The Fallout Of The US-China Trade War On One Manufacturing CEO

America’s trade dispute with China is a morass that threatens to become a tar pit for CEOs of many U.S. manufacturers, even as President Trump’s tariffs provide direct protection of many other companies. Steve Harriott, CEO of Watchfire Signs in Danville, Illinois, is one of the worried ones.

Many business leaders and their representatives fear that this week’s tit-for-tat of new U.S. and Chinese tariffs could help tip the standoff into a genuine trade war that would take the growth edge off the robust domestic economy.

“The administration has correctly identified the real problem of China’s discriminatory trade practices,” said the Business Roundtable in a typical business-community reaction to Trump’s decision to impose tariffs on an additional $200 billion worth of Chinese products. “But unilaterally imposing tariffs is the wrong way to achieve real reforms, with this latest escalation threatening further harm to U.S. businesses and workers.”

In fact, the Chinese quickly retaliated with plans to impose their own new tariffs on $60 billion in U.S. exports—prompting Trump to threaten to punch back by hitting Chinese goods worth more than four times that much. And on and on it’s done.

One of the dean of American CEOs, Fred Smith, chief of FedEx (who will be the keynote at our Logistics Summit in March), spoke for many colleagues when he told analysts this week that the U.S.-China trade spat “is worrisome to everyone. History is very clear that countries that pursue the most open markets are the ones that prosper the most and whose citizens’ income increases the most … Mercantilism does not work.”

Harriott seconds that notion. “It’s going to mean that potentially our costs will go up, and our concern also is for the many small businesses that we serve—sign shops and billboard operators,” says the chief of Watchfire, a mid-market manufacturer that employs about 330 people designing and fabricating signs, including unique, high-profile jobs such as a $30-million display for the new Fremont Street Canopy in Las Vegas.

The company already has had to cope with higher raw-metal prices as markets have adjusted to new U.S. tariffs on European steel and aluminum. Harriott says he hasn’t tried to raise prices yet to pass on those higher costs to customers. The higher prices meant Watchfire had to sacrifice hundreds of thousands of dollars in profit margin on the Fremont Street job.

Harriott fears that Trump’s trade impasse with China will have more direct, and very negative, effects on Watchfire. The company relies on light-emitting diodes it imports from China, Japan and elsewhere; they aren’t made in the United States.

A big part of Watchfire’s problem, he says, is that the tariffs affecting his industry seem to be targeted at the wrong aim. At this point, Harriott maintains, Chinese-made diodes used by Watchfire could be subject to new tariffs “even while someone who brought in a complete sign from China, made by Chinese labor and a Chinese company, wouldn’t be subject” to tariffs.

That situation could mean “the antithesis of what your objective would be if you were putting tariffs in place to help high-tech manufacturers like Watchfire,” Harriott complains. “We’ve tried to communicate that concern, and we hope that [the administration[ will come to understand.”

While Harriott is hoping that a refinement of its plans means that the Trump administration would correct the situation, Watchfire isn’t waiting around in the presumption that this apparent contradiction will be solved as part of complex tariff schemes that have thousands of similar wrinkles.

“We would begin to see many of the effects in our industry within the next year,” Harriott says. Made-in-America sourcing isn’t in the cards. “So we need to look at what our options are for avoiding tariffs, including using more and more diodes from Japan.”

Read more: Trump’s Trade Strategy Playing Well With Some Manufacturing CEOs