At what cost tariffs?
Seated in front of a small audience in the community room at First Federal Bank in Newberg, Alvin Elbert pulled out a plastic bag and popped it open. Inside the bag were a handful of rods made from the materials used at A.R.E. Manufacturing – a decades-old machine shop that started in Elbert's garage back in 1980 that grew into one of Newberg's industrial leaders.
Elbert held up a small, steel rod and orated the history of what his company has paid for the raw material in the past decade or so. A.R.E. creates parts from raw materials and sells them to other businesses around the globe.
"In 2006, we paid 69 cents a pound for this. In 2017, the price went up to 71 cents a pound," he said, displaying the steel rod to onlookers. "Not so bad, you don't really worry about it. In 2019, two years later, it went up to $1.12 – a 57 percent increase."
The numbers for other materials Elbert brought along are equally staggering. The price A.R.E. Manufacturing pays for stainless steel is up 66 percent since 2017. The price of aluminum – which the shop uses for a large portion of its projects – is up 39 percent. Brass, which was $1.33 per pound in 2017, is up to $4.54.
These increases are not a result of the normal ebb and flow of the international metals market. Because of escalating trade disputes between the United States and countries like China, companies like Elbert's are forced to adapt to significant price increases and often pass the cost on to customers.
Elbert said the idea behind the tariffs – encouraging an increased production of goods domestically – is a good one; he believes that more manufacturing in the United States is a positive thing for the economy and for U.S. companies. In practice, however, the trade war championed by President Donald Trump is causing businesses like A.R.E. Manufacturing to feel the pinch as the cost of doing business increases and some customers flee to cheaper options overseas.
"Last year, I had my best year ever – I did $6.5 million worth of sales," Elbert said. "I spent five years ramping up with one company that is one of the largest manufacturers of 3D printers in the world. Last September, they notified me that they will be moving all of that production to China and we lost roughly $2 million of business this year because the parts we were making were moved to China."
The majority of raw materials A.R.E. uses are imported, Elbert said, and while some – like plastic – have remained unaffected by tariffs, others continue to see a quick and steady price increase. Buying domestically isn't really an option, because thriving markets don't exist yet in the U.S. and manufacturing plants aren't just popping up on street corners.
"Okay, so we're going to raise tariffs on raw materials so it can be made in the United States," Elbert said. "Well, we don't have the capability of making it in the United States because we let all that capability go to China. And so if there's no market for the United States, there's no plants to build it. It's not like we're going to fire the shuttered plants back up and get going."
Planning ahead and staying the course
The tenuous nature of the ongoing trade war – which can be on or off, up or down depending on what the president tweets and how China and other countries choose to retaliate – can create a lot of extra work for Elbert and his employees as they constantly adjust prices for their customers.
That is also true for Newberg Steel and Fabrication. Company president Jeff Lane sat alongside Elbert at the Sept. 18 discussion on tariffs and shared the impact of trade disputes on his business.
While the amount of work has increased for Lane and his employees as they try to build quotes around the changing prices of materials, theirs is a different kind of business with a different outlook.
Newberg Steel provides structural steel products and fabrication services to commercial and residential contractors, so it is one rung above A.R.E. in the proverbial ladder. Their 14,000 square foot Newberg facility functions as a steel distribution warehouse and sells steel, stainless and aluminum products to a variety of customers both public and private. A.R.E., meanwhile, is a producer of parts.
Business is booming for Newberg Steel, which has been family-owned since 1951. The company recently added another 14,000 square foot facility to handle an increase in jobs, Lane said, and the company touts a 25 to 100 percent increase in sales every year since Lane took over in 1998.
"When the customers come to us, we make sure that we get what they need and that's what we've always done," Lane said. "My wife does a lot of research on products and materials and we've been able to address that and hence we've been able to grow out to the level we're at now."
When word began to spread of a burgeoning trade war with China, Newberg Steel began to feel the effects as soon as domestic steel mills began to increase their prices. Knowing that the alternative for distributors would be purchasing steel from foreign companies that have significant tariffs attached to their products, U.S. suppliers began raising their prices for companies like Newberg Steel and others.
"The mills were able to take full advantage immediately because what it allowed them to do is to go ahead and increase their prices," Lane said. "So we started seeing those increases come pretty fast, pretty hot and heavy."
Despite the uncertainty created by price increases on imported and domestic materials, Lane said Newberg Steel has maintained its growth and is doing better than ever. The reason? It has been forced to adapt to the changes and rethink many of the ways it does business, resulting in greater efficiency and a growing network of customers, he said.
"It came to be a blessing for us because we have to be on our toes and planning ahead," Lane said. "It has given us a new perspective on how we operate and how we can maintain our reputation."
Focusing on the controllable
While Lane is leaning into the challenges of the trade war's impact on his business, Elbert is feeling more of the direct pains due to the cost of materials. Recently, a customer ordered some aluminum tubing from A.R.E., but its normal supplier ran out and it had to look elsewhere for the material.
The price was upwards of 50 percent higher everywhere else, Elbert said, illustrating the limited options A.R.E. has in terms of purchasing materials made domestically.
"This adds a cost for (the customer), but also for me because I can either lose the business or eat the cost of looking for cheaper alternatives," Elbert said. "That opportunity cost and the extra time spent looking for alternatives is something we have to factor in as well.
"The costs involved with price increases are typically passed on to my customers, which is then passed on to their customers."
Consumers, Elbert said, don't truly feel the effects of these changes until a few years down the line. He said small businesses like his feel the effects rather quickly on their bottom lines and often have to plan for additional operating costs.
Elbert plans to keep adjusting and worry less about what is going on outside of his shop. He will pay attention to the news and follow the trade disputes as they evolve – because he is often directly impacted – but he said he won't lose sleep at night about it.
"I'm a small company and I'm going to have to deal with it," Elbert said. "I can shop around at different distributors and find the best price, but in the end it's not something I have a lot of control over. I'm going to spend my time really trying to concentrate on stuff I do have control over, which is workforce, my operation processes and everything else.
"These tariffs aren't going to help us, but it's out of our control."
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