CT manufacturers scramble to avoid tariff impact
by Dan Freedman / June 9, 2019
WASHINGTON – President Donald Trump’s imposition of tariffs and threats to expand them have Connecticut small manufacturers in fear of a business free-fall, desperately grabbing for hand holds to prevent greater damage to their bottom lines.
“We’re between a rock and a hard place,” said Paul Lavoie, general manager of Carey Manufacturing in Cromwell, which makes high-quality handles and latches for the aeronautical and defense industries.
Even though the company of 36 employees brought back a significant portion of parts manufacturing from China in 2016, Carey has seen costs rise 25-30 percent since last year because of tariffs on China.
“I increased prices at the beginning of 2018 so I’ve been able to hedge a bit of the impact,” said Lavoie, whose products are made from steel, brass and aluminum. “But I can’t pass all of it along because I’m still competing with finished products from China.”
Trump’s tariffs on China affect parts but not finished products. Had they been drawn the other way around – tariffs on finished handles and latches – “my phone would have been ringing off the hook,” Lavoie said, with new customers looking to avoid higher costs from Chinese competitors.
Carey Manufacturing’s predicament is emblematic of the sudden economic downturn some Connecticut firms are experiencing, a rough patch made more difficult by uncertainties. President Trump is threatening new tariffs on Mexico if the administration doesn’t secure greater cooperation on stemming illegal immigration.
Added to the tariffs already in place on China, India and European Union members – and with little chance of resolution in sight – Connecticut manufacturers say the uncertainty is propelling them to put off expansion decisions.
“Businesses like known quantities,” said Chris Ulbrich, CEO of Ulbrich Stainless Steels & Special Metals, Inc., a 95-year old business based in North Haven. “But this is an unknown.”
The company, which buys metal and reprocesses it for parts for use in airplanes, automobiles and other products, has seen a drop of three-to-five percent because of tariffs. Ulbrich imports 20 percent of its metal from EU countries subject to Trump tariffs. “A dollar’s worth of metal was $1.25 overnight,” he said.
“We look forward to a better global trading environment,” said Jamison Scott, executive director of the New Haven Manufacturers Association. ‘Uncertainty is not good for our manufacturers.”
Connecticut has a long and proud history as the virtual cradle of American industry in the U.S. It earned the nickname “The Provision State” as supplier of the Continental Army during the Revolutionary War. Its production of guns, ammunition and other weaponry arguably assured Union victory in the Civil War.
Manufacturing today in Connecticut would be unrecognizable to previous generations of workers, managers and owners. Carey Manufacturing employs 36, not the thousands who are depicted in historic photos as pouring through factory gates at shift change. Ulbrich has one of the larger workforces, with 350 in Connecticut and 715 worldwide.
Destroyed, decaying factories in Bridgeport are haunting testimony to the ravages of technology and policy decisions that accelerated job flight overseas. But many manufacturers in Connecticut survived through embracing advanced manufacturing methods, where worker math skills are more important than brawn. The concentration of defense industries like Electric Boat in Groton and Pratt & Whitney in East Hartford has nurtured small manufacturers producing parts and components.
These companies also contribute to Connecticut’s growing stature as an export state.
Connecticut exported $943.6 million to China, which ranks as the state’s sixth largest trading partner behind France, Germany, Canada, U.K., and Mexico. International trade is 12.8 percent of Connecticut’s GDP. The state’s largest export category is aircraft, aircraft engines and parts.
In the scramble to blunt the impact of tariffs, Connecticut manufacturers are finding out that reliance on domestic suppliers is not necessarily a guarantee of cost savings.
Scott, who also is executive vice president of Air Handling Systems in Woodbridge (which makes metal ventilation ducts for industrial customers), has relied on domestic producers of galvanized steel. But last year after tariffs were imposed, his suppliers jacked up prices and changed the price guarantees, saying they could only deliver 75 percent of his order.
“It was really ugly,” said Scott.
Prices have stabilized for the Air Handling, which employs 14, but are still eight percent higher than four months ago. “We can’t raise prices 30 percent,” he said. “Raw materials are a big part of our price, but I have to work within my limits.”
Similarly, Kris Lorch of Alloy Engineering in Bridgeport, saw the cost of metal flanges from India rise 40 -to-60 percent. And instead of being content with finally undercutting overseas competition, her domestic supplier also “raised prices to meet or equal the cost of the (foreign-made) flanges,” Lorch said. “Previously they competed with the imports and their prices were lower.”
With tariffs in place, “reshoring” _ bringing production back to the U.S. from overseas – was up 38 percent in 2018 compared to 2017. Tariffs were not the only factor, said Harry Moser of the Reshoring Initiative, which promotes business bringing production back to the U.S.
But Moser also cited a survey showing that manufacturers thinking of alternatives to China are mostly looking at Mexico and even lower-cost nations in Southeast Asia rather than the U.S.
Some manufacturers say the need to stand up to unfair competition from China is worth the potential cost.
“It might be difficult to find a short-term beneficiary, but my opinion is that it’s about time we got tough on China,” said Bruce Dworak, president of Hobson Motzer, a precision metal stamping firm in Durham.
Reshoring has helped Schwerdtle of Bridgeport, maker of stamps for decorating containers of cosmetics and other products. Companies bringing production to the U.S. are looking to local suppliers for quick turnaround, she said.
But overall, Schwerdtle too is suffering from tariffs.
“The tariffs have increased our costs on both raw material _ aluminum and steel _ as well as capital equipment, so we have definitely not benefited,” Saint said.