Second Tranche of Proposed Section 301 Tariffs Continue to Drive Industry Worries

More than 20 businesses and trade groups -- the first set of more than 80 scheduled to testify -- told the Section 301 investigation panel on July 24 that including their imports on the tariff list of $16 billion in Chinese products will lead to higher consumer prices, lower profits, abandoned expansion plans or worse. For Jane Hardy, CEO of Brinly-Hardy Company in Kentucky, having Harmonized Tariff Schedule heading 8432.4200, fertilizer spreaders, added to the list is an existential threat. With the tariff on steel, her family-owned company, founded in 1839, began paying 25 percent to 37 percent more for the metal, even though she'd always bought domestic steel. Then, with the first tranche of Section 301, Chinese wheels and hardware that her Indiana factory uses as it builds equipment were taxed at 25 percent.

Brinly-Hardy makes more than 80 percent of its products in the U.,S., but it imports fertilizer spreaders used by landscapers, and the higher profit on those sales helps subsidize some of the consumer products they make domestically. She said she cannot raise the price by 25 percent. "I feel we will not survive the latest tariff actions," Hardy told the panel. Already, she's eliminated the second shift and instituted unpaid weeklong shutdowns. Production is as low as it was in the depths of the Great Recession. "And we can't sustain it," she said.

The panel asked her why she doesn't build the fertilizer spreader in the U.S., and she explained it's primarily a plastic machine, and her company's strengths are in metal stamping and forming. Moreover, she explained, she spent $400,000 on the tooling for the Chinese firm two years ago, and if she changes suppliers, that investment will be lost. Hardy was one of several gardening tool sellers who testified in the morning; other well-represented segments were semiconductors, chemical manufacturers and importers, and wire and cable manufacturers and importers.

The only witness that asked for inclusion of a product on the list was Charlie Murrah, president of power systems at Southwire Company. Murrah said one of the Chinese companies that was scheduled to testify against the inclusion of cables in the afternoon won a utility project his company bid on, and they charged prices that "severely undercut U.S. prices." He said the 10 percent aluminum tariff he's paying makes it even harder to compete with Chinese suppliers. If his business isn't protected, he said, Southwire might have to reduce its workforce by 30 percent, which would be 2,500 people.

Semiconductors would seem like a natural fit for the goal of the Section 301 investigation -- to prevent China from using abusive practices to advance its high-tech manufacturing -- but the trade groups and companies in the sector say that the tariffs would miss the mark. Greg Merritt, vice president of marketing and public affairs at semiconductor manufacturer Cree, said the design and manufacture happens in Durham, North Carolina, and the largely finished product is shipped to China for low-end final assembly and packaging. Joe Pon, a vice president at Applied Materials, explained that U.S. production is 47 percent of the global output in semiconductors. His company has 15,000 U.S. employees and contractors, and has added 3,000 since 2016. If tariff codes 8486.90 and 8486.20 are added to the list, it will add $500 million in costs across the industry, he said. And, since 90 percent of Applied's revenues come from exports, the tariff would make it less competitive with Taiwanese, South Korean or other competitors.

Many of those who testified had argued against their imports' inclusion on the original $50 billion list. Prismview CEO Donald Szczepaniak, whose Utah company makes elaborate LED displays for sports stadiums, Times Square and Vegas casinos, is paying a tariff on diodes, because the panel didn't heed his pleas last time. He told the panel this time that he imports some LED modules, because sales are growing faster than he can expand his plant. His company grew from 100 employees a dozen years ago to more than 350 now, and he had planned another factory, which would need another 200 or so employees. "This is exactly the kind of growth in skilled manufacturing President Trump desires," he said. But with tariffs on modules, he'll cancel that expansion, Szczepaniak said. Ironically, once the expansion is done, he wouldn't need to import modules, but it would take 18 to 24 months to complete, he told the panel. When asked if he could contract with a different factory for the modules outside China, he said he could, but it would cost more, because nearly all LED diodes are made in China.

Joseph Cohen, founder and CEO of Snow Joe, thanked the panel for removing electric snow shovels and snowblowers from the list last time, but said now electric garden tillers he imports are on the list. Snow Joe employs 300 in New Jersey but does all its manufacturing in China. He said he had a warehouse and testing facility expansion planned, which would require 100 jobs, but if tillers face a 25 percent tariff, he's not sure it will happen.