Just 30 minutes separates the Welded Tube Corp.’s production plant in Canada from a second location in Lackawanna, N.Y.
Since 2013, the company has shipped raw steel from Ontario to the U.S. plant, and finished products back to Canada without much fuss. Then President Donald Trump instituted a 25 percent tariff on steel imports, and Canada retaliated with its own tariffs on the metal.
Since then, Welded Tube has been forced to lay off 25 workers and cut pay for its remaining staff. It also shuttered the Lackawanna facility for three weeks and reduced production in an attempt to address the higher costs imposed as a result of the trade conflict between the two administrations, including the ongoing negotiations over an update to the North American Free Trade Agreement.
“We remain committed to the Lackawanna facility,” Chief Operating Officer John Young said in an interview on Thursday. “What we really need, quite honesty, is a resolution of NAFTA and the tariffs as soon as possible.”
The episode highlights what economists, lawmakers, businesses, and others have long cautioned would occur should Trump pursue the tariffs. While the overall economy has yet to see a material impact from the trade conflicts with China and trading allies like the European Union and Canada, major corporations like General Motors and Caterpillar are warning the disputes will weigh on profits for the year. Trump moved Wednesday to further escalate the trade confrontation with China by raising tariffs higher.
[Also read: Businesses grow impatient with Trump’s trade war]
And as large companies caution shareholders of the pending effects, many small businesses are already suffering because they are unable to blunt the effects of the tariffs by increasing prices.
“Initially, many people thought there was going to be a resolution between the two administrations and it wouldn’t come to the tariffs,” Young said. “Now that tariffs have been imposed, you’re just starting to see the negative impact on many small-or-medium size producers that will most likely increase in both frequency and magnitude. Producers who will struggle to handle the extra financial burden.”
Executives from Welded Tube have spent ample time in Washington trying to make their case to the administration and Congress.
“At this point in time, we haven’t seen a significant return on that investment,” Young told the Washington Examiner.
The United States Trade Representative previously initiated a process for companies to seek an exception from the tariffs, but thousands of applications sit idle. Businesses are warning that the USTR is severely understaffed and unable to handle the large number of requests.
In Welded Tube’s case, they planned to make a case by arguing that there was a shortage in the number of steel producers in the U.S. to purchase from. That changed, however, after American producers informed the government they do have capacity to sell.
Young says the prices quoted were “exorbitantly high” and beyond what Welded Tube could afford. A number of U.S. steel producers, including AK Steel, say prices per ton of flat-rolled steel are higher than expected. Several of those businesses routinely praise Trump’s tariffs.
The U.S. steel market is reaping the benefits of a “reduction in unfairly traded imports entering our country as a result of years of successful trade cases, and the broad-based tariffs,” Nucor Chief Executive Officer John Ferriola told investors in July.
Transferring raw materials and finished products from one country to another is not unusual. Fiat Chrysler referenced the arrangement in an investor call earlier this year and said the company could employ duty-drawbacks, or refunds, to eliminate the impact.
For Welded Tube, raw steel shipped from Canada to Lackawanna is subject to a 25 percent tariff once it crosses the U.S. border. Once the finished products are shipped back, they are subject to another 25 percent at the Canadian border.
To mitigate the increased costs, Welded Tube reduced its 119 staff by 21 percent on July 27. Once Canada levied retaliatory tariffs, the company lowered production and closed its New York facility for three weeks. It will reopen in August.
“We deliberately hired people that had no experience in our industry and provided them the training to be successful,” Young said. “As [the tariffs] linger … the negative impacts continue to go grow, people get more concerned and more nervous and start to make decisions about their future.”
