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Tariffs start to take a toll on Long Island businesses

With trade tensions resulting in rising costs, layoffs may be next, and uncertainty may keep a lid on plans for growth.

The Trump administration's proposed tariffs on products made in China, for sale in the United States, have the potential to hurt U.S. businesses. John Hoge of Sea Eagle Boats Inc. in Port Jefferson spoke Friday about how his company would be harmed. (Credit: Danielle Silverman)

The trade war is starting to hit Long Island.

Kayak seller Sea Eagle Boats in Port Jefferson expects to lay off employees if the Trump administration moves forward with another round of tariffs, or import taxes, on $200 billion of Chinese goods.

In Cedarhurst, shoppers at the AHC Appliances store are encouraged to delay purchases until the next sale or manufacturer’s rebate offer because tariffs have increased prices.

The Nature’s Bounty Co., a giant vitamin manufacturer based in Ronkonkoma, is paying more for ingredients it imports from China.

A swath of Long Island’s economy, both businesses and consumers, are feeling the effects of heightened trade tensions between the United States and other countries.

“A lot of companies are putting on hold their plans to do business overseas or scrapping them altogether,” said Savio S. Chan, an international trade consultant with an office in Great Neck. “There is great uncertainty about how to respond to the tariffs.”

Since January, President Donald Trump increased tariffs about a half-dozen times, most notably on steel and aluminum from overseas in March and on two groups of Chinese products — together valued at $50 billion — on July 6 and Aug. 23. The metals tariffs were met with retaliatory taxes by Europe, Canada, Turkey and others. China responded to the tariffs on its goods by boosting taxes on $50 billion of U.S. products.

At Sea Eagle Boats Inc. owners Cecil and John Hoge said their cost of producing inflatable plastic kayaks, fishing boats and motorboats in China will jump by more than $1 million per year under a U.S. tariff set to go into effect in a couple of weeks. The company’s annual sales total about $10 million.

“The tariff will be devastating,” John Hoge said during a tour of his office and warehouse south of Port Jefferson harbor, where he tests new boat designs. “We’ll have to raise our prices by 25 percent because there is no alternative source of supply. Nobody makes these boats in America.”

He said 50-year-old Sea Eagle has always had its inflatable boats built overseas, first in Europe and now in Asia. It sells about 18,000 per year via the internet, mail-order catalogs and telephone. The boats are priced between $300 and $3,850.

Tariff-fueled price hikes “will mean fewer sales and less work,” Hoge said, referring to the company’s 18 employees. “We will be forced to lay people off because of this government-created disaster.”

Hoge was among nearly 400 witnesses to testify in Washington to the Office of the U.S. Trade Representative, Department of Commerce and other agencies, over six days in August. Like many of the speakers, he asked that his products be exempted from the next round of tariffs on Chinese goods.

The new tariffs are “a purely destructive act,” Hoge said in an interview. “They are not going to create jobs in America. They are only going to destroy jobs in America.”

Trump, on Twitter and at political rallies, has said his trade policy is creating jobs, particularly in the U.S. steel industry.

“Steel is back . . . because of what we’ve done with our tariffs,” he said at an Aug. 21 rally in Charleston, West Virginia. Foreign steel companies “were dumping steel all over our country. They were destroying our business. They’re not dumping so much anymore. And if they do, they’re paying a lot,” he said.

Trump said the United States is “like a big, fat piggy bank that everybody wants to rob, and we’re not going to let them rob us anymore.”

He withdrew the United States from the 12-nation Trans-Pacific Partnership free trade agreement upon entering the White House. Last Monday he announced an agreement with Mexico that he said would replace the 24-year-old North American Free Trade Agreement; negotiations are ongoing with the third NAFTA partner, Canada.

Trump has said higher tariffs will bolster flagging industries, such as steel and aluminum, that are crucial to U.S. military preparedness, and help to preserve the country’s technological edge over China by safeguarding intellectual property.

His first tariff action came on Jan. 22 when he slapped a 20 percent tax on imported washing machines and a 30 percent tax on imported solar panels.

Maya Del Principe has seen the fallout at AHC Appliances LLC, where she is store manager.

“The impact has been very broad because even appliances that are made in the United States still have some imported parts,” she said, gesturing toward dozens of washing machines, clothes dryers, refrigerators, cooking stoves and barbecue grills in the crowded showroom on Cedarhurst’s Central Avenue.

“This is not a temporary situation,” she said. “This is what we are seeing for our future.”

AHC has increased prices between 5 percent and more than 15 percent because of the tariffs. It also has added a fourth warehouse to stock up on appliances because of tariff-related supply shortages and in anticipation of additional price hikes by appliance manufacturers.

The 20-year-old store, owned by Sandy Tau, carries about 60 brands and primarily serves homeowners and contractors in the metropolitan area. The company has 14 employees.

Del Principe said, “I tell my customers, ‘If there’s not an immediate need, wait for the next sale or package promotion to save some money.’ But not everyone can wait. If your washer goes out, you need a new one right away, and unfortunately you have to pay the higher cost” because of the tariffs.

Customers have responded in different ways to the higher price tags and lack of availability of some brands, she said. Some are deciding on purchases quickly, fearing matters will only get worse. Others have scrapped their home remodeling projects or now will only replace an appliance if it stops working.

Fewer consumer purchases are damaging to the Long Island economy, which like the national economy, depends on consumer spending for about 70 percent of commercial activity, according to John A. Rizzo, a Stony Brook University professor and chief economist for the Long Island Association, the region’s largest business group.

“Local businesses that export to China and other countries will be damaged by these tariffs,” he said. “But the bigger problem is price increases on important consumer products, like cars. You raise the price and consumers are going to pull back — and that effects the overall economy.”

Rizzo also said some companies in Nassau and Suffolk counties, particularly those that rely on export sales, will shelve plans to expand their workforce and might even give out pink slips. “The job market will suffer to some extent from the tariffs,” he said.

More than half of manufacturers in New York State and about 40 percent of retailers and service firms in the metropolitan area are predicting a “negative effect on the bottom line” this year due to the trade war, according to recent polls of executives by the Federal Reserve Bank of New York.

Some local executives said they were reluctant to speak publicly about tariffs for fear of angering Trump supporters in the workplace.

Officials at six businesses, both large and small, declined to be interviewed for this article, saying that if they criticized Trump’s trade policy, their employees would be less productive. “There will be a backlash in the shop, and I cannot afford to have that happen with our costs going through the roof because of the new tariffs,” said the CEO of a small factory in Nassau.

Defense contractors and other manufacturers that use only domestic raw materials are also experiencing higher costs because the tariffs have created more demand than U.S. producers can immediately satisfy.

“The most dramatic price swings have taken place in the last three to four months,” said Tom Iervolino, CEO of Ronkonkoma-based Alken Industries, referring to the cost of steel and aluminum.

The aerospace parts manufacturer is paying 6 percent more for steel and 3 percent more for aluminum. The metals are used to make the tailhooks for military jets that land on aircraft carriers, and aircraft structural beams and wing components.

“While Alken is experiencing the waterfall effect of the tariffs,” Iervolino said, “I am in complete support of this nation taking steps to try to level the playing field, and if that includes playing hardball with the Chinese or others, so be it.”

Alken supplies Boeing, Lockheed Martin, Sikorsky and other aerospace giants. Iervolino said a number of them have been willing to negotiate higher purchase prices in the tariffs’ wake.

“You have to adapt to it . . . You don’t go jump off the roof,” he said, referring to the higher cost of metals. “But I’d also say that it’s not helpful in growing our business.” Alken, which opened more than 40 years ago, is owned by its founder’s daughters and has about 50 employees.

Increased U.S. tariffs on foreign metals, 25 percent for steel and 10 percent for aluminum, have led foreign countries to hike their tariffs on U.S. agricultural goods. American farmers have felt the effects, and Trump has proposed $12 billion in subsidies for them.

However, farms and wineries in Nassau and Suffolk haven’t been impacted because they are not big exporters.

“Our markets have become more localized: selling within Long Island,” said Robert Carpenter, administrative director of the Long Island Farm Bureau.

Some of the Island’s best-known employers are struggling with the new tariffs.

Nature’s Bounty Co. has seen price hikes for some of the imported raw materials it uses to produce vitamins and nutritional supplements. The company employs about 2,200 people at its Ronkonkoma headquarters and 10 other facilities in Suffolk.

“We are monitoring the tariff situation and working closely with the Council for Responsible Nutrition, our trade association, to minimize any impact on our business,” said company spokeswoman Jodi Katz.

Nature’s Bounty is a key player in the fight to have plant ingredients from China exempted from higher U.S. tariffs, according to James C. Griffiths, vice president of scientific and international affairs at the 150-plus member nutrition council in Washington.

In addition, he said, U.S. vitamin manufacturers are worried that the trade tit-for-tat between the United States and China will undermine their export sales, giving Australian and Indian competitors an advantage in China, the world’s most populous market.

Chan, CEO of the consulting firm U.S.-China Partners Inc. in Great Neck and Manhattan, agreed. “If the U.S. persists with the trade war, American companies — large and small — are likely to be shut out. They will lose out to companies from other countries as China opens up further” to foreign goods and services.

Asked what his local clients, small- and medium-sized businesses, are saying about the trade war, Chan said, “they are concerned and confused.”

CORRECTION: A previous version of this story incorrectly described the job title of James C. Griffiths. Sandy Tau is the sole owner of AHC Appliances in Cedarhurst. An earlier version of this story, based on information from the store, incorrectly described its ownership structure.

TRADE WAR TIMELINE

*January 2017: U.S. withdraws from the 12-country Trans-Pacific Partnership free trade agreement.

*August: U.S., Canada and Mexico begin renegotiating 24-year-old NAFTA.

*January 2018: U.S. imposes higher import taxes, or tariffs, on solar panels, washing machines and paper.

*March: U.S. increases tariffs on foreign-produced steel and aluminum.

*April: China levies retaliatory tariffs on $2.4 billion worth of U.S. products, including aluminum, wine, pork, fruit and nuts.

*June 5: Mexico imposes retaliatory tariffs on $3 billion in U.S. steel, aluminum, food, alcohol and other goods.

*June 22: The European Union raises tariffs on $3 billion in U.S. products, including steel, aluminum, motorcycles, bluejeans, boats and food. A month later, the EU and U.S. announce plans for trade negotiations.

*July 1: Canada retaliates with tariffs on $13 billion in U.S. steel, aluminum, food and consumer products.

*July 6: U.S. and China levy tit-for-tat tariffs on $34 billion of their respective exports.

*July 20: President Donald Trump vows to impose tariffs on all Chinese goods; China says it will match any U.S. action.

*July 24: U.S. announces $12 billion subsidy plan to aid American farmers hurt by foreign tariffs.

*Aug. 6: Russia imposes retaliatory tariffs on U.S. goods.

*Aug. 10-14: U.S. adds to tariffs on Turkish steel and aluminum; Turkey retaliates with new tariffs on U.S. automobiles, alcohol and cigarettes, among others.

*Aug. 23: U.S. and China implement second round of tit-for-tat tariffs on $16 billion of their respective exports.

*Aug. 27: U.S. and Mexico announce handshake agreement to replace NAFTA; Canada excluded for now.

* Aug. 29: U.S. tariffs on Canadian newsprint are struck down.

*September: U.S. expected to impose tariffs on additional Chinese goods; India to raise tariffs on $11 billion of U.S. almonds, walnuts, apples and other goods.

— Compiled by James T. Madore

SOURCES: U.S. government, Peterson Institute for International Economics, Scarbrough International Ltd., GeoQuant

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