Trump tariffs produce winners, losers, and worriers in Ohio

July 15, 2018

Trump tariffs produce winners, losers, and worriers in Ohio

CLEVELAND, Ohio -- Jack Schron, Jr., president of Jergens, Inc. in Cleveland, received an email from a concerned employee. It was in June shortly after the Trump administration had imposed tariffs on U.S. allies. 

The employee, Aaron Cole, who does international shipping and logistics, wanted to know what kind of impact the new tariffs would have on their global business. The company, based in Cleveland’s Collinwood neighborhood, makes products, including electric screwdrivers and industrial fasteners, to distribute worldwide. 

Canada, Mexico and the European Union had just responded to the 25 percent tax on steel imports and 10 percent tax on aluminum imports by imposing retaliatory tariffs on the metals, as well as on a diverse array of American goods, ranging from soybeans to washing machines. So did China, where 25 Jergens sales employees are based.  

“Were sales going to go down?” Cole said, recalling his email to Schron. 

That’s the question many other businesses in Ohio have as well. They are fearing retaliatory tariffs will make Ohio exports too expensive to sell abroad. Manufacturers, who rely on imported steel for products made locally, say the tax will cut into profits.

But some businesses, mostly those in the steel and aluminum industries, are counting on sales to go up, saying tariffs level the playing field against what they deem has been unfair foreign competition.  

Republic Steel credits U.S. tariffs for the company’s plan to bring back 80 workers at its Lorain plant. Yet, the Port of Cleveland worries retaliatory tariffs could affect the local economy by reducing the 500,000 tons of imported steel that goes through the port yearly. 

Many in agriculture fear tariffs on soybeans could adversely affect Ohio farmers on a long-term basis. Manufacturers, like Jergens, that rely on steel to make their products, as well international markets in which to sell them, remain uneasy about how tariffs could impact both their costs and sales numbers.  

“I don’t know what the impact is going to be because there are so many uncertainties out there,” said Schron, whose company has 430 employees.  

For now, no Jergens products are subject to tariffs, he said. Still, he said, tariffs are uppermost in the thoughts of everyone at the company. They wonder if the company’s products would become the target of retaliatory tariffs should a trade war escalate. Jergens uses domestic steel, for which Schron said the company is paying 20 percent more since shortly before tariffs took effect. The company has had to raise prices by 6 percent, based on the percentage steel accounts for the total cost of manufacturing products, to cover the hike. So far, it hasn’t affected business. But he knows customers will probably push back against further increases.  

Joseph Parilla, a Brookings Institution fellow, who has looked at the negative impact tariffs could have on state economies, isn’t surprised at the increase in the price of domestic steel. 

“We’re using trade policy, which is, frankly, kind of a blunt instrument to support an individual industry or industries,” he said. “There’s all these consequences that occur, across the rest of the economy, both among consumers and other producers.” 

OmegaOne in Willoughby relies on European steel to make stainless steel tube and pipe fittings, said Morgan R. McIntosh, president of the 25-employee company. 

“We should be able to get some sort of price increase to offset the tariffs, but it is hard to tell right now,” he said. “I am sure there will be some amount of business volume that will drop off because our prices will go up. If we make a more palatable price, we’ll make less money.” 

Parilla said tariffs can also potentially harm U.S. businesses, and thus state economies, by cutting off global markets. 

“Eighty-five percent of the growth in the world is occurring outside of the United States, as a higher share of consumers are outside of the U.S.,” he said. So, as a country, we want to engage with that global marketplace because exports are an important sources of good jobs and they offer a diversification strategy for our companies.” 

Ohio’s large manufacturing and agricultural sectors as well as its significance in presidential elections, puts the state in the “crosshairs” of fallout from tariffs, said Daniel D. Ujczo, an international trade lawyer at Dickinson Wright in Columbus, focusing on Ohio manufacturing. 

“Most countries know that they can’t go toe-to-toe with the U.S., with the exception of China,” he said. “So, retaliation is meant to be a precision guided missile to inflict the most damage in key political places.” 

For example, Canada has put a 25 percent tax on $850 million in steel products from Ohio and a 10 percent tariff on $1.4 billion in consumer goods. The tariffs target products made by iconic Ohio companies, including Whirlpool (washing machines), Barbasol (shaving cream) and J.M. Smucker Co. (jams and jellies). 

Whirlpool and Barbasol declined to comment for this story and Smucker never responded to The Plain Dealer’s request. 

“Unfortunately, the countermeasures Canada has been forced to take will also hurt Ohio workers,” said Douglas George, Canadian Consul General to Ohio. “I think you’re among the top states that will be affected. It doesn’t mean that we targeted you.  It means that we’re targeting steel and aluminum primarily. We import a lot of steel from Ohio. Canada regrets having to do this. We have the closest relationship of any two countries in the world.” 

 Ujczo agrees. 

“Ohio trades more with Canada than we trade with China, Japan and the entire European Union combined,” he said. “Roughly one-third of America’s trade with Canada is Ohio companies trading with themselves across the Canadian border (because they have operations in both countries). By putting tariffs on Canada, all we’re doing is putting taxes on Ohio companies. It is going to create a great deal of disruption to Ohio’s economic recovery and ultimately it is going to cause job loss.” 

Steel tariffs in Ohio

The steel industry welcomed tariffs because it has been hard-hit by imports, including those from China. The government often imposed duties on products from specific countries after the steel producers proved that dumping, or selling steel often for less than what it had cost to produce, had occurred.  

The Republic Steel plant in Lorain has been idled since 2015 because of unfair foreign competition, said Pat Gallagher, sub-director for the United Steel Workers in Northeast Ohio. The company declined to be interviewed. 

Republic announced in June it would restart the 9″/10″ rolling mill in September, hiring 80 employees. Gallagher said the plant had about 700 employees before it was idled, and he is glad some will return to work. He believes the tariffs are vital to protecting the industry against unfair foreign competition and ensuring national security since steel is used in making tanks and other military equipment. The U.S. cited national security as the reason for the tariffs. 

“We do believe that it is in the best interest of our country that we have a domestic steel industry,” he said. “Right now, we’re running at 75 percent capacity in the steel industry across the country. The industry needs to be running at at least 80 percent to be vital and to be profitable.” 

Steel imports are also vital to Ohio’s economy, said William Friedman, president and CEO of the Cleveland-Cuyahoga County Port Authority. Nearly 700 people are employed in jobs directly related to handling steel that comes through the port, mostly specialty grades from Europe that aren’t made in the U.S., he said. 

“That could really be disruptive to a lot of jobs in the supply chain handling that steel, from the longshoremen to the trucking companies and the back office jobs,” he said. “It really is sort of embedded into the local economy.” 

Schron, a Republican Cuyahoga County Council member, voted for Trump, despite favoring free trade. Even though tariffs could potentially harm his business, he is not ready to give up on the president.

“The dumping of products, the stealing of intellectual property and the balance of payments deficit with China has been going on for years,” he said. “It is always tough to take on the tough issues. Do I applaud him for taking on the tough issues? Yes.”  

He believes the tariffs will result in nations coming together to discuss trade

“Ultimately, I think we will end up with a better trading relationship around the world,” he said.

Do tariffs work? 

President Donald Trump’s promise to do something about unfair trade was a big reason he won in Ohio and other industrial Midwest states grappling with manufacturing job loss. But are tariffs the best way to bring back jobs? 

Parilla of Brookings Institution fellow, who has looked at the negative impact tariffs could have on state economies, says no. He said more effective policies include government funding for efforts that will create good-paying jobs. These include making companies more competitive, especially internationally, and implementing technology, training and consulting support. 

Many farmers voted for Trump, but retaliatory tariffs, including a 25 percent one on soybeans, could harm them. About one-third of the soybeans grown in Ohio are exported to China, said Ben Brown, program manager of the farm management program at Ohio State University’s College of Food, Agricultural and Environmental Sciences. Prices have already dropped, nearly 20 percent in June alone. More important is the issue of market share. He said in the early 2000s when U.S. farmers lost market share in beef because of concerns about Mad Cow disease, they never regained it. 

“The reason China picked soybeans is because there was a substitution,” he said. “They can get them from Brazil (the second largest producer.) “This really threatens our market share for all products (subject to tariffs) because once you lose market share it is hard to get it back.” 

McIntosh, at OmegaOne, said not placing tariffs on imported finished goods, and only on raw steel and aluminum, undermines companies that manufacture in the United States. He said it encourages companies – even those with U.S. operations -- to make products abroad, and then import them.  

“I think the policy is incomplete,” he said. “You are making it uncompetitive for me because the repackaged material coming in from Korea and China is not tariffed. So, their prices are not going up as fast as ours are.”  

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