By Ruth Simon
A small manufacturer is stocking up on raw materials. A trucking
company is paying $1,500 more for new trailers. A machine-tool
company put off plans to build a $5 million headquarters.
The potential for a trade war with China is already rippling
through the U.S. economy as leaders of the two countries continue
to threaten new tariffs on hundreds of items, from dishwashers to
soybeans. Small-business owners aren't waiting for either side to
make good on their saber rattling. They are taking steps to blunt
the pain of higher prices or potential supply disruptions.
Kelli-Marie Vallieres, owner of Sound Manufacturing Inc., says
the cost of the aluminum sheets her firm shapes into housings for
generators, leaf loaders used by commercial landscapers and other
products jumped in March to $1.99 a pound for large orders, from
$1.73 in February, amid discussions of a trade war.
"We just have to have a conversation" about increasing tariffs,
"and it upsets the apple cart," said Ms. Vallieres, who recently
added 10 workers because of strong sales. Her firm now employs 76
people.
Since February, her Old Saybrook, Conn., firm has been stocking
up on aluminum and steel, instead of buying materials two or three
days before they will be cut and bent for just-in-time
manufacturing. Higher inventory and storage charges have pushed
material costs to roughly 25% of revenue from 20% a year ago, said
Ms. Vallieres, who has asked suppliers to increase the company's
credit lines. Some customers are shifting to thinner gauges of
metal to reduce costs, she said.
President Donald Trump said in March he would impose duties on
aluminum and steel and later threatened stiff tariffs on $150
billion in Chinese imports, in an effort to protect U.S.
manufacturers what the U.S. claims is unfair competition. China
vowed to set its own tariffs on a variety of high-value U.S.
exports.
More than one-third of small-business owners said tariffs will
hurt their businesses, while just 5% said they would benefit,
according to an April survey of 923 business owners for The Wall
Street Journal by Vistage Worldwide Inc., a CEO peer-advisory
organization.
Some companies that make steel and aluminum in the U.S. support
the tariffs and say any inflationary effects would be small.
"It seems like it's just for the good of the steel producers,"
said Ken Murray, president of Huth Ben Pearson International, a
Hartford, Wis., maker of pipe- and tube-bending machines with 24
employees. "It's hurting our suppliers. It's hurting us. It's
hurting our customers."
If all the tariff increases announced by Mr. Trump and U.S.
trading partners were implemented, it would increase inflation by
0.2 percentage points and cut real gross domestic product growth by
0.4 percentage points the year after levies were implemented,
Moody's Analytics estimates.
The dispute is creating fresh headaches for small firms, which
typically have less bargaining power than large companies and fewer
resources to direct toward developing new business relationships or
relocating production. Many small-business owners are already
dealing with rising costs and a tight job market.
Dale Lemmons, owner of two trucking companies in Kelso, Wash.,
is paying an extra $1,500, or 2%, for trailers that will be
delivered in September. "We will ultimately have to pass it along,"
said Mr. Lemmons, whose 100 employees haul sawdust shavings, wood
chips and other products in Washington and Oregon.
Jacob Azevedo, owner of Carports and More Inc. in El Dorado
Hills, Calif., said he lost a dozen sales after one supplier
notified him on a Friday that prices would increase the following
Monday and it would no longer honor outstanding quotes.
"There were quite a few very angry customers," said Mr. Azevedo,
whose 15-person company sells metal carports and RV canopies. "They
would almost think we were being shady, which we weren't."
A sudden jump in prices is unsettling because it follows a long
stretch of relatively stable costs. "It's probably been eight to 10
years since we've seen much fluctuation in commodity prices," said
Roger Brubaker, president of Wilco Electric Inc., a
third-generation electrical contractor with 39 employees in
Lancaster County, Pa.
Wilco's contracts typically allow the company to charge
customers for storing materials but don't carry escalation clauses.
Mr. Brubaker, who supports the tariffs, figures he saved about
$60,000 on a $1.2 million project by purchasing in advance PVC
pipes, steel conduits and other materials in March.
He could be on the hook on other projects if prices continue to
climb. "We are stuck with what we bid," he said. "If all of the
sudden these tariffs come in and prices skyrocket, we will have to
eat the difference."
Some entrepreneurs are also looking for ways to shave costs.
Wahlen Corp. is purchasing concrete sealer and other chemicals in
returnable 275-gallon steel totes instead of disposable 50-gallon
steel drums. During peak season, the Waunakee, Wis., company
employs about two dozen workers who pressure wash, seal and stripe
parking lots.
"We have to figure out efficiencies in how we buy and
transport," said Jim Wahlen, whose grandfather founded the business
in 1971. "The way we apply the product, there's really no wiggle
room there."
Daniel Rogge, chief executive of Tormach Inc. in Waunakee, is
delaying plans to build a new headquarters and training facility
and has put on hold a revamp of the company's e-commerce site.
Tormach, a 45-person company that designs and sells
computer-controlled lathes and milling machines, had a record
January, but sales in March fell 37% compared with the same month a
year ago.
Adding to his worries: the Chinese-made machine tools Mr. Rogge
sells are among the 1,300 product categories targeted in April for
higher tariffs by the Trump administration.
"One of our reactions to this will be to develop more robust
export markets," said Mr. Rogge, who is now looking to translate
the company's website into Spanish and is booking sales trips to
Mexico and Germany. "Instead of helping entrepreneurs and startups
create jobs in the U.S., we will help entrepreneurs and startups
create jobs outside the U.S."
Write to Ruth Simon at ruth.simon@wsj.com
(END) Dow Jones Newswires
April 15, 2018 08:14 ET (12:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.