How 4 companies struggle to navigate Trump’s trade uncertainty

Executives at Columbia Sportswear in Portland, Oregon, were in a high-level meeting last Friday to wrap up their response to the Trump administration’s latest round of tariffs on Chinese imports when the president took to Twitter.

American companies, President Donald Trump posted not long after Columbia’s session had started, were “hereby ordered to immediately start looking for an alternative to China.” Hours later, Trump said he was raising tariffs even higher.

The plan under discussion by Columbia, which makes a variety of outdoor goods in China, like jackets and hiking shoes, had taken thousands of hours to draft, and it included shifting product lines to other countries and raising prices on others when the tariffs took effect in September.

“We had a solution, where we’re going to raise prices, where we’re going to move stuff,” said Tim Boyle, Columbia’s chief executive, who had called into the meeting from a vacation in Canada. “And then, an hour later, we learn he’s going to raise tariffs even further. It’s insane.”

“I considered staying” in Canada, Boyle joked.

Business leaders and economists have long said that certainty breeds economic growth. In order to invest and hire, companies need to know what tax rates to pay, what laws and regulations to heed and how those “rules of the road” could plausibly change in the years ahead.

With this trade war, Trump has upended that principle, embracing uncertainty and unpredictability instead.

On Friday, angered by retaliatory tariffs levied by China, Trump said he was directing American multinational companies to find alternatives to their Chinese supply chains. He increased existing tariffs to 30% and raised the rate to 15% for the next round of tariffs on Chinese imports. Stock markets plunged.

Over a matter of three days last week, the president escalated the conflict with China, sounded conciliatory tones and found ways to ratchet up the tensions all over again. Last Friday, angered by retaliatory tariffs levied by China, Trump directed American companies to find alternatives to their Chinese supply chains and increased the rate of existing and upcoming tariffs, including on the next wave set to hit this weekend. By Monday, Trump hinted that the two countries were closer to producing an agreement.

“Sorry. It’s the way I negotiate,” he told reporters at a news conference at the Group of 7 summit when asked about the mixed messages. “It’s done very well for me over the years, and it’s doing even better for the country.”

The gyrations have rippled across corporate America, prompting manufacturers, retailers and others that rely on imports for their businesses to try to adjust their strategies based on the president’s latest whim. Here is how four companies reacted.

SHIFTING SUPPLY CHAINS, RESHUFFLING PLANS

The tariffs set to take effect on Sunday will hit a wide range of products that Columbia Sportswear imports from China, including a popular tent, the lightest down jacket it produces and a specialised women’s hiking shoe. All are made in specific Chinese factories that cannot easily be moved elsewhere.

Columbia’s preparations for dealing with those tariffs had roped in parts of its manufacturing, finance and legal divisions, along with supply chain managers, company officials said.

Just over 10% of the company’s products come from China, and Columbia officials consider the Chinese market their biggest single opportunity for global sales growth right now.

Boyle said the company was considering moving some production out of China and to Ethiopia. And executives have postponed planned investments in distribution centres in Oregon, Kentucky and Florida.

“We move stuff around to take advantage of inexpensive labor. That’s why we’re in Bangladesh. That’s why we’re looking at Africa,” Boyle said. “We’re putting investment capital to work, to get a return for our shareholders.

“So when we make a wager on investment, this is not Vegas. We have to have a reasonable expectation we can get a return. That’s predicated on the rule of law: Where can we expect the laws will be enforced, and for the foreseeable future, the rules will be in place? That’s what America used to be.”

ASKING SUPPLIERS FOR HELP AND RAISING PRICES

For as long as he could, Tim Miklaucic had put off what he knew would be some very difficult conversations. But when Trump said Friday that the rate on the next round of products to face tariffs would go to 15% from 10%, Miklaucic couldn’t wait any longer.

All told, the tax would mean an extra $100,000 in monthly expenses for Miklaucic’s company, Cordoba Music Group, which makes guitars in China and other countries.

“We can’t absorb that,” he said.

Each month, China supplies $650,000 worth of guitars sold under the Cordoba and Guild labels. “I also make products in Indonesia, Spain, South Korea and the US, but I can’t move my production quickly,” he said. “These are highly skilled laborers that took years to train.”

Some retailers were wary of paying more for his guitars; a few agreed to consider higher prices, which they would pass on to customers in the fourth quarter.

“Retailers don’t want to see price increases during the peak Christmas shopping season,” he said. “They want to see discounts.”

WAITING OUT THE STORM

Lance Ruttenberg, the chief executive of American Textile Co. just outside Pittsburgh, was preparing a summary of his plan to cope with Trump’s tariffs, to present to his board of directors, when word came that the tariff rates had climbed again. He was on the road that day, and his phone lit up with emails and text messages bearing bad news.

American Textile makes utility bedding products such as pillows, bed pads and comforters that it sells to retail stores and hotels. It has factories in Pennsylvania, Utah, Texas and Georgia, but imports many of its components and parts from China and has “millions of dollars of exposure” in the country.

While the tariffs have been a major complication for Ruttenberg’s company, the order by Trump last week that American businesses must sever ties with China was of particular concern. His company has worked to diversify its relationship so that it can source products from places like Vietnam and India, but those types of transitions cannot happen overnight.

Thus far, American Textile has been able to avoid passing higher import costs to his customers, but that may no longer be an option. Ruttenberg said it seems inevitable that he will have to tell retailers that prices are going up.

In the meantime, plans for future investment are postponed until the Trump administration provides some clarity about its strategy.

“I would say we’re in wait-and-see mode,” Ruttenberg said.

c.2019 New York Times News Service