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Months of anxiety for Wisconsin manufacturers amid trade war

Paul Buzzell points on Sept. 12 to a machine used to make the levels that Johnson Level and Tool manufactures in Mequon. Even with the company’s operation in Wisconsin, about half the levels it sells are imported from China. Tariff increases on those products are now expected to cost Johnson Level $3.7 million a year, Buzzell said. (AP Photo/Ivan Moreno)

Paul Buzzell points on Sept. 12 to a machine used to make the levels that Johnson Level and Tool manufactures in Mequon. Even with the company’s operation in Wisconsin, about half the levels it sells are imported from China. Tariff increases on those products are now expected to cost Johnson Level $3.7 million a year, Buzzell said. (AP Photo/Ivan Moreno)

By IVAN MORENO
Associated Press

MEQUON, Wis. (AP) — The trade war between the United States and China has made for a nerve-wracking summer of uncertainty in Wisconsin, where manufacturing has long been in decline yet remains a central part of the state’s economy.

At Johnson Level and Tool in suburban Milwaukee, the Trump administration’s thrust-and-parry trade moves with China and other countries have left the company bracing for up to $3.7 million worth of extra costs annually because of higher tariffs on some of the products it imports, including levels made in China.

The company has a range of ways it can try to blunt the higher costs — from raising prices on the levels it sells to big-box stores to even taking some of the manufacturing it now has done in China and having it moved a country that isn’t subject to the new tariffs.

But as companies throughout America struggle to adapt to higher prices from import taxes, Johnson Level and Tool officials have no surefire way to avoid paying more for indispensable imports. With Trump’s tariffs on countless U.S. imports taking root, some of the largest U.S. corporations are already warning that higher prices are coming.

For many such companies, a big internal question is whether they themselves should absorb the higher costs, at least temporarily, to avoid losing customers — or raise prices immediately. At Johnson Level, officials have chosen to raise prices by 8 percent to 10 percent.

Although Johnson makes some of its levels in Mequon, it imports others from China, where tooling machines cost just one-tenth what they do in the U.S., said Paul Buzzell, Johnson Level chief financial officer. About half of the levels the company sells are imported from China.

The uncertainty over how long the tariffs will remain in place has made it harder to settle on a plan, Buzzell said. He said he always assumed that if the U.S. increased its tariffs, it would give businesses a year or two to make adjustments with their suppliers.

That’s exactly what he believed, he said, when the company “started investing in our suppliers and relationships in China.”

“We have this uncertainty, and almost overnight our business really has changed and so the competitive landscape is different,” Buzzell said.

Because the company doesn’t import raw steel and aluminum from China, it isn’t affected by the tariffs imposed on those materials. But a second round of tariffs was imposed in July on $50 billion worth of Chinese imports. Hundreds of items were affected, including all the levels and laser levels the company imports. Johnson Level now pays 25 percent more for those products.

Despite its decline over the years, manufacturing still plays a central role in Wisconsin’s economy, making the fortunes of companies like Johnson Level of great interest to the state.

In Wisconsin, 16 percent of all workers are employed in manufacturing — making the state second only to Indiana in that regard, according to the National Association of Manufacturers. And global trade — whether it involves manufacturing, farming or other industries — supports about 800,000 jobs in the state, according to the advocacy group U.S. Chamber of Commerce. That’s roughly a quarter of the state’s total workforce.

In business since 1947, Johnson Level and Tool sells levels and measuring tools to stores throughout the country, including Home Depot, Menards, Lowe’s and Ace Hardware.

Buzzell said some of his customers, whom he declined to name, have already balked at suggested price increases. One business customer that he said accounted for about $2 million of Johnson’s annual sales responded to Johnson’s decision to raise prices by finding another supplier, Buzzell said.

Margaret Smith, a spokeswoman for Home Depot, said the company works “with suppliers to mitigate impact on customers.” She said she couldn’t elaborate.

Buzzell said the company, which employs about 100 people, has no plans to let people go. He wouldn’t disclose Johnson Level’s annual revenue, saying only that it’s under $50 million. Buzzell said one option now is to find a country whose exports are not subject to the new tariffs and begin having products made there.

Johnson Level has discussed that possibility. But making a change of that sort would require the expense of a great deal of time.

“This is a classic example of uncertainty,” Buzzell said. “We’re questioning, should we treat these tariffs as a long-term thing that’s never going away?”

At the same time, he said, company officials must also consider the possibility that the Trump administration could rescind its tariff increases on any given day.

“You don’t really know what to do,” Buzzell said.

Johnson Level is not the only company struggling with uncertainty.

“The big question is, nobody knows how long they’ll be in place, so it’s hard making changes,” said Austin Ramirez, CEO of Husco International, a Wisconsin-based company that makes hydraulic and electro-mechanical components for cars and uses machines and metal imported from China.

“This is costing us a fortune,” Ramirez told U.S. Sen. Ron Johnson at a meeting with business leaders in July. Ramirez said the company was incurring about a million dollars a month more in expenses because of Trump’s tariffs. Husco International makes roughly a half-billion in total revenue, Ramirez said.

Husco International does about half its business overseas, having plants in Asia and Europe. The company also has about 100 manufacturing jobs in the U.S. But with retaliatory tariffs now imposed on U.S. exports, company officials are thinking about moving those jobs elsewhere, Ramirez said.

“Those jobs are at risk because I can move them to overseas plants that aren’t subject to these tariffs,” Ramirez told Johnson.

At Regal Ware, a company that makes pots, frying pans and cast aluminum cookware, $2 million worth of profits could vanish if tariffs remain in place this year, said Doug Reigl, a vice president at the Wisconsin-based company.

Reigl said the company will consider moving production overseas “or look for ways to take costs out of operations here in the U.S.” if the tariffs stay.

Although layoffs may not be imminent at manufacturing companies, hiring could slow down, said Dr. Joseph Daniels, chairman of the economics department at Marquette University.

“I would say what’s at risk is actually job creation,” Daniels said.

That’s a concern Buzzell shares.

“It’s not going to shut us down,” he said of the tariffs. “But what it does, it theoretically takes away money to invest in long-term projects.”

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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