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Business

LI factories: Prices of steel, aluminum are rising after new tariffs

Local manufacturers say they have limited ways to protect themselves from the escalating dispute between the United States and its trading partners.

Employees in the Mill Works production area at

Employees in the Mill Works production area at D'Addario & Co. in Farmingdale, Monday, April 9, 2018. D'Addario is a manufacturer of musical instrument strings, primarily for guitars, which produces high-carbon steel music wire and drumhead hoops using aluminum. Photo Credit: Newsday/Alejandra Villa

Long Island factories are facing sharply higher prices after President Donald Trump’s decision last month to raise U.S. import taxes on foreign steel and aluminum.

Joe Spinosa, co-owner of defense contractor East/West Industries Inc. in Ronkonkoma, appreciates that Trump is trying to help the domestic metals industry, which is crucial to U.S. military preparedness, by increasing taxes on metals coming from overseas. “Being a defense manufacturer, we understand the importance of protecting U.S. industry and our national security,” Spinosa said.

However, he also predicted the taxes — known as tariffs — will lower his company’s profits.

East/West has seen prices for steel and aluminum rise 25 to 30 percent in the past few weeks and it only uses U.S.-made metals. The company makes aircraft seats, emergency oxygen systems and portable floor cranes for the military.

“Because we are involved in fixed-price contracts [for military aircraft] we cannot immediately pass along our higher materials costs,” Spinosa said. “I’m not in favor of tariffs that haven’t been thought-out 100 percent as to the unintended consequences on the U.S. market.”   

Trump, citing the national security threat of a U.S. metals industry depleted by Chinese imports, hiked tariffs on steel and aluminum from China and other countries on March 8: levies of 25 percent and 10 percent, respectively. Temporary exemptions were granted to Europe, Canada, Mexico, South Korea and three other countries until May 1, when they must provide trade concessions.

“A strong steel and aluminum industry is vital to our national security, absolutely vital,” Trump said after signing the tariff orders at the White House. “Steel is steel. You don’t have steel, you don’t have a country.”

China retaliated on April 2, imposing tariffs of up to 25 percent on 128 U.S. goods valued at $3 billion per year, including pork, fruit and steel pipes. Since then the two countries have traded tariff threats on consecutive days, raising the specter of the first U.S.-led trade war in nearly 90 years.

Long Island manufacturers said they have few options to protect themselves from the escalating dispute between the United States and its trading partners.

Local executives are considering whether to pass along their higher production costs to customers or settle for lower profits. Some have shelved expansion projects.

“Companies that have not strategically planned for this are in panic mode,” said Thomas A. Cook, an international trade expert based in East Moriches. “We have been inundated with companies coming to us for help. They’re scrambling.”

Cook’s consulting firm, Blue Tiger International, helps businesses across the country with trade issues. Many have become dependent on China and other Asian nations as a source of raw materials and finished goods in the past 25 years. That dependency is “huge in the New York area and on Long Island,” he said.

Tariffs on imported steel and aluminum, coupled with the prospect of higher foreign tariffs on U.S. goods, could cause some factories in Nassau and Suffolk counties to shut down or be moved to lower-cost states such as the Carolinas and Pennsylvania, according to Jamie L. Moore, president of Ignite Long Island, an industrial trade group formerly called the Manufacturing Consortium of Long Island.

Moore, whose group has 82 members, described Trump’s tariffs on imported metals as a “knee-jerk reaction” that already has produced a “backlash from China and others that will make it increasingly difficult for manufacturers to justify staying or expanding on Long Island.”

Trump, as justification for his action, points to the U.S. trade deficit: the difference between how much the nation sells in goods and services to foreigners and how much we buy from them. The trade deficit was $568 billion last year, with China accounting for $337 billion and Europe, $102 billion, according to the U.S. Census Bureau and U.S. Bureau of Economic Analysis.

The deficit has been larger; it hit a high of $762 billion in 2006.

The United States exports more goods and services to some countries than it buys from them. In 2017, the largest trade surpluses were with Central and South America, $75 billion, and Hong Kong, $35 billion.

At Thuro Metal Products Inc. in Brentwood, executives predicted the new U.S. tariffs will increase aluminum prices by 25 percent in the next three months and steel prices by 10 to 15 percent. Eighty-five percent of the company’s precision machined parts are made from aluminum or steel, much of it imported from Canada, Mexico and Europe, all of which are exempt from the new U.S. tariffs for now.

“My biggest concern is that we won’t be able to get the aluminum and steel that we need in the United States,” said David A. Thuro, president of the 53-year-old business. “U.S. mills don’t have the capacity to meet the increased demand . . . Supplies of steel and aluminum could be interrupted.”

He also said sales of some parts could be affected by China’s implemented and proposed tariffs on U.S. pork and airplanes.

Thuro Metal, which employs 52, makes a small stainless-steel component that goes into a Wisconsin company’s feeding system for pigs and other animals. The component, which David Thuro called “the pig,” sells for $2.59 and 125,000 are produced a year.

A few steps away on the factory floor, Thuro pointed to a machine turning out small aluminum buttons that airline passengers push to recline their seats. Each of the 300,000 buttons made per year sells for 50 cents, he said.

Higher tariffs on imported steel and aluminum “could not come at a worse time . . . the manufacturing economy is beginning to roar” after being hit hard by the 2007-09 recession, said Thuro, whose company had sales of less than $10 million last year. “Tariffs will only increase the cost of raw materials. We’ll have higher inflation and that will lead to a recession.”

Adelphi University business professor Rakesh C. Gupta said consumers will likely pull back on spending if tariffs raise the price of goods. Consumer spending accounts for two-thirds of U.S. economic activity.

He said Trump’s implemented and proposed tariffs “reverse years of progress toward freer world trade, which most economists agree is good for the world economy.”

Trump recently reversed course on the Trans-Pacific Partnership free trade agreement, asking his staff to explore rejoining the 11-nation pact as a way of combating high Chinese tariffs on U.S. soybeans, meat and other farm goods. He withdrew the United States from TPP upon entering the White House in January 2017. TPP participants were cautious about the overture, saying they didn’t want to renegotiate the treaty.

Free-trade agreements such as NAFTA have spurred exporting by Long Island businesses. Manufacturers, distributors and trading companies based here sold $9.8 billion in goods to foreign buyers in 2015, a 53 percent increase from 2005, according to the latest Census data.

More than 60 percent of the Island’s exports fall into several categories, each with sales of more than $1 billion in 2015: drugs and vitamins; medical devices, dental supplies, musical instruments and miscellaneous goods; and electronic and computer parts.   

Among the big exporters is D’Addario & Co., a manufacturer of guitar strings, drumheads and sticks, reeds and other musical instrument accessories. It sells to 120 countries.

CEO James D’Addario said Trump’s embrace of tariffs and China’s response threatens to derail a multiyear initiative by the East Farmingdale company to boost exports to China, India, Indonesia, Thailand and other Asian countries. He said he opened a distribution company in Shanghai, China six years ago, has four sales representatives in India and plans to open an office in Singapore with an executive to oversee operations in the region.

“This looks like a trade war to me, and it doesn’t look like anybody is doing it based upon legitimate reasons,” D’Addario said. “I’m making investments in Asia that could blow up because the president is making emotional decisions.”

Exports support about half of D’Addario & Co.’s 840 employees in Suffolk County and Brooklyn. The company had total sales of nearly $180 million last year.

D’Addario said he continues to fight Chinese counterfeiters, recently uncovering fake guitar strings sold under the D’Addario brand name on Amazon.

He predicted the steel and aluminum tariffs will boost the cost of high-carbon steel wire, which is used to make music string wire, and aluminum hoops for drumheads. Some of the steel used by the company is imported from Japan and while some of the aluminum is made domestically, the price recently increased about 25 percent.

“As a business, you don’t have control over what the government is going to do on tariffs and what it does could send the whole economy into a tailspin . . . It’s scary,” D’Addario said.

For Regina Vieweg, CEO of Check-Mate Industries Inc. in West Babylon, higher prices for domestic metals because of increased demand is the latest curveball thrown her way by government. She’s already had to accommodate higher costs from Obamacare and an increase in New York State’s minimum wage, she said.

The tool and die manufacturer, with a work force of more than 200, turns out parts used in surgical tools, airplanes, automobiles and gun magazines, among others. The 46-year-old business had sales of $25 million last year.

Vieweg said her company only uses U.S.-made metals but has seen a price increase of 10 percent since last month’s tariff hike on imported metals because domestic producers are expecting more orders.

To minimize the impact, she said she may purchase larger quantities of raw materials before another price rise, install “additional equipment to reduce waste through the production process” and streamline operations with the help of engineering students from local universities.

Every president since Ronald Reagan, Democrat and Republican, has slapped tariffs on imported metals for limited periods. Trump is the first to justify his action on national security grounds.

Spinosa, the East/West vice president, said, “All these tariffs came about because of good intentions but the actual execution of them left a lot to be desired.”

East/West was started 50 years ago by Spinosa’s parents, Dom and Mary, and now has a workforce of 79 people. His sister, Teresa Ferraro, is company president.

Joe Spinosa said East/West will adjust to whatever comes out of Washington.

“We have weathered this situation on and off for years,” he said. “The U.S. government has a poor history of unintended consequences from tariffs.”

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