Plan strategically to weather tariff uncertainty, officials say

Sean Thouvenot: Construction industry has braced for oncoming tariffs for months.

Carol McLeod: Hold Fast plans to keep beer prices stable amid higher malt costs.

Brian Cheever: Clear Creek should benefit from higher tariffs on China.

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Amid a frequently changing environment of tariffs involving the U.S. and allies, such as Canada, Mexico and the European Union, local industry officials advise businesses eschew panic and strategically plan to best handle the ongoing trade activity.

Among the latest actions, the Trump administration raised tariffs March 12 on global steel and aluminum imports to 25%. The action resulted in U.S. allies, such as the European Union, responding with reciprocal tariffs on the same day, covering $28 billion worth of U.S. goods imported to Europe, among them alcohol, boats and poultry. Canada also announced it will place 25% retaliatory tariffs on steel products and other products, such as computers, sports equipment and tools.

Those announcements followed President Donald Trump issuing exemptions March 6 on tariffs for myriad goods coming into the U.S. from Mexico and Canada – a decision made two days after the tariffs were put into place. The exemptions – set to last until April 2 – to the 25% tariffs enacted March 4 apply to roughly 50% of goods coming into the U.S. from Mexico and around 38% of goods from Canada that comply with the trade deal, dubbed the U.S.-Mexico-Canada Agreement, reached during Trump’s first term, according to media reports.

Additionally, Trump doubled the levy on Chinese imports to 20% on March 4, which resulted in China days later announcing an additional 15% tax on American farm products, including beef, pork and soybeans.

With more than four decades in business, Springfield-based SRC Holdings Corp. has weathered four economic downturns and the COVID-19 pandemic, said Jack Stack, CEO and president. He said all the recent tariff talk makes for a challenging business environment.

“The prolonged uncertainty is causing a lot of distress, and it has an impact on your mental and emotional and physical wellbeing,” Stack said. “When you’re dealing with partial knowledge about a situation, it makes it really difficult to react.”

Stack said the current situation of back-and-forth tariff threats and retaliatory measures has echoes of the uncertainty in the early days of the pandemic, which became a global issue five years ago this month.

His remanufacturing company has subsidiaries working in markets including agricultural, automotive, industrial and marine. It’s that diversification that Stack said has allowed his company to continue growth amid national economic challenges.

“After every downturn, you always learn something,” he said. “So consequently, when you look at our companies, they’re in markets that in various economic periods will be really high and other ones will be very low.”

The consumer price index rose 2.8% in February from a year prior, which was less than forecast and slower than the 3% annual rate in January, according to the U.S. Bureau of Labor Statistics. But despite the cooler inflation data, market analysts don’t believe the Federal Reserve will lower interest rates at its March 19 meeting. Stack thinks as companies look to pass price increases they receive onto consumers, inflation will probably tick up.

“We will see inflation hold about 4% going forward, and we’re going to have to plan on it,” he said.

Being prepared
Sean Thouvenot, vice president at Branco Enterprises Inc., said he noticed contractors panic-buying materials, such as lumber and electrical equipment, in January and February, in advance of higher tariffs.

“The construction industry has been basically bracing for this for months just because of the talk going,” he said, noting he’s had his teams at Branco examining new jobs to see where the materials needed are being sourced. “If it’s coming from Mexico, Canada or China, you probably better get lead times on it or figure out something else to use.”

While he has not seen any slowdown with projects or higher costs yet, he said acquiring materials is likely going to be more of a problem than prices.

“We were already struggling with electrical switch gears and the transformers and all that kind of stuff. This is just going to make it even worse,” he said of the tariffs. “That’s going to be the big hurdle.”

For example, Thouvenot said Branco just bid a project for the Lebanon R-3 School District and was told it will take around 87 weeks to get the electric switch gear, which previously could be acquired in the 15-20-week range. Transformers may take up to 26 months, up from roughly 7 months. He said electric switch gears are mostly supplied from Europe, India, Japan and China, but hopes the tariffs might spur more domestic production.

“We’ve tried to be ahead of the game as far as knowing it was coming and actually preparing for it. As an industry, sometimes we’re bad about waiting until it actually happens and then everybody runs around trying to figure out how to do it,” he said. “But I knew something was going to happen.”

Hold Fast Brewing co-owner Carol McLeod said the beer industry has some of its malt and hops come from Europe and Canada.

“Malt has already gone up. As soon as tariffs were announced, we started getting emails about price increases and things like that,” she said, estimating a roughly 15% increase in malt. “And it’s basic trickle down. If company A has to bring it in, down the food chain, the little guy pays for it, which sucks.”

McLeod said she orders malt once a month and is yet to do so this month. She noted Hold Fast typically spends $3,500-$5,500 monthly on the mostly imported product.

“We don’t use the most expensive malts or the most obscure hops. These are pretty common, so they’re always in play,” she said. “So, we don’t necessarily feel that pinch right away as others might.”

When prices increase, McLeod said businesses shouldn’t panic, which can lead to poor decisions.

“It has to be very strategic, thoughtful and planned out,” she said. “Remember that not only are we feeling it, but our customers are feeling it and taking that into consideration as well.”

The higher inflationary environment led Hold Fast to raise its beer prices last year, she said, resulting in pints going to $6.50 from $6.

“I’m not seeing the need right at this moment to raise prices,” she said. “We’ll hold for a while and see.”

Tariff aid
The increase in tariffs on China is welcomed by American manufacturers of golf cars, such as Club Car and Textron Specialized Vehicles Inc., said Brian Cheever, CEO of Ozark-based Clear Creek Golf Car and Vehicles LLC. Cheever said China-manufactured golf cars have been flooding the U.S. market for the past couple years, adding his company’s retail sales were down about 30% last year.

“People think it just hurts your new car sales because they’re cheaper than us in the new car world,” he said, noting many are priced at least $3,000 cheaper than American-made golf cars. “But it’s actually hurt us just as much on the used car side because our used car prices are close enough to what they’re selling new stuff for.”

The U.S. Department of Commerce announced late last year that China’s government has engaged in antidumping and countervailing activities to undercut global leaders Club Car and Textron, maker of E-Z-Go vehicles, in the low-speed personal transportation vehicle industry.

Antidumping is when foreign manufacturers sell goods at less-than-fair value, while countervailing is when a foreign government subsidizes manufacturers to enable them to sell goods cheaply.

“They just want a level playing field. If the Chinese government is subsidizing vehicles, $3,000, $3,500 a vehicle, that should go away,” Cheever said of the higher tariffs against China. “Well, immediately their vehicles are going up $3,000, $3,500 and you get them engineered properly. You just have to do the same things that an American company has to reproduce that kind of product.”

Cheever said there are over 20 of these brands manufactured by China, including Advanced EV, Coleman, Denago and Evolution. Some are sold at hardware stores and big-box retailers such as Lowe’s, he said, adding none of them have service departments. Cheever said his company, a 42-year-old seller of electric- and gas-powered golf and utility vehicles, gets calls every day about servicing Chinese-made golf cars.

“We don’t have access to all the parts. We make queries to see if we can help folks out, and most of the time we can’t get access to anything to help them, either,” he said.

Cheever doesn’t expect many of the brands to survive unless they move manufacturing operations to the U.S.

“I think the tariffs are going to eliminate most of those companies. So, you could buy a Coleman from Lowe’s, but Coleman may cease to exist in six months or a year,” he said. “Then you literally have no recourse with what you bought, and the value of that thing is going to be nothing. Nobody’s going to want it because there’s no parts to support it.”

As the trade wars continue and possibly escalate, SRC’s Stack said companies need to look at their strategic plans and think three to five years out.

“You’ve really got to have an honest discussion with yourself to say, do you have all your eggs in one basket? Where are you vulnerable?” he said. “And then make the investments to make certain that when these times do happen, you have a defensive position to be able to absorb them, because there’s going to be a lot more going on.”