Tariff wars roil industry

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Tariffs on multiple fronts have hit the U.S. boating industry hard, with tens of millions of dollars worth of boat orders to Canada and Europe cancelled, and prices for steel and aluminum jumping double digits. The tariffs have become the single largest threat to the industry’s recovery in the last five years.

“There is no way to simply weather the storm and see how this shakes out, as the cost of doing business for our members has instantly increased,” NMMA president Thom Dammrich said shortly after the 25 percent Section 301 tariff was levied July 6 on about 300 marine products imported from China. “For some products, the additional cost to marine manufacturers will be in the thousands of dollars, resulting in employment changes, canceled expansion plans and halted growth.”

Dammrich called the Trump Administration’s decision to place the tariffs on $34 billion worth of products used by U.S. manufacturers the “wrong solution,” noting that the tariffs could be expanded to $50 billion by August. The Trump administration announced in mid-July that the tariffs could ultimately impact $200 billion worth of Chinese imports.

“Not surprisingly, with China fighting back and officially kicking off yet another trade war, recreational boating is being uniquely targeted because of our status as a true American-made industry,” Dammrich says.

The U.S. Trade Representative announced that companies impacted by the tariffs could apply for a product exclusion through Oct. 9. The process involves filing requests at regulations.gov and watching the Federal Register to see if the request would be challenged. Exclusions would be effective for one year after publication of the determination and retroactive to July 6, 2018.

The duties on imports come in addition to Section 232 tariffs on imported steel (25 percent) and aluminum (10 percent) from China, Canada and the European Union. Some Chinese steel and aluminum importers are facing additional duties of more than 200 percent after the Department of Commerce and the International Trade Commission determined that the Chinese have been dumping steel and aluminum to the detriment of domestic suppliers.

U.S. boat and equipment manufacturers have had raw-material price hikes on domestic aluminum of about 30 percent in the last six months, as the mere threat of tariffs sent domestic metals markets into a tailspin. Most aluminum-boat builders have already raised their 2019 model year prices in order to compensate for the additional raw-material costs.

The trade wars have also extended to Canada and the European Union, which both slapped retaliatory tariffs on U.S.-built boats. Canada placed a 10 percent tariff on new and used boats from the United States on July 1, and a 25 percent E.U. tariff went into effect a day later. U.S. builders with a significant export presence have been impacted by a rush of canceled orders from dealers in Canada and the European Union.

“Between now and Aug. 31, we’ve had every single order cancelled; we now have zero orders from Europe or Canada, and that’s a very unusual situation for us,” says George Armendariz, CEO of Groupe Beneteau Americas. “We export a lot, and if these tariffs last for an entire year, we have at risk up to 25 percent of our Cadillac-based brands. That’s on the magnitude of 1,000 units.”

Armendariz says that if the tariffs extend beyond 90 days, the company will consider layoffs at its facilities in Cadillac, Mich. “I can also confirm that we are looking to immediately transfer some production from America to Europe to avoid losing that business altogether,” he adds. “We have the benefit of having production infrastructure in Europe.”

Doug Smoker, president of Smoker Craft, and Nicole Vasilaros, vice president of government relations and legal affairs, recently met with U.S. Secretary of Commerce Wilbur Ross to discuss how the administration’s trade policies are impacting the boating industry. Smoker says 30 percent of his company’s annual production goes to Canada. He added that the benefits of last year’s tax reform will be erased if the tariffs are not repealed.

Peter Truslow, president of Bertram Yachts, says his company is facing the cancellation of a $4 million Bertram 61 for a European client. Truslow says that before the tariffs were imposed, exports accounted for about 15 percent of Bertram’s business. Now he has put plans for expanding the workforce on hold until the situation is clarified.

For Canada, the retaliatory tariffs make little sense, since domestic boat production cannot keep up with demand in that country. NMMA Canada had been working to get boats removed from the Canadian government’s hit list, and though the boating message was heard at the highest levels of government, the tariffs went into effect July 1. Sara Anghel, president of the association, says NMMA Canada was disappointed by the government’s decision to move ahead with the tariffs.

“Unfortunately, boats are the only recreational product being targeted,” Anghel says. “There is not enough domestically manufactured supply. As a result, our $10 billion and growing industry and the 75,000 Canadian jobs it supports are now at risk.”

For damage control, NMMA is counseling boatbuilders to look for other export avenues, rather than abandon the export market altogether. “Most companies that maintain a healthy balance between domestic and international sales are more profitable,” says Julie Balzano, NMMA senior director of export development. “They’re also better able to navigate seasonal and economic downturns. Everything is cyclical, so it’s only a matter of time when the domestic market will slow down and international markets can fill the sales gaps.”

Balzano says exiting the export market because of tariffs now could be a strategic mistake later. “It’s not like you can pick up a magic wand and get back into it quickly,” she says. “It could take years.”

Countries such as Australia and Colombia, or the 18 other countries that have free-trade agreements with the United States, could be viewed as possible export markets. “We understand how critical the E.U. and Canada are, but I would encourage builders to look at emerging markets at least as options,” Balzano says.

In the meantime, the tariffs continue to spell uncertainty for U.S. boat and equipment manufacturers. The NMMA, the European Boating Industry and the International Council of Marine Industry Associations sent letters to President Trump and other government heads asking that they work quickly to “resolve the deteriorating trade situation and eliminate the use of tariffs altogether.”

Dammrich is not optimistic that this will happen anytime soon. “The Trump Administration is saying they have to do this, but we haven’t heard anything that would lead us to believe that this would be short term,” he says.

This article originally appeared in the August 2018 issue.

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