Businesses Shifting Plans Because of 232 Policy Changes

Zapp Precision Wire was one of the earliest submissions for product exclusions, and Bill Brebrick, U.S. sales manager for the German-owned company, said they were very conservative about submitting, choosing only 15 products, a small minority of what they import. Their imports come from Germany and the United Kingdom. During the temporary exemption for European Union countries, Zapp saw some of his colleagues from England at conferences. He said they said, "Surely there would never be tariffs on the UK, because we’re such close allies and we have such a close military cooperation."

UK Prime Minister Theresa May said to President Donald Trump on June 4 that the tariffs were unjustified. In the White House summary of the call, Trump again emphasized the need to "rebalance trade with Europe."

One of the products that Brebrick asked be excluded from the tariffs does not undergo processing at their plant in South Carolina, nor does it go to a U.S. customer. It's a part that goes to an automotive supplier in Mexico that assembles it for aftermarket customers. So if the exclusion is denied, the next container will go from Germany to Mexico rather than to the port of Charleston. All of their automotive parts go to German manufacturers, whether in Mexico or in South Carolina.

The warehouse is a small part of Zapp's U.S. business. They also buy billet, semi-finished bars and coils of steel from Europe. "Our products are all 7222, or 7223" in the Harmonized Tariff Code, he said. "We take either one of those semi-finished materials and convert them into bar," he said, and then export 70 percent of the bars and wire they produce. The factory employs 80 workers.

With tariffs, those exports are imperiled. "Automotive is price sensitive, when you talk about a 25 percent increase, that’s a massive increase, that absolutely destroys our competitiveness when exporting to Asia from South Carolina," he said. He expects more work will shift to Germany because of the tariffs.

The largest volume exclusion they asked for is in automotive, but they also make medical implants such as plates and screws. "Those particular requests are also special manufacturing, a curved plate that would wrap around a bone; the orthopedic and trauma OEMs use that plate," he said. Even if there were domestic suppliers, it's not so easy to change on a dime.

"With the implanted medical device, it’s highly regulated it has FDA approval, that depends on the manufacturing process. If there’s a significant change, including changing the melt source, it’s possible further approvals would be needed," he said. "You can’t just change to a supplier, you have to be sure that supplier can make that part to specification. Medical devices, they’re highly regulated, the stakes are high if somebody gets something wrong."

Zapp does buy domestic semi-finished steel too, and while some suppliers hadn't increased prices, some had by 8 percent. They expect everyone will, though how aggressively isn't yet known.

Rick Li, owner of Midas International Group in Ontario, Calif., only asked for an exclusion on one shipment from Taiwan. He paid $7,567 in duties on the 17.48 metric ton shipment of sheet metal. Rick runs a tiny distribution company, and already changed his business model once when antidumping duties made Chinese steel impractical to import. He now has to figure out if he can import from South Korea, which accepted quotas, but will not face tariffs. Li, who only has one employee, said he brings in about one container a month.

"Our margin is so low, we cannot afford" a surprise duty charge like that. "They're supposed to give a grace period, and then we can make our decisions."

Hundreds of objections have been filed to product exclusion requests, with domestic steel companies saying they do sell the products companies are importing, or could ramp up in a few months to do so. Other objections say that the company could substitute a different product for the same end use, and that's a product they sell. Some argue that the volumes requested for exclusion are far more than what the company currently produces.

It's not clear how positively the Commerce Department will view requests that did not draw an objection. Brebrick asked, "If there’s no objections, would it just be stamped approved? I would hope it would be the case, but I don‘t know if that’s the way it’s actually going to be happen."

Zapp could have filed objections on some exclusions where they do sell that product, but he said they were not interested in gumming up someone else's supply chain. "I think it would be better to go directly to that OEM and say: We can make that," he said.

Sandvik Materials Corp. did submit an objection to exclusion requests from PM International Suppliers in Florida and to Great Plains Stainless Co. Dave Shollock, sales manager for hollow bar and solid bar at Sandvik's plant in Scranton, Penn., said they manufacture the exact products PM claims aren't available from domestic suppliers.

Before the tariffs, he said, Japanese and Chinese firms sold hot finished hollow tube 20 to 25 percent cheaper than Sandvik's price. So he was very pleased with the tariffs. Sandvik, which employs about 350 in Pennsylvania, was getting additional orders. But Sandvik is a Swedish-owned firm, and now that the European Union is no longer exempt from the tariffs, his products are no longer cheaper than foreign imports. That's because the tubing and rods they shape in Pennsylvania are made from Swedish extrusion billet. Sandvik also has a mill in Canada, whose products became subject to tariffs on Friday.

Shollock said Sandvik will likely file hundreds of objections to the product exclusion requests at Commerce.gov. "I wish we could have one overall objection," he said, as filing a separate document for each one is time consuming.

Business was good before the tariffs, but Shollock said if the EU had been spared while Asian countries faced tariffs, he thinks they could've added enough business to hire 50 more workers.

Shollock doesn't know how much of a price increase he will be able to pass along to buyers because of the tariffs on imported billets. They can't eat it all, but he may not be able to charge the full cost of the tariff, either. Executives will "see what our competitors are doing, and make a judgment," he said.

Once an exclusion is approved, the tariff removal will be effective five business days after the publication of the approval. "Starting on that date, the requester will be able to rely upon the approved exclusion request in calculating the duties owed on the product imported in accordance with the terms listed in the approved exclusion request. Exclusions will generally be approved for one year," according to the Commerce Department.