Tariff Terror? - Trade Only Today

Tariff Terror?

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The tariffs from the Trump Administration are making boat and equipment manufacturers jittery during what should be another strong year for the industry. Most macro-economic indicators are better than they’ve been for years. Consumer confidence is at a 17-year high and unemployment an 18-year low. Tax reform has put fresh winds in our sails, and most economists don’t foresee a dip at least until 2019.

Yet a swarm of flies is hovering over the industry’s recovery celebration. Three classes of Trump tariffs may not impact this year’s selling season, but if a trade war ensues and worst-case scenarios play out, tariffs will have a negative effect next year and possibly for years to come on price-sensitive products like boats. The NMMA estimates that higher material costs could raise the cost of entry-level boats by, in some cases, thousands of dollars.

Even though the first Section 232 national security tariffs didn’t take effect until June 1, boat and equipment manufacturers have been navigating chaotic aluminum and steel markets for months. Some aluminum builders have seen their raw-material costs jump as much as 30 percent since November.

Section 232 not only takes aim at big metal suppliers like China, but our industry’s two largest exporting partners, Canada and the E.U. Duties on imported aluminum (10 percent) and steel (25 percent) are levied on every country except four that have negotiated exemptions. China, under a separate 301 investigation by the U.S. Trade Representative, could also see a 25 percent tariff on 1,300 categories that include propellers, turbojets, fuel-injection pumps, small electric motors, display monitors and many other imported products used to build boats. A third investigation by the U.S. Department of Commerce/International Trade Commission is adding “counter-veiling” duties from 31 to 115 percent on top of the existing tariffs for Chinese aluminum and steel importers. “Anti-dumping” duties could lift the percentages even higher.

Canada and the EU are taking direct aim at our industry with 10 percent import duties on U.S.-built boats starting July 1. Their goal, say trade experts, is to strike at iconic, successful American industries like “boats, bourbon and blue jeans” that, perhaps not uncoincidentally, are manufactured in “Trump Country” states.

Just the threat of these retaliatory duties has already created a serious situation for some boat exporters. “Our dealers in those countries are clamoring to get all the product they can before the retaliatory tariffs kick in,” says Bill Yeargin, CEO of Correct Craft. Extra orders might seem like a nice sales bump for the short-term, but Yeargin fears it could become a double-whammy. “Consumers won’t want to pay the higher prices, especially if they think the tariffs will lift in the next year or two,” he says. “That is taking a lot of people out of the market.”

Manufacturers have already felt the impact of rising aluminum prices, exacerbated by a shortage in domestic supplies, on production schedules. “We were told by a vendor that mills are putting them on monthly allotments and refusing orders for customers without contracts,” says Yeargin. “They’re afraid of making price and supply commitments with such uncertainty in the marketplace.” His equipment suppliers have already bumped prices as a hedge against their own potential cost increases.

“We’re booming this year, with sales up 20 percent,” says Orestes Monterrey of Florida Marine Tanks, “but we’re getting hit tremendously with the impact of these tariffs.” Like most manufacturers, the company is passing along some costs, swallowing others, and trying to be more efficient.

This year’s sales growth has outpaced the “tariff threats” and rising costs of aluminum, says Monterrey. But what about next year? “If it doesn’t go away, we’ll see some of our business go elsewhere,” he says. Some clients are already getting estimates from competitive plastic-tank manufacturers.

The irony is that the tariffs have pushed the company to be much more cautious during its banner year. “We were looking to expand into other products in the metal market, but that’s on hold,” says Monterrey. “We just don’t know in three months if our accounts are going to shrink.”

It may turn out that these tariffs are much ado about nothing, a smart negotiating tactic for Trump’s “America First” agenda. Or, given the saber rattling among our trade partners, they may well cause long-term damage. The DOC/ITC tariffs, for instance, can’t be undone by executive order or a change of administration. Those duties, once implemented, require an administrative process that could take years to reverse.

In the meantime, we’re all stuck in a game of wait and see.

This article originally appeared in the July 2018 issue.

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