said Parmentier, president and CEO of Marquis-Larson Boat Group, which builds Carver yachts in Pulaski.

The first “hand grenade,” as Parmentier described it, was a 25 percent tariff the European Union placed this year on boats built in the U.S., along with scores of other products including Harley-Davidson motorcycles.

Then there was a 10 percent tariff slapped on boats shipped to Canada, along with price increases up to 40 percent on boat building materials.

It’s sent a shock wave through U.S. boat manufacturers.

“We’ve had a lot of order cancellations. Canada and Europe have essentially stopped buying boats,” Parmentier said.

About 450 people work at the company, a large employer in a town of 3,600 residents.

If boat orders continue to slide because of the trade wars, Parmentier said, it will trigger layoffs that could last a long time.

“We’ve been absorbing some of the additional costs … hoping the tariffs will go away. But we can only do that for so long,” he said.

Across America’s heartland, small and midsize manufacturers are reeling from higher costs and lost business attributed to a breakdown in foreign trade.

While some have benefited, others have been hammered by rising tariffs — a tax on imported or exported goods — on products including boats, electronics, sporting goods, bourbon and baby cribs, to name a few.

What does a trade war look like? We explain The last time a trade war happened in the U.S., things didn't go well for the economy. Will history repeat itself as Trump puts a tariff on steel and aluminum? Here are the facts.

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The “handshake deals” Trump made with Canada and Mexico may have saved thousands of automaker jobs. Yet smaller companies, Parmentier said, haven't seen much relief.

“The rest of us little guys are just getting crushed,” he said.

The tariffs that China recently placed on American ginseng and bourbon, for example, have clobbered Great Northern Distilling, in Plover, which makes ginseng-infused bourbon.

It's cost the company 25 percent of its sales.

"All of the buyers have cold feet now. They've said until this gets resolved, they're not placing an order," said Brian Cummins, co-founder of the distillery, which has 11 employees.

"Our fifth anniversary is coming up next May ... and I am hoping we can make it to then," he said.

'Individual Americans will suffer'

In Cumberland, a town of about 2,200 residents in rural northwest Wisconsin, Ardisam Inc. has warned U.S. trade officials of the harm that a 25 percent tariff on Chinese goods could have on its business and the community.

Ardisam is one of the town’s largest employers, and over 58 years, its product line has grown to include hunting and fishing gear, garden equipment and the Yardbird Chicken Plucker for home poultry enthusiasts.

If left in place, the tariff stands to “completely eliminate” the profit on some products, according to the company.

“Put simply, two things could happen … the consumer will end up paying the tariff, or Ardisam will discontinue selling these products and reduce its workforce accordingly to adjust to the reduction in business,” company President Michael Furseth said in a letter this summer to U.S. trade officials.

“Under either scenario, individual Americans will suffer. In a town the size of Cumberland, the result of a workforce reduction would have a disproportionately negative impact on the entire community,” Furseth said.

The company added 42 jobs in the last three years in Cumberland, where it has about 140 employees. While most of its manufacturing is done in Asia, the jobs in Cumberland have an average wage of $52,000 a year.

Ardisam says it can’t easily sidestep the tariffs by finding other suppliers for things like electric log splitters.

“There is currently no large-scale manufacturing of these products happening in the U.S., and the amount of time and resources necessary to establish this level of manufacturing would undoubtedly jeopardize the industry as a whole and particularly Ardisam’s business and jobs in Cumberland,” Furseth said.

In Genoa City, a town of about 3,100 in Walworth County, Electronic Specialties imports from China testing equipment, such as multi-volt meters used by automotive mechanics and homeowners.

“Maybe some people are absorbing the tariffs, but it’s hard to believe they could do that and stay in business,” said company president Steve White.

Electronic Specialties has only 10 employees. But that doesn’t preclude layoffs should its profit sink from rising costs.

“I know that if I were to lay someone off, it would be a big blow to their life,” White said.

Will pain be worth it?

Trump's supporters say the short-term pain that some companies are feeling from the trade wars will be offset by the negotiation of better trade deals. And, supporters say, the U.S. is long overdue in standing up against practices such as China's theft of American technology.

Even permanent higher tariffs on foreign-made goods wouldn’t be bad, supporters say, if it encourages companies to bring work to the U.S.

“It’s better to make these moves now while the economy is strong,” said Van Mobley, a Concordia University associate professor of history who follows trade issues.

“I think some of the tariffs on China are here to stay. … I wouldn’t bet on the Chinese making the changes we want,” Mobley said.

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Manufacturers say they’re looking at every option to mitigate trade war damage. That could include sourcing products elsewhere to get around tariffs.

“As we move forward, everything is on the table, particularly with new programs where we haven’t set up the manufacturing yet,” said Austin Ramirez, president and chief executive officer of HUSCO International, in Waukesha. HUSCO manufactures components used in the automotive and construction equipment industries.

Ramirez said the higher tariffs have cost his company about $1 million a month.

“We have offset some of that, in various ways, but it's still significant,” he said.

In the long haul, “it’s really impacting our competitiveness and future growth. That’s the scariest part for me,” he added.

Planning for the worst

Some manufacturers say they're planning for the worst, not knowing whether the new tariffs are temporary or permanent.

"I think most companies are viewing this as the new status quo," Ramirez said. "Then the question becomes, how do you adapt your business model to survive in this new paradigm?"

There's a lot of uncertainty, said Mike VanderZanden, president of Amerequip Corp., a manufacturer in Kiel, in northeast Wisconsin.

“We’ve had a conversation with one of customers, debating how long we think the tariffs are going to be around. And the estimate was from six months to forever,” VanderZanden said.

Amerequip, which has 360 employees, has nearly tripled its annual revenue since 2012 to about $90 million this year.

But in the last six months it’s been hit with 30 percent higher costs for steel as domestic and foreign suppliers alike have raised prices in a global marketplace.

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What started as a trickle is now more like a flood, said Dennis Slater, president of the Association of Equipment Manufacturers, a Milwaukee-based trade group representing construction and agricultural machinery companies.

The U.S. economy has been doing well enough that manufacturers and retailers have been able to absorb some of the rising costs, but it's getting harder to do as the full weight of new tariffs settles in, according to Slater.

As early as Christmas, shoppers may see some higher prices as the impact of trade wars is felt in the marketplace.

That's left consumer product companies nervous.

"It scares the hell out of me, to be perfectly honest, because I don't know how the consumer is going to react," said Marc Stevermer, director of operations for La Crosse Technology, the maker of home-based weather stations and other products.

Companies such as La Crosse could hold off on raising their product prices, hoping the new tariffs disappear, but that strategy could backfire should the trade wars continue to erode their profits.

"We would be marching ourselves off a cliff," Stevermer said.

Even the cost of a good night's sleep may go up, as baby cribs and mattresses are caught in the trade war with China.

Delta Children's Products Corp. has a mattress factory and product design center in Neenah, in Wisconsin's Fox Valley. The New York-based company says it is the world's largest maker of baby cribs.

Many of its products and raw materials are imported from China.

The tariffs are making it harder for families to afford a new crib, said Joseph Shamie, Delta Children's president.

"Now, more moms are going to turn to less safe hand-me-downs," he said.

To sidestep the tariffs, the company has looked at moving manufacturing from China.

But that would take at least a year, Shamie said, and it would be a costly endeavor to establish another factory and line up suppliers.

"If we invest in the changes, and the tariffs go away, then we have wasted a lot of time and money. But if we don't, and the tariffs continue, we have a huge problem," he said.

Town hall meeting

There will be a town hall meeting Thursday in Waukesha about tariffs and the heartland.

Association of Equipment Manufacturers is one of the sponsors, and panelists will include manufacturing executives, business owners, farmers and others.

The meeting will be at 11:30 a.m. at HUSCO International, 2239 Pewaukee Road,

Waukesha.

It also will be streamed on Facebook at www.facebook.com/AssociationofEquipmentManufacturers