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A tentative trade deal announced this week could delay new tariffs on Chinese imports in exchange for China’s spending more on U.S. agricultural goods. But local experts say the jostling over trade policies has already cost Vermont companies major money.
“It’s a very significant impact to our clients,” said Jake Holzscheiter, the president of St. Albans-based customs broker A.N. Deringer. He estimates that this year, his clients are spending about $500 million more in duties out of China, with an increase projected for next year. “It’s just not money people can absorb.”
Holzscheiter said the United States’ tough approach to China has some bipartisan support, and the trade restrictions are consistent with a global trend toward protectionism. But, he said, the Trump administration’s rapid shifts in policy, often announced on the president’s Twitter account, have made it difficult for his clients to manage the effects.
“It’s this frustration over, ‘what is my supply chain going to be?’ and how unreliable it is from the costing and pricing and policy perspective,” he said.
Ben Clark, the CEO of Ann Clark Cookie Cutters in Rutland, said even though he buys American steel, his material costs have gone up by about 17% because of tariffs on Chinese steel. In order to stay competitive in a tight market, Clark can’t pass that cost on to consumers. “The price we sell our cookie cutter at is pretty fixed,” he said. “So if we have a cost increase, we just have to eat it.”
Clark said he expects to lose about $50,000 this year due to tariffs. He’s disappointed that the shifts are beyond his control. “I don’t think it’s going to put us out of business,” he said. “I think it’s just a question of: how much of our profits are they going to take?”
On this week’s podcast, Holzscheiter, Clark, and VTDigger business reporter Anne Wallace Allen discuss what the trade war is costing Vermont companies.
**Podcast transcript**
This week: the country’s ongoing trade war with China is keeping some Vermont business owners on their toes. On Monday, the president announced a tentative deal that would delay new tariffs on Chinese imports in exchange for China spending more on US agricultural goods. But previous tariffs are still in place — and by one estimate, the administration’s approach is costing Vermont businesses about half a billion dollars.
Ben Clark: We pride ourselves on, everything we buy is made in the USA. And that’s been our marketing pitch from day one.
This is Ben Clark. He runs Ann Clark Cookie Cutters in Rutland. This company makes about four and a half million cookie cutters a year, and they use just one kind of material: steel.
Ben Clark: The tariffs were disappointing because when they put this tariff on steel, we talked about it with our steel manufacturers and sure enough, it’s come true. When the 20% tariff went through, all the US steel manufacturers raised their prices 17%. So we’re buying US steel like we always have, but our price has gone up 17%. And supply has gotten a little bit tighter.
Are there times when you can’t get all the steel that you need?
Ben Clark: We have not run out, but it was close. And if we run out of steel, we’re shut down, right? Because everything we make is out of steel. So if we run out of steel, we’re done.
Ben said there aren’t many cookie cutter companies in the U.S. In fact, most of his competitors are Chinese manufacturers. But because those companies have more control over what people are willing to pay for cookie cutters, he can’t just pass the cost of more expensive steel on to consumers.
Ben Clark: It’s disappointing that we make our product here, yet we have to eat a pretty decent price increase. Then people say, well, we should just raise our price. The reality is, our prices are set based on what Chinese suppliers are selling their cookie cutters. So the price we sell our cookie cutter at is pretty fixed, right? So if we have a cost increase, we just have to eat it.
Ben is expecting this year’s pricing shifts to cost him an additional $50,000. That’s not catastrophic. But for a small manufacturer, it’s not nothing.
Ben Clark: At the end of the day, whatever happens is going to happen. I don’t think it’s going to put us out of business. I think it’s just a question of, how much of our profits are they going to take? You know, how much less money can we reinvest in this stuff next year?
Anne Wallace Allen: Trade is such a big issue nationally. I mean, there’s so much news happening about it that I assumed it would be something that businesses were watching. Because so many Vermont companies are exporting.
I’ve thought about calling our congressmen, etc. But they already know the deal. We’re not going to move a lot being a cookie cutter manufacturer. A lot of it’s just following the whole political game that’s going on. And ultimately, there’s very little I can do about it. And when I say very little, I mean nothing. [Laughs]
Our business reporter Anne Wallace Allen has been reporting all year on the trade war’s effects on Vermont businesses.
Anne Wallace Allen: In fact, Vermont actually has a higher proportion of exports as a proportion of its GDP than other states, although most of that is just because of GlobalFoundries, the chip plant in Essex Junction.
You’ve gone and talked to companies and business owners around the state, and asked them about trade, among many other topics. Just generally, what kind of feedback do you hear from them?
Anne Wallace Allen: I have been sort of surprised, because I have been asking about trade expecting it to be a bigger issue for them. A lot of the companies I talked to, first of all, say, ‘we only sell in the US. We just haven’t taken the extra step the investment necessary to expand our trade to borders beyond the US or North America.’ So that’s one thing I’m surprised to hear.
A lot of the people I asked say to me — I hear this repeatedly — what business needs is a consistent environment. Whatever the policy ends up being on trade, and whatever our trade relationship ends up being with a big partner like China, we would just like not to be awoken in the morning by a new tweet saying that something has changed or something might change. They just want consistency.
So it’s not the tariffs themselves in a lot of ways. It’s the way that this administration has gone about negotiating them.
Anne Wallace Allen: Right. As with so many policy issues, even beyond this administration, and even on the state level, businesses say the most important thing that we can have is consistency.
And that’s just because they’re trying to budget out their expenses and their revenue, right now and for years ahead.
Anne Wallace Allen: They’re trying to make investments in the future, whether it’s people or capital investments, and they need to know: what are the forces going to be pressing down on us next year? Or next month, for that matter.
Jake Holzscheiter: The biggest challenge that people are having is the impact that the tariffs have on the consistency of their international supply chain, as it relates to their pricing. Timing the duties that they’re paying, and how that affects their costing, and what they can pass on to their clients.
You’ve talked to this customs broker here in Vermont. What exactly do they do, and what gives them a unique perspective on this?
Anne Wallace Allen: They’re the largest privately owned customs broker in the country — A.N. Deringer. They’re up in St. Albans, about 15 miles from the Canadian border.
[Hold music announcer]: Deringer consistently focuses on customs compliance by staying informed of changing regulations…
Anne Wallace Allen: They’ve been there for several decades. They started as a hay broker.
Jake Holzscheiter: This was a major rail hub, St. Albans, to the point this was known as a rail city. We were here because of the rail, and the proximity to the port of Montreal, which was the largest hay and grain port in the world at that time, 100 years ago.
Anne Wallace Allen: And now the third generation of the family is running the company. Jake Holzscheiter is the CEO. He’s been there his entire working life. And he was a good person to talk to about the impact of the tariffs, because they’re the ones who are responsible for actually helping people with the paperwork to get their trucks across the border or onto the planes.
Jake Holzscheiter: We handle everything you can think of — from, you know, oil tankers, to textiles, to sporting goods, to food, agricultural commodities. We handle pretty much everything that you could think of.
Just generally, what did he tell you about it?
Anne Wallace Allen: He said his customers are resigned to the fact that they’re going to have to absorb additional tariffs in their own costs. They’re not passing, for the most part, not passing them on to their clients. It’s just another cost of doing business. And he was one of the people who just reiterated to me that they don’t really have much of a stake in what happens, as much as they do in looking for consistency.
Jake Holzscheiter: Unfortunately, I think weeks like this week, where there’s a lot of hype about trade talks — people are aware of it, but I also think people are becoming a bit numb to expect much or see significant progress. Because the changes in policy seem to come so rapidly and randomly, I’m not sure that anybody really has a firm expectation anymore over what to expect.
I think everyone did their best wearing out their crystal balls trying to forecast what was going to happen, and everybody is getting it wrong.
Anne Wallace Allen: He said the biggest impact on them is just not knowing what’s going to happen in the next month — or six months.
Jake Holzscheiter: A year and a half ago, when the tariffs started hitting, it was one group of products at one tariff rate. A few months later, it was more products at a different tariff rate. A couple months after that, a whole nother list of products and different tariff rates. At first, it’s 10. And then is it 15? And then, does it go to 25? And then the government starts issuing other things like exclusions, where you can apply to be exempt, and you don’t know whether you’re going to get your exemptions, and they take a while.
So it’s really impacting our clients’ abilities to source raw materials and finished goods, especially out of China, because they can’t forecast what the costs are going to be. It’s this frustration over: what is my supply chain going to be? And how unreliable it is from the costing and pricing and policy perspective.
President Trump has said his motivation in being tough on trade is to bring manufacturing jobs back to the U.S. But Jake told us that’s not what he’s seeing from the companies he works with.
Jake Holzscheiter: It’s forcing many companies to, if they can, most are trying to determine if they can leave China. And a lot of them are looking at Vietnam.
They’re just deciding that that long-term, from a business practice, they can’t plan and establish pricing and their own competitiveness and profitability in a market that is unstable for them. So if they can change, they’re changing, or they’re working on it. Many saw the increasing trade tensions before this even happened and began, you know, hedging their bets and not sourcing everything in China. And so that’s happening on a very large scale.
I’ve seen very little where the sourcing was changed back to domestic US, and most of them are looking for new places to source their product.
New places overseas, specifically.
Jake Holzscheiter: Overseas, and especially in Vietnam.
I’m curious, with your company having this historical perspective: how is this administration’s approach to this different from previous US policy? And how is it maybe not so different?
Jake Holzscheiter: I think the primary difference is that you have an administration that’s willing to be the bad guy and take all the heat on their shoulders.
I think a lot of the trade tensions, to be honest, has been, at least recently, not as politically divisive. You even see the other party in particular — Chuck Schumer, and even Bernie Sanders, have been very supportive of Trump being tough on China. I think there’s some consistency in both parties that something needs to be done to kind of rein them in. And I think that that feeling is felt globally, to be honest.
But I don’t think we had prior administrations that were willing to be so tough and unpredictable. The manner that the policies are being communicated — via tweet — is, I think, very troublesome to everybody. But I think from a political side, I’m not sure that even if there was a change in administration in the next election, that you’re going to see a lot of this stuff go away.
Jake said this doesn’t just cut across political lines. It’s a trend that goes beyond the United States.
Jake Holzscheiter: From a historical perspective, for the last five years or so there’s there has been a shift towards increased protectionism globally. There was a large trend for the 20, 25 years before, where those barriers were going down. There was a lot of talk about open borders, free trade for all. And I think that there’s been a shift in that. I think it’s going to be around for a while. Like everything, it’s cyclical, so how long it lasts, I don’t know. But it’s not just the US that is becoming more protectionist, I think, in their trade policy.
Even just last week, they announced tariffs with the EU, and they had the support of the World Trade Organization behind this. So we’ve been talking about China a lot, but now now it’s also shifting to Europe, where there’s going to be 10% duties on large civil aircraft. They’re also getting a lot of Europeans’ most iconic food and beverages with a 25% duty, things like Irish and Scotch whiskey, French wines, Spanish olives, German and British hand tools. This kind of new policy that comes up very rapidly now, where the industry used to have a long time to plan and adjust when some of this stuff would happen. But I think it’s going to be the new norm for a while.
Does it affect the way you all do business? Does it change your strategy at all?
Jake Holzscheiter: Oh, it has a very significant impact on us. Our role, in the most simple fashion, on the customs side, is to make sure that our customers are paying the proper duties and taxes and fees and following all the laws that relate to importing goods. So as soon as these tariffs hit, or there’s a tweet that goes out, we’re working hard to team with our clients to help them assess: what does this mean to them? How much is it going to cost them next year? Can they manufacture their goods differently to avoid the duties? Can they buy the goods differently to reduce their duty burden? It becomes a process where our clients have to find those funds now, right?
It cost our clients, this year, an estimated over $500 million more in duties out of China than just the prior year. It’s going to be even more next year, as these next tariff drops go. And so it’s a very significant impact to our clients. It’s just not money people can absorb.
Anne Wallace Allen: I know that a lot of people mentioned steel prices to me as something that’s affecting them immediately. Other than that, I haven’t really heard from a wish list from business owners on what they’d like to see.
It’s just too early to tell, or it’s just too nebulous?
Anne Wallace Allen: There’s too much going on. I mean, Vermont’s largest trading partners are Canada which is you know, relatively stable. All things considered, and Hong Kong and China, and there’s a lot going on in Hong Kong and China.
Where does that leave business owners here? Do they just have to kind of wait it out? Or is there anything that they can do? In the meantime?
Anne Wallace Allen: I have asked people repeatedly if they have gotten in touch with their representatives, or if they’re lobbying, or if they’re asking for greater clarity. And a lot of the big companies that I’ve talked to, they might have an association that’s lobbying, but most of them are just focusing on the day to day challenges of their businesses. Mostly it’s about hiring, and things like that. They’re not getting involved in the trade talks. Or in federal and national policy.
They’re just kind of adjusting—
Anne Wallace Allen: Right. They’re just adjusting to the working conditions around them.
Well, thanks Anne.
Anne Wallace Allen: Thank you, Mike.
