A survey is showing medium-sized manufacturers across the U.S. are increasingly concerned about the impact of tariffs on their business, but some manufacturing firms in Clark County say they are already seeing higher prices on some raw materials.
The U.S. is engaged in a trade dispute with China, and the two countries have already slapped billions of dollars in tariffs on goods, with the possibility the dispute could escalate In addition, tariffs have been placed on shipments of steel and aluminum from countries like Canada and the European Union earlier this Spring.
READ MORE: Springfield strip mall getting new life
Manufacturing is the largest sector of Ohio’s economy, responsible for roughly 700,000 jobs and about $50 billion in products sold to 213 countries and territories in 2017 according to information from the Ohio Manufacturer’s Association. The OMA estimated there are as many as 150 manufacturing firms in Clark County and more than 40 in Champaign County.
Some manufacturers in the region are already noticing higher costs for raw materials, even in some cases from suppliers who are sourced in the U.S. A recent quarterly survey conducted by the National Center for the Middle Market based in Columbus showed midsize manufacturing firms across the U.S. are increasingly concerned about costs associated with the trade war compared to just a few weeks ago, said Thomas Stewart, executive director of the center.
The National Center for the Middle Market is a partnership between Ohio State University’s Fisher College of Business and several other entities. The center conducts a quarterly survey of businesses with revenues between $10 million and $1 billion per year. The most recent survey was conducted in the first two weeks in June and will be published later this month.
MORE BUSINESS NEWS: Historic Springfield manufacturer to ramp up hiring
“What you see is a five-fold increase in the number of companies who are concerned about import/export tariffs in distribution,” Stewart said.
At the same time, the tariffs have received bipartisan support from some Democrats including Sherrod Brown, who argued the Trump administration’s tariffs are one tool to address what he called a trade imbalance with China.
“I’ve been fighting to change our failed trade agenda for decades, starting with my vote against NAFTA,” Brown said in a statement to the News-Sun. “That’s why I called on President Trump to take action the moment he was elected. And that’s why I support the tariffs. If we fail to stand up for steel jobs today, China will come after other jobs down the supply chain tomorrow.
Brown also said the Department of Commerce should work with American companies who need products that are not available in the U.S. and apply exemptions when appropriate.
“At the same time, we know that tariffs are just a tool, not a long-term policy,” Brown said “We must use tariffs to bring China to the table to get long-term structural changes that stop them from cheating, like dismantling China’s unfair government subsidy program.”
Global companies and family businesses
In Springfield, companies ranging from global firms like Honda to small, family-run businesses like Stalder Spring Works, Inc. said they are starting to see the impact of the trade dispute on their businesses. While no action has been taken, the U.S. Department of Commerce is studying whether additional tariffs should be imposed on vehicle and auto parts from outside the United States.
Rick Schostek, executive vice president at Honda North America, Inc., recently noted in a column on the company’s website that those duties could be as high as 20 percent and would likely mean higher prices for consumers. The issue is further complicated as the U.S. simultaneously renegotiates the North American Free Trade Agreement with Canada and Mexico, he said.
“These harmful duties would not be limited to finished vehicles,” Schostek said of the proposal. “They also would apply to component parts, raising the price of all vehicles Honda and other automakers sell in the U.S., including those we make in Ohio, Alabama and Indiana. Not a single car built in the U.S. by Honda, GM, Ford or any other automaker, is made entirely with U.S. parts. Every automaker uses both domestic and globally-sourced parts, so all cars built here would be impacted – potentially with higher prices and limited availability.”
Honda is a major employer in the region, with about 1,400 workers from Clark and Champaign counties. Honda employs more than 14,500 Ohioans overall. Several area companies, including KTH Parts Industries in St. Paris and Parker Trutec in Springfield and Urbana supply parts for Honda.
One of the biggest challenges, Schostek said, is the trade war is creating uncertainty as the U.S. and other countries slap tariffs on an escalating number of products.
“Businesses covet stability and predictability,” Schostek said. “We are making investments that often have implications five or ten years into the future. For instance, we also export cars from the United States, a strategy that takes years to plan. Now, the certainty and predictability of free and open markets that have made America an attractive place to do business are becoming unsteady.”
Stalder Spring Works, Inc. is a fourth-generation family business that manufactures springs for clients like Navistar, Cascade Corp., Crown and CNH Industrial, said Damon Kaufman, the company’s president. The company has about a dozen employees in Springfield.
The company buys metal for its products from domestic suppliers, but Kaufman said those suppliers also boosted prices once the steel and aluminum tariffs went into place. That’s partially because demand for domestic products spiked.
“We’re seeing the higher raw material prices,” Kaufman said. “At this point we’ve seen about a 15 to 18 percent increase because that’s what the steel market is pricing into it.”
The raw material price accounts for about 10 to 45 percent of most of Stalder’s products, and he estimated the total price of the products have risen from 3 to 12 percent. So far that’s mostly been passed along to the company’s customers, so the impact on his business has been minimal so far, he said. His company’s products have historically been slightly higher than competitors, but that’s because they also provide some services other companies don’t he said.
Kaufman said he believes the goal of the tariffs is to level the playing field for American firms. But he said it’s too early to know if the tactics will be effective. He said some manufacturers may end up benefitting from the tariffs while others struggle depending on their products, their business plan and other factors.
“It all goes into it,” Kaufman said. “Everyone wants a short-term answer and it’s not that simple.”
A growing concern
The National Center for the Middle Market conducts a quarterly survey of businesses that provides information on topics from employment to investment plans and looming challenges, said Stewart, of The Ohio State University. The center focuses on mid-size companies in the U.S. Manufacturing firms make up about 17 or 18 percent of those companies, Stewart said.
The survey typically shows employers are concerned about issues like attracting talented workers, but the latest survey also showed a big jump in the number of employers concerned about costs, he said.
About 10 percent of firms surveyed listed higher costs related to the trade dispute as one of their top three concerns, when that previously was not the case, he said. In previous quarters, that number was closer to 2 percent, he said.
“It suddenly flew onto the radar in a big way,” Stewart said.
The survey also asks firms to describe their confidence in the local, national and global economy, he said. About 94 percent of companies surveyed said they’re confident in the local economy and there was a very small drop in firms who said they have confidence in the national economy, from 87 to 86 percent. But confidence in the global economy fell from 82 to 75 percent in the most recent survey.
That’s still a high level of confidence in the global number, Stewart said, but it is something worth keeping an eye on.
“It’ll be really interesting to see what happens to confidence in September and in the fourth quarter ,” Stewart said of the trend. “It’s clear that the mid-size companies exposed to trade are expressing anxiety about what’s going on.”
No easy answers
In Springfield, McGregor Metalworking Companies in Springfield saw higher steel prices nearly as soon as the tariffs were announced, said Alex Seder, sales director for the company.
McGregor operates four plants in Springfield and specializes in metal stampings, machined parts, welded assemblies and other products for the agriculture, lawn and garden and health and fitness industries. Its customers include John Deere, Toyota and Honda.
The company sources its raw steel from domestic suppliers, but U.S. suppliers also boosted prices as they saw local demand rise as imported products became more expensive, he said.
Seder said it’s still too early to know what long-term impacts the trade dispute will have on manufacturing, although historically he said the manufacturing industry tends to benefit from fewer trade restrictions.
“We’ve seen in the past that most people are on the losing end of it when you only tariff the raw material and not the finished product coming out of the export country,” he said of trade disputes.
Like Stalder Spring Works, Seder said the higher raw material costs haven’t had an immediate impact at McGregor in part because it’s industry-wide and much of the higher cost is being passed on to the company’s customers. However, that will ultimately cause the end consumer price for those products to increase, he said.
At the same time, Seder said the company is keeping an eye on the situation for the potential long-term risks.
Schostek, of Honda, said the company’s founder Soichiro Honda argued against similar policies more than six decades ago. In that case though, he was speaking out against trade restrictions in his native Japan, rather than the U.S.
Schostek said Honda was able to enter the U.S. market 11 years after it was founded in part because the U.S. embraced free trade.
“Our customers, as well as the communities where we live and work, have benefited with access to high quality, high value and innovative products – and good paying jobs. So, the ability to operate in this country unimpeded by protectionist policies and tough tariffs has been a win-win for all,” Schostek said.
Thank you for reading the Springfield News-Sun and for supporting local journalism. Subscribers: log in for access to your daily ePaper and premium newsletters.
Thank you for supporting in-depth local journalism with your subscription to the Springfield News-Sun. Get more news when you want it with email newsletters just for subscribers. Sign up here.