Upper Valley businesses weigh options as tariff war with China escalates

  • Production technician Derek Dubuque runs a leak test for a printer head at the Fujifilm Dimatix facility in Lebanon, N.H., on Friday, May 24, 2019. (Valley News - Joseph Ressler) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com. Valley News Photos — Joseph Ressler

  • Dan Bourdon works on a printer head in the machining center at the Fujifilm Dimatix facility in Lebanon, N.H., on Friday, May 24, 2019. (Valley News - Joseph Ressler) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

  • Cleanroom technician Molly Darisse puts on double pairs of gloves before entering the class five cleanroom at the Fujifilm Dimatix facility in Lebanon, N.H., on Friday, May 24, 2019. Extra protections prevent any skin cells from the body compromising the printer nozzles. (Valley News - Joseph Ressler) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com. Valley News — Joseph Ressler

  • Jeff Holten, vice president of operations at Fujifilm Dimatix, stands in the facility in Lebanon, N.H., on Friday, Dec. 8, 2017. Holten said that he expects the company will hire more employees at the Lebanon facility to keep up with growth due to demand for the company’s industrial ink jet cartridges. (Valley News - Charles Hatcher) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com. Charles Hatcher

Valley News Business Writer
Published: 5/25/2019 9:28:39 PM
Modified: 5/25/2019 9:28:36 PM

LEBANON — Local village, meet global economy.

The escalating volley of tariffs and retaliatory tariffs imposed by the U.S. and China — the world’s two biggest economies — is raising costs and eating into profits among area businesses that look to China for either buying supplies or selling their products.

It’s a stark reminder of how the Upper Valley, despite its rural character, is tied into the global supply chain.

Earlier this month, President Donald Trump ordered tariffs to be hiked on $200 billion of Chinese goods imported into the U.S. Within hours, China struck back by imposing higher tariffs of up to 25% on $60 billion in U.S. goods flowing into that country.

That was quickly followed by Trump threatening to raise tariffs on another $300 billion in goods from China, which this time would be applied to apparel, footwear and toys.

The May actions are expected to hit national chain retailers hard, signaling higher prices for shoppers along the Route 12A commercial strip heading to stores such as Kohl’s, JC Penney, Best Buy, Home Depot and Walmart as the cost to import products from China goes up.

The trade war is also threatening American farmers who were hoping to sell more milk products to China to counteract low prices at home.

Trump on Thursday said he would give another $16 billion in aid for farmers because of the tariff battles, with the first of three payments likely by August.

How much will go to the Twin States is unclear, but Vermont Public Radio says the average dairy farmer in Vermont last year got a $4,000 payment as part of an $11 billion aid package Trump provided farmers last year.

The latest skirmish upped the ante on a tariff war that began last year as the Trump administration attempts to level the playing field in what it contends are trade rules that favor China. But a trade war waged among superpowers on a global battlefield is concerning companies in the Upper Valley that operate in the global marketplace.

For manufacturers like Fujifilm Dimatix in Lebanon, which makes industrial printing heads and for whom China is both a source for materials and parts as well as a buyer of its finished products, the latest round of tariffs spell a challenge for the company, Jeff Horten, vice president of operations, said in a recent interview.

“We survived the first round of tariffs from China eight months ago because it was a small enough increase that it really didn’t affect our sales,” Horten said. “But now that it’s going from 10% to maybe 25%, there’s a very likely reality our customers there will start to look elsewhere for business.”

Horten declined to say how much business Fujifilm does in China, other than to say “it’s more than $50 million and less than $200 million.” But he nonetheless called China “a significant driver in our growth” since Fujifilm began selling into the market 10 years ago.

In addition, Fujifilm buys some $45 million to $50 million in supplies from China annually, Horten said, principally in electronic components and machine parts for its print heads.

“I’ve been having to pay a premium of 10% when I bring materials into the U.S., and now, that premium is jumping to 25%,” he said.

So far, Horten explained, Fujifilm has been able to avoid much of the impact of tariffs because of “drawback” provisions in the law that allow manufacturers to claim a refund on the duties it pays for the import of materials if those materials are then included in the export of finished products. But that cushion deflates if overseas customers, like those in China, swing their purchase to a non-U.S. supplier in order to avoid paying the higher tariffs on U.S. products.

For Hanover-based Hypertherm, a manufacturer of plasma cutting equipment that also has several buildings in Lebanon and West Lebanon, the latest round of tariffs between the U.S. and China “will have a combined impact of at least several million dollars on the bottom line prior to any mitigation strategies we can employ,” said Chief Executive Officer Evan Smith in a recent email.

Smith said Hypertherm’s cutting systems fall into the products categories “swept up in the retaliatory tariff actions taken by China” and are now subject to between 5% to 10% increases in tariffs “on most of our products entering China.”

The situation is further complicated for Hypertherm because it has its own importing subsidiary in China, so the company ends up paying the higher tariffs itself. That leaves Hypertherm “to decide how much we can pass on to our Chinese customers without losing important market share” to local Chinese manufacturers or foreign competitors not subject to the tariffs.

GW Plastics, a maker of injection mold products for the health care and transportation industries that has factories in Royalton and Bethel as well as China, uses steel and aluminum in the making of custom molds that stamp out the plastic devices for client companies. Last year, the U.S. imposed a 25% tariff on steel and a 10% tariff on aluminum imported into the country.

“This is being passed on to our customers, but it is a fraction of the total cost of the tooling,” said Brenan Riehl, chief executive officer of GW Plastics, in a recent interview. “Nonetheless, it is putting inflationary pressure on the tooling we manufacture for our customers.”

Banking on the Chinese market, GW Plastics opened a new, 125,000-square-foot manufacturing facility in Southern China in 2016. The medical device components manufactured at the plant are made specifically for Chinese companies that in turn assemble the medical devices and either sell them in China or export them outside the country, Riehl said.

Because the plant is in China and sells its products to Chinese customers, “we have seen little impact to date,” Rhiel said.

But, he added, “it is possible and even likely” that the Chinese customers who export GW Plastics-made products to markets in the West “may make the decision to relocate some of their production to other low labor countries such as Mexico or Vietnam if the trade dispute escalates and continues for an extended period.”

John Lippman can be reached at jlippman@vnews.com.




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