CEOs, of course, don’t have the luxury of academic debate over the issue. Chief Executive reached out to business leaders across the nation to get a sense of how you’re handling the third year of TrumpTrade. Here’s some of what we heard:
Standing pat: Some CEOs say they have little choice but to do nothing. “Business is frozen,” Ramirez said, “because these tariffs might go away tomorrow, they might go away in two months, they might be permanent. That really handcuffs us.”
Other CEOs are making a tactical choice to maintain the status quo as the tariff drama plays out because it would be riskier to do anything else for now. “CEOs just raise the hurdle rate that they need to make a particular investment and still know that it’s going to be profitable,” says Jeff French, managing partner for consumer industrial products for consultants Grant Thornton. “But now with more projects on the edge of the hurdle rate, CEOs won’t do them right now until there’s more clarity.”
Boosting prices: Crystal Morris, president of Tampa-based Gator Industries, which makes musical-instrument accessories, was sitting on price increases that she would spread over the company’s thousands of SKUs after a 10-percent tariff kicked in last fall on the 70 percent of her goods that are made in China. “We’ve thought about which products we could raise prices on and which we wouldn’t be able to,” Morris says. “But you can’t just change the price—maybe only once a year. It’s a pretty arduous process.”
Being transparent: Shorma, of WCCO Belting, believes being transparent with his customers can relieve much of the pain of having to raise prices after new tariffs. “There’s the challenge for how to plan,” he says. “But if companies are open and able to communicate effectively with customers, and put a structure in place [for price increases] that’s transparent and directly attributed to the tariff, we haven’t had a lot of pushback from customers.”
Appealing for exemptions: Companies can request exemptions from the steel and aluminum tariffs if they prove they can’t find what they need domestically. Tens of thousands of companies have applied, but few have been processed. Gator’s Morris determined that her company wasn’t even eligible to apply. “We were enthusiastic about filing one,” she says. “I mean, is this who we really want to be penalizing? A company that sells guitar cases to musicians and band cases to students?”
Enhancing flexibility: Some CEOs have begun “renegotiating terms or moving parts of their supply chain,” French says. “They’re getting impatient.”
Mahle CEO Jorg Stratmann is among chiefs who have realized “the need for more flexibility in our entire value chain, making it more systematic in our own operations and with our suppliers.” The chief of the Germany-based auto-parts maker says he’s “used to managing our business without barriers and producing and sourcing components in the areas with the best costs, but [this] has changed with the tariffs.
“We’ve been trying to mitigate by moving production and localizing products and having intense discussions with customers.”
Rebooting the supply chain: A.T. Kearney’s Gott says some CEOs are also moving up decisions about their supply chains “not just to shift out of costs but also to reduce risks in a much more fraught relationship.”
Some CEOs we spoke to are looking to move Chinese production to Mexico, now that the new North American Free Trade Agreement (NAFTA) has taken shape. And it’s becoming a seller’s market for owners of industrial capacity in Vietnam, Indonesia, India and other countries that give Western companies a non-Chinese manufacturing outlet.
Finding loopholes: Many U.S. manufacturers can get “drawbacks” that compensate them for higher tariffs if the end goods they make in America end up as exports. WCCO Belting, for instance, receives drawbacks from its exports to more than 20 countries. CEOs also can look to move output to foreign-trade zones in the United States where they can escape many customs, duties and tariffs. There are more than 230 foreign trade-zone projects and about 400 subzones across the country.
Looking beyond: Some CEOs insist they can see past the craggy landscape of current trade tensions. Craig Bouchard, CEO of Braidy Industries, has been building relationships and an oversubscribed customer list for the aluminum sheet steel that his company is supposed to begin turning out of a new $1.7billion mill in Ashland, Kentucky, in 2021.
“If the [current aluminum] tariffs go away, we’re still in good shape,” Bouchard says. “I make the assumption they’re going away, and if they don’t, it’s gravy. Every decision we make is based on sound business logic and good customers and suppliers. Our goal is to be the low-cost producer of high-quality aluminum in the world. I think that will be the case the day we open our door.”
Some CEOs are willing to bite their lips, bide their time and back their president, in part because “China hasn’t been as remotely available a market as anywhere else in the world,” says Harding of TMF. “The CEOs of U.S. companies operating in China have had their hands massively tied behind their backs. Whatever the changes we get, that will be better rather than worse.”
Back at the auto show, Joerg Weisgerber, CEO for North and South America of Hella Electronics, a Germany-based producer of automotive lighting and electronics components agreed that Trump going after Chinese protectionism in general is “a good cause,” he said. “But are all these issues with tariffs producing a great result?”
It’s still too soon to tell—the jury is out on whether President Trump will be able to pull off a historic revamping of the global post-war marketplace, or whether he’ll simply drive the economy into recession.
Weisgerber, for one, takes solace from the results of Trump’s efforts to remake NAFTA. For all the angst caused by his saber-rattling, in the end, provisions of a new, as-yet-unratified trade agreement didn’t result in much material change. And that was okay by him. “I was nervous, nervous, nervous” about the replacement for NAFTA, said Weisgerber. “But in the end it wasn’t that much different.”
Read more: Will China’s Xi Play Trump’s Trade Game?