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August 20, 2018

CT manufacturers scramble to blunt metals tariffs

HBJ Photo | Steve Laschever
HBJ Photo | Steve Laschever Mike Scotto is the business development vice president at Manchester-based ACMT, which makes parts for Pratt & Whitney engines. ACMT has been placing bigger aluminum orders to deal with the increased demand for domestic raw materials caused by tariffs.
HBJ Photo | Steve Laschever ACMT employee Joel Maldonado working on the shop floor.

In the nearly six months since President Donald Trump announced tariffs on imported steel and aluminum, Connecticut manufacturers have scrambled to blunt the impact of rising materials costs, jammed-up suppliers and other effects from the Republican administration's trade policies.

The impact of tariffs, and strategies deployed to mitigate them, vary from company to company, but three central Connecticut manufacturers interviewed by the Hartford Business Journal reported a combination of efforts that include changing ordering strategies or stockpiling key metals, asking the federal government for tariff exemptions, and diversifying or reshuffling their supplier mix.

With local employee counts ranging from 42 to 144 workers, the companies are far from metal-buying behemoths like United Technologies Corp. and Stanley Black & Decker, both of which have been negatively impacted by the tariffs, but they are still key players in Connecticut's economy.

Meantime, Trump hasn't shown signs of backing away from his trade policies, which he recently tweeted are “working big time” and will mean “jobs and wealth” for the U.S., despite warnings from various industry executives that the tariffs are hurting their businesses.

Stanley Black & Decker, for example, recently projected a $35 million tariff impact in 2018, while UTC CEO and Chairman Greg Hayes earlier this year said tariffs were a bad idea. One of UTC's subsidiaries recently raised prices by 3 percent on residential and commercial heating, ventilating and air-conditioning equipment, citing economic conditions.

Paul Nathanson, a spokesman for the Coalition of American Metal Manufacturers, said the tariffs came quickly on the heels of last year's federal tax cuts.

“Just about every manufacturer who I talk to tells me that the benefits that they received from the tax cut passed by Congress at the end of 2017 have been wiped out by the tariffs,” Nathanson said.

However, some U.S. steelmakers have expanded production in recent months as more companies turn to domestic suppliers as a cost-saving measure.

In Connecticut, the economic impact is still unclear. Earlier this month, a Canadian trade official told a crowd in Hartford that steel and aluminum tariffs on her country would help the state gain 200 jobs, but shed 5,000.

Canada is the Nutmeg State's largest import partner, followed by Mexico and China — all three countries that have been hit by metals tariffs.

Meantime, unwrought aluminum was Connecticut's second-largest import in 2017, with companies here having purchased $656 million worth from international suppliers, according to trade data.

Gibbs feels the bite

William Torres, president and CEO of Southington-based Gibbs Wire & Steel Co., said since the 25 percent steel tariff took effect June 1, the metal strip and wire processor-distributor has seen an “unprecedented increase” in materials costs, and higher pricing and order lead times from domestic mills that supply it with steel for its products, which are used to make springs and other components that ultimately end up in cars, medical devices and retail shelves.

In response, Gibbs has sought to buy more of its materials from U.S. suppliers, passed a portion of its higher costs onto customers, and filed 85 applications with the U.S. Department of Commerce seeking tariff exemptions — and says it hasn't gotten an answer on any of them yet.

That's not unusual, according to Hartford attorney Jeff White, who leads Robinson + Cole's manufacturing practice.

“While there was an initial rush of questions from our clients about applying for exemptions from the steel and aluminum tariffs, those requests have died down perhaps in light of the significant delays in getting those exemptions ruled upon,” White said.

Torres said he agrees with Trump that some countries' trade practices have not treated U.S. manufacturing fairly, but he thinks the tariffs painted too many countries and suppliers with the same broad brush.

Most countries, except South Korea, Argentina, Australia and Brazil, have been hit with the 25 percent tariff on imported steel and 10 percent tariff on aluminum.

“A more surgical approach would've been better,” Torres said. “It takes many years to build relationships overseas.”

“We are being naive if we don't recognize that our foreign suppliers are now looking to form other relationships with [non-U.S.] companies,” he added.

Torres said he raised his concerns directly to Trump in a March 5 letter, which he shared with HBJ. He wrote that he's been unable to find a domestic supplier for certain materials he buys internationally and that many domestic steel mills are operating at or near capacity.

He also predicts tariffs will lead to job losses and a drop in U.S. exports.

ACMT has stable costs, for now

Executives from Manchester-based ACMT, which makes components for Pratt & Whitney's geared turbofan engines, provided a less urgent view of the situation.

But ACMT President Michael Polo said he still has an eye on the aluminum tariff. His company orders plenty of aluminum for its engine-related work, and the Midwestern mill that supplies it has been slammed with more orders since the tariffs took effect. For now, the aluminum prices ACMT pays are protected by a multiyear contract — a benefit that Gibbs said it does not have — but Polo said if conditions persist that could change.

With its materials costs steady for now, ACMT's near-term concern is potential delivery delays.

The aeroparts maker has started to order full truckloads of aluminum to ensure it gets prioritized on the earliest possible delivery schedule, stockpiling the additional material in a recently constructed 53,000-square-foot building down the street from its headquarters on Manchester's Progress Drive.

“It places some financial burden on us,” Polo said of the bigger orders. “But we decided that was an investment in the future.”

He hopes the bigger orders might also stave off or lessen future materials price increases.

Polo said the tariffs haven't hit his bottom line yet, thanks in part to the company's recent rapid growth. ACMT has ramped up from 48 employees to 144 workers over the past two years, Polo said.

Acme Monaco leader puts tariffs in broader context

At Acme Monaco, which has about 120 employees at its New Britain headquarters, co-President Lucas Karabin said the company has seen brisk increases in materials prices this year, as well as some delays in materials shipments. It's had to pass on some of those costs to customers.

However, all things considered, Karabin says the impact on Acme Monaco — maker of medical and orthodontic guidewires, as well as springs, metal stampings and snap rings for bearings — has been “relatively constrained.”

But that doesn't mean there aren't challenges ahead if conditions hold. Some bigger orders the company accepted before the tariffs could see their profit margins shrink.

“That's the hardest part about it,” Karabin said. “You have orders on the books that you already acknowledged at a certain price.”

“You could try to fight the customer, and some will play ball and some won't because they are getting hit on all sides as well,” he added.

Acme execs have decided not to stockpile materials because they worry it could backfire if the tariffs are lifted.

Karabin says tariffs provide an extra challenge for his company and he hopes they're repealed, but he also tries to put them in context. Materials costs have already been rising in recent years and foreign competitors are a big challenge, tariffs or not. Meanwhile, Acme Monaco and many other manufacturers are desperate for talent to fill open jobs.

“Shortage of labor scares me more than tariffs do,” Karabin said.

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