Will the Tariff Battles Help or Hinder North American Finishers?

Originally titled 'Trading Places on the Tariff Battle'

It seems finishers could pick up business if Chinese products aren’t as cheap to import as those made in the U.S.

It’s often difficult to discern what happens in Washington, D.C., and how it might translate in the real world, on Main Street USA, and more specifically, at finishing operations.

I’ve been reading and watching discussion on the tariffs that President Donald Trump has been placing on China and a few other countries where the U.S. has experienced a significant deficient in terms of trade.

To recap, China has a $275 billion trade surplus with the U.S., which happens to be its largest export market. Trump has said from Day 1 that he would establish tariffs to bring down the gap, and use the tariffs to encourage more manufacturing in the U.S. and to reduce the number of cheaper products being dumped here from abroad.

Both sides have acted much like kids on a playground arguing “Is too” and “Is not.” They each have imposed 25 percent tariffs on about $50 billion of the other country’s exports, and Trump is hinting that he may extend tariffs to another $200 billion worth of Chinese imports. And of course, Beijing says it will also retaliate if he does.

I was curious as to how all of this might play out for the average finishing operation, which it seems could gain business if Chinese products are no longer as cheap to import as those made in the U.S.

It’s a lesson Marcos Cielak, president of Miramar Metal Finishing in San Diego, California, knows all too well. Years ago, Ciuelak owned a metal finishing facility in Los Angeles that he eventually had to close because his main customer was an aluminum baseball bat manufacturer that moved its production to China. After a few years of working as a consultant, he opened a new finishing business and relocated the facility in San Diego.

“This time, I am more focused in doing business with companies that build products for defense and aerospace with very little chance of being manufactured overseas,” Cielak says. “I believe the new tariffs will benefit my business, as I anticipate the return of manufacturing to the U.S.”

Scott Turner, vice president of automotive sales at Pioneer Metal Finishing in Green Bay, Wisconsin, says the jury is still out on whether the tariffs on Chinese goods will help business, but his shop is seeing increased activity domestically in some markets and decreased activity in other areas due to the tariffs.

“The one obvious effect has been longer lead times for metals and increased prices,” he says. “Some of our customers are under significant profitability pressure grappling with these increases. Whether that results in longer-term material substitutions or just a short-term blip and hits to the P&Ls, it is too early to tell.”

Charles Zinke, president of Perfection Industrial Finishing in Tucson, Arizona, says his shop has not been affected yet by the tariffs. “My customers believe the tariffs will affect their businesses, but their customers continue to place orders at an increasing pace and volume,” he says.

Jeffrey Grube, president at BFG Manufacturing Service in Punxsutawney, Pennsylvania, believes using tariffs as a tool to compel other nations to remove barriers to trade and enforce intellectual rights will help.

“These have been problems needing addressed for 20 years,” he says. “I recall lobbying around 2000 and being told our government felt the U.S. was moving to a service economy and manufacturing problems were not getting attention. A focus on helping manufacturing is very reassuring.”

On the reverse side, Nick Post, president of Whyco Finishing Technologies in Thomaston, Connecticut, says his shop does ship product from the U.S. to China, and he has been studying the situation.

“We ship coated components that go into an assembly in China, many of which are then shipped out of China to elsewhere in the world,” he says. “So far, I don't see an indication that the Chinese are going after input components coming from the U.S.”

Post believes there are two reasons for this: There aren't that many, and there is risk that it will impact the export business after the higher-price imports are incorporated.

“I don't see it escalating to affect our level of product,” he says. “Trump is right that China has a lot more at risk in both absolute trade dollars and as a percentage of the Chinese GDP. I assume that the Chinese won’t like it but will make some kind of accommodation to Trump's demands. The question is, does it permanently hurt the affected supply lines going forward as buyers find other sources?”

From a Canadian perspective, Allan Phillips, president of Active Metal Finishing in Toronto, says he noticed an immediate slowdown in orders when the tariffs were first imposed. But he says affecting them more is the “Made in America” requirements, which prevent his shop’s Canadian-based customers from bidding on U.S. projects that involve any level of government participation or funding.

“Rather than a tariff penalty on these projects, our customers are faced with a 100 percent ban on bidding and participating,” he says.

There are some who say the Trump administration is just escalating the trade war. Others argue that the trade war was lost many years ago when countries like China were allowed to get away with what they were doing to U.S. manufacturers.

As Grube says, it’s nice to see a refocus on U.S. manufacturing. If that is the case, everyone will win.