For nearly a century, the St. Pierre Manufacturing Corporation has made products such as horseshoes, tire chains, and anchors in a facility near Worcester, Mass. But in recent months, St. Pierre has been struggling. Why? Increased tariffs on goods from China imposed by the Trump administration.
That may seem counterintuitive. Tariffs on foreign goods are supposed to help companies that make things in the United States by increasing the costs of products sold by foreign competitors. Indeed, when rationalizing his administration’s increased tariffs on Chinese goods, President Donald Trump on Monday encouraged consumers and businesses to buy goods from countries other than China, or, in what he called the “best idea,” to buy American-made goods.
“The Tariffs can be completely avoided if you buy from a non-Tariffed Country, or you buy the product inside the USA (the best idea)” he wrote in a Twitter thread about China. “Make your product at home in the USA and there is no Tariff,” he continued in a separate thread on Tuesday.
…completely avoided if you buy from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs. Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!…
— Donald J. Trump (@realDonaldTrump) May 13, 2019
China buys MUCH less from us than we buy from them, by almost 500 Billion Dollars, so we are in a fantastic position. Make your product at home in the USA and there is no Tariff. You can also buy from a non-Tariffed country instead of China. Many companies are leaving China…..
— Donald J. Trump (@realDonaldTrump) May 14, 2019
But that advice is almost impossible to follow, as products made in America can contain parts sourced from all over the world. Even the most quintessentially American of goods has parts from somewhere else, whether that be a Ford F-150 pickup, a can of Budweiser, or tire chains from Worcester, Mass. “In the last 20 years, businesses have become much more strategic,” says Kara Reynolds, an economics professor at American University. “More and more often, they are looking at where they can find highest quality and lowest-cost parts so that they can be competitive.” More often than not, that’s China — and that means many U.S. businesses are feeling the pain thanks to Trump’s tariffs.
The Trump administration said Friday that it was increasing the level of tariffs on $200 billion worth of Chinese imports, including components like circuit boards and vehicle parts, to 25 percent from 10 percent. Last year, it raised tariffs for imported steel and aluminum, to 25 percent and 10 percent, respectively. China on Monday announced new tariffs on $60 billion worth of goods, sending global stock markets into a nosedive, though they have recovered somewhat Tuesday.
The most recent round of tariffs is expected to affect a broad swathe of industries that make products in the United States. “This is playing havoc with the supply chains of Americans producers — increasing their cost and reducing their worldwide competitiveness,” says Robert T. Kudrle, an economics professor at the University of Minnesota. St. Pierre, for example, makes chains and wire rope in its Worcester facility, as it began doing in 1920 when Henry St. Pierre started the company. But as it started facing foreign competition, St. Pierre began buying chain slings and other parts from producers overseas, then cutting them and adding hooks and fittings in the United States.
The cost of those imported chain slings have gone up as tariffs have risen. Even St. Pierre’s horseshoes, which are made completely from U.S. steel, have been affected by the tariffs on foreign goods. As the cost of foreign steel went up, the cost of U.S.-made steel rose too, says Peter St. Pierre, vice president of finance at St. Pierre Manufacturing — and Henry St. Pierre’s grandson. “Everything we do here is steel-related, and over the last year or so, the price of steel has been going up and up,” he said. Increased demand for domestic steel has allowed U.S. producers to raise their prices; one estimate found that U.S. steel prices have more than doubled since 2015.
The trade war comes at a difficult time for some U.S. manufacturers like St. Pierre. Retailers are stocking fewer products on shelves as they try to make stores more intimate to counter competition from e-commerce. When St. Pierre asks them to pay for three or four or five dollars more per product because of the tariffs, they’re even more likely to stop carrying them, St. Pierre said. Meanwhile, his company’s labor costs are increasing as the minimum wage rises, resulting in higher pay for not just low-skilled workers, but for everyone upstream at his manufacturing facility as well. “As time goes on, we’re making less units, and the cost of those goods per unit is going up,” says St. Pierre. “It gets to a point where not enough people are going to want to make horseshoe sets made in the USA.”
Other companies have also said that they’re being affected by the tariffs even though they make goods in the U.S. Arnold Kamler, the CEO of Kent International, wrote in a Washington Post op-ed published May 8 that the tariffs have stopped him from expanding his domestic bicycle manufacturing operations, because of rising duties on imported parts. A South Carolina plant that assembled televisions using Chinese parts said last year it was shutting down because of the tariffs. The Beer Institute, which represents 6,000 brewers and 2.2 million American jobs, said that about six percent of the cost of beer is the aluminum used in cans, and predicted that higher aluminum tariffs could cost 20,000 American jobs.
One of the biggest losers amid the U.S.-China trade spat may be the American auto industry, which has already been trimming its workforce. Cars have tens of thousands of parts in them; it would be nearly impossible to make a car in America that contains zero foreign parts. Just 67 percent of a Chevrolet Corvette and 57 percent of a Ford Explorer are made in the United States, according to an index from American University. “The nature of supply chains means that nearly every manufacturing firm producing anything of complexity buys parts from China,” said Michael J. Hicks, an economics professor at Ball State University.
The auto industry relies on parts from China, and it would be difficult today for both car companies and auto repair shops to solely buy American or even to buy from “non-tariffed countries,” as Trump recommends. The Center for Automotive Research estimates that about 12 percent of U.S. motor parts are imported from China. Firms that fix and market used cars are even more dependent on China for parts. Repairing a car’s brakes often means replacing its brake rotors, but 87 percent of brake rotors are imported from China, said Bill Hanvey, CEO of the Auto Care Association, which advocates for aftermarket manufacturers, distributors, repair shops, and retailers. Consumers trying to repair old cars will be hit especially hard; few U.S. factories make parts for old models, and many of those parts come from overseas, he said.
If car companies, car parts manufacturers and other businesses decide that the tariffs aren’t going away, they could start to seek alternative sources for the products they currently import from China, whether in the U.S. or elsewhere. But that would be difficult and time-consuming, says Charlie Chesbrough, a senior economist at Cox Automotive, which tracks auto industry trends. Supply chains take years to establish, and it can be hard to find the right tool and die maker who can make tools quickly and affordably. “To replace a supplier is very difficult, and very expensive,” says Chesbrough.
Doing so also defeats the purpose of a globalized world. International trade enriches the economies of countries that have relationships with each other, allowing them to make some things and outsource what can be done better somewhere else, says Christina Fattore, a political science professor at West Virginia University who studies international trade. The ‘Buy American’ rhetoric started in the 1980s, when U.S. companies hoped to push back against competitors who had moved manufacturing to China, she said. Today, that rhetoric is irrelevant, because almost everything made in America has pieces that originated somewhere else. “Right now, buying American isn’t going to help American workers,” she said, “when something isn’t truly just an American product.”