3 Manufacturers, 3 Takes on Tariff Uncertainty
How’s everyone doing? The past two months have been a carnival ride of executive orders, policy pronouncements and announcements/recissions-of-announcements related to tariffs on U.S. imports, so we’re just checking in. How are you holding up?
April 2 is the expected target date for big announcements around reciprocal tariffs and 25% tariffs on goods from Mexico and Canada, though what exactly will be announced on that day is also in flux.
In the interest of mutual support (and commiseration) from peers, we reached out to several global, U.S.-based manufacturers to find out how they’re mapping out the weeks and months ahead, and whether they’re changing course or waiting for more certainty. The following comments have been lightly edited for clarity and length.
Commercial and Heavy Trucks Components Supplier
Business model: We’re generally the leader or a tie for second as far as market share in almost every category we’re in. The big, multi-billion-dollar suppliers, the Densos and Valeos, just don’t deal a lot of times with smaller volumes for a customer, which could be a few thousand units a year for a Caterpillar-type vehicle.
Take on tariffs: When we look at our U.S supply base, we obviously look at the USMCA countries. Our customers are bidding on [local and federal government programs]. So, a big part of us winning a lot of the business that we have is being able to supply a USMCA-certified product to our customers because their contracts depend on it. So certainly, the tariffs on Canada and Mexico were not expected because we have a USMCA trade agreement. We feel that in the long term, it’s going to get resolved and not be a major factor in our supply chain.
Strategy: We are moving our electric compressors that are being supplied out of our China facility to the local manufacturing location (in Illinois). We made that decision well before the recent tariff announcements. We have committed to increasing our workforce by about 25% with money we received from the state of Illinois. At the end of the day, we still have to deliver a competitive product to our customers, so we are building the product with more automation than our [China] facility is, but one of the things that separates us from our competitors is our manufacturing line is very flexible. We can build our full range of products on this assembly line with very quick changeovers.
Concerns on tariffs: The biggest thing that concerns us is the instability of the talk that’s going on. Two days before the tariffs were supposed to go on with Mexico and Canada, they were pushed out 30 days, and then they were segmented. We bring product in under harmonized codes, which classify the product. So now automotive and automotive components are being exempted. And what’s going to happen with the product that we bring in from India? We are using a lot of energy trying to figure this out. I think our customers, as well as us, just want a clear direction. The tariffs are out of our control, so give us a direction, and we’ll handle what needs to be done from our end to make sure we’re competitive and our customers are still competitive.
Our new compressors have a lot of computer chips in them. And so, we’ve got to take a look at that. Most of our chips are Texas Instruments-based products, but just because we’re using a TI chip doesn’t mean it’s made here in the U.S. or North America. So, we’re trying to find out where they’re coming from, because they come from all over the world. So, we are driving down to that level of detail. If we don’t want to buy this out of Taiwan or China, can we get it somewhere in North America?
Message to Washington: I think the advice from the manufacturer is stability. We need consistent long-term trade policies so that we can be effective planners. It’s not a flip of the switch. It takes one-to-two-plus years for us or our customers to change supply bases and manufacturing locations and investments. Clear, long-term policies are what we want.
Automotive Aftermarket Components Manufacturer
Business model: Since Day One, when I started the company, the business concept was to offer turnkey, complete private-label solutions for retailers and independent warehouse distributors in the automotive aftermarket. Today, private labels are about 80% of our business; our sales of brands is about 20%.
We’re not dependent on a single manufacturing line, or a single country, in order to take advantage of differences in exchange rates and be able to improve the company’s resilience—to be able to withstand geopolitical conflict or weather-related issues.
The other feature of our supply chain is scalability. We have the ability to boost production within a short amount of time and accommodate additional business. Our company has been growing double digits for the last 10 years. So, scalability, flexibility, diversity of our supply chain are extremely important for us.
Tariff concerns: The biggest impact on our business is the uncertainty. What morning brings will be different. That rapid change and uncertainty is the biggest challenge for us.
We can change our pricing strategy. We can move production around. But we need to know what the rules are right now. They are not clear and constantly changing.
Tariff strategy: The last six weeks have been so tumultuous. We’re trying to plan for various scenarios, but the reciprocal tariffs are still not clear. What are the guidelines? Are we looking out for countries that have the highest rate imbalance, or are we looking for countries that have the highest tariffs on U.S. product? Or are we looking for certain product categories that have a higher content of steel or a higher content of aluminum? We’re not clear what the rules are.
All we know right now is that in addition to the 20% and the legacy 25% tariffs in China, we added another 10%. So, we adapted to that. It brought some price increases; we negotiated some of our costs, absorbed some and passed some onto our customers. I don’t know if the rate will change in China, or we’ll start implementing tariffs on friendly countries like South Korea or Thailand. But we saw where we’re heading with Mexico in the last couple of weeks, and hopefully South Korea won’t have the same fate because we have a lot of production there.
Moving some production to the U.S.: We’re considering that. Uncertainty would not allow us to make any decisions right now. Long term, we hope to. But there are two challenges. The first and most important is certainty long-term, not just one term of one president. You’re going to invest tens of millions of dollars to find out the policy will change in one or two years, and then all your investment will dissipate. You’re talking about expensive machinery, expensive factories.
Moving production might be easier on certain low-tech products, but the problem with the low-tech items that are labor-intensive is the cost of labor in the United States, versus India or Vietnam. Higher salaries will not come from commodities; they will come from producing complex product that has a lot of intellectual property, that has a lot of technology. We’re not in the semiconductors business.
Message to Washington: We employ over 1,200 people, and we’re going to continue to grow and invest. But the question is, what kind of economy do we want to build? Are we going to build an economy that produces T-shirts and cans, or are we going to invent the next technology.
The U.S. economy is highly service-driven. To shift to manufacturing, there are so many other things that need to be done—including, are consumers willing to pay 20%, 30%, 100% markup on a product?
Our economy, our country, has benefited tremendously from globalization. Corporate America has the biggest footprint around the world. It’s not corporate China. It’s corporate America, whether you’re looking at brands like Starbucks or Microsoft or Nvidia or Apple or Google. These are the leading brands around the world, so we need to be careful of burning bridges with friendly countries and consumers that have a passion for American brands. In my view, the current environment is starting to create some hostility.
250,000 Embroidered Apparel Emblems Daily
Business model: We’re a family company that started out working with the uniform industry, especially the industrial laundry industry, making name tags and envelopes for their garments. That pie is only so big. So about seven or eight years ago, we made a concerted effort to expand into other products that are decoration for the retail industry, and we made some pretty huge inroads. These products have historically been made in Asia, either China or Vietnam. And the problem always has been the length of time it takes to get something done over there.
We have found a way to shorten that lead time with our Mexico facility—instead of taking two weeks to get a decoration, getting it done in a couple of days. We run this business on speed of market, speed of delivery. Amazon set the pace, and now everybody wants something yesterday.
That’s why we’ve ended up growing in Mexico, to about 850 employees. We have a facility in Norcross, Georgia, and a facility in Houston, Texas, that do what we call “dailies”—the stuff that the uniform industry orders today and they need on their doorstep tomorrow. If an order comes into Norcross or Houston for name tags and company items by three o’clock in the afternoon, we ship same day.
Our Mexico facility works on the stuff that’s more for the retail industry, the stuff that takes a lot of people to produce. They also do raw materials for the United States. The way we’re able to do these custom-made products so quickly in the United States is we have blanks. Mexico also makes the blanks for us, and they ship it to us.
Tariff concerns: Basically, we’d take a 25% hit on the product coming in from Mexico. Our customer base is the U.S. and Canada. The advantage we have in Canada is 90% of our stuff for Canada is produced inside Canada. What isn’t produced inside Canada is produced in Mexico. And Mexico and Canada don’t have a problem; they still honor the USMCA. It’s the person in the middle that everybody seems to have to worry with.
The speed to market helps us at least have enough margin to be able to charge enough, to keep enough margin. But all of a sudden we take a 25% hit on Mexico, and it’s just not sustainable.
Tariff strategy: The retail business in Mexico is very labor-intensive and growing like a weed because we’re able to do things so quickly. We’re not going to move that piece right away out of that facility. It requires a certain amount of skill set, and the logistics of moving that amount of equipment quickly is just not going to happen.
But we have been looking at using automation and artificial intelligence for the supply-chain side of the business. The blanks that we manufacture are not a cost that’s easily passed on to the end user. That stuff looks like it will to the Dominican Republic. We won’t be moving entirely out of Mexico; it’s more we’re opening up enough expansion to be able to do the whole thing more efficiently.
The tariffs are a problem, but they aren’t the root cause of that. Mexico is not the cheap labor it was 18 years ago. Our team in Mexico is phenomenal, but we saw this coming a year or two ago.
One of the goals we set a few years back was to double the size of the business without doubling the number of people, because 1,200 people is a lot for a $75 million business, which was our revenue at the time. It would be a perfect time if we’re going to set up new automation, to set it up somewhere new and start expanding in that direction.
Fortunately, right now, the Dominican Republic imports more from the U.S. than they export to the U.S. So they’re not a danger for the tariffs. For right now, that’s a good thing, but you never know what five years will bring.
Message to Washington: The only problem is the uncertainty. Let’s say [Trump] put a 25% blanket tariff on everything coming out of Mexico. But will he honor the de minimus [tariff exemption] portion of that for small packages? Because really, every one of our packages is a small package. Today, we clear FedEx (international) as one big package. But if the tariff happens but the de minimus is honored, then I would just go to shipping each package individually. It would help defer some of the tariff. If the de minimus is not honored, then it turns into, is he going to honor any of the USMCA.?
There’s so much ambiguity right now. We’re planning as if it’s the complete 25%, no de minimis exemption, and you’ve got to pay it all. What would that look like? If anything less than that happens, we’ll at least have had the worst-case scenario covered. But it’s a mess.
