US China Trade

Chinese Vice Premier Liu He, center, accompanied by U.S. Trade Representative Robert Lighthizer, left, and Treasury Secretary Steven Mnuchin, greets the media before a minister-level trade meeting in Washington, Thursday.

With U.S.-China trade talks resuming, several Louisiana companies and multinational businesses with major operations in the state and elsewhere already have cited hardships in seeking exemptions to U.S. tariffs on $250 billion worth of Chinese goods set to jump next week to 30%.

In Baton Rouge, a music hardware and software business that sells audio mixers finds itself in a similar situation as a barbecue grill maker in requesting tariff exemptions on goods imported from China. A Gonzales-based baby bib maker has raised prices. In New Orleans, a cemetery monument business is looking for relief for an imported raw material. Near Lafayette, a small business that sells portable cooling devices wants to keep its relationship with a Chinese manufacturer to avoid taking a deeper cut in profits caused by the U.S. taxes imposed on Chinese imports. Alternatives, they say, are limited.

Multinational petrochemical manufacturers, some with operations in Louisiana, want to import raw chemicals specific to China that they use for their production. One chemical maker says tariffs have doubled the construction costs for a proposed Louisiana plant that may not get built.

Under President Donald Trump, the United States has slapped tariffs on more than $360 billion worth of Chinese imports, including those that are rising from 25% to 30% on Oct. 15. Another $160 billion will be hit Dec. 15, aimed primarily at consumer goods. Import taxes extend to virtually everything China ships to the United States, an effort to get China to drop predatory tactics, such as stealing trade secrets and forcing foreign companies doing business there to hand over technology. The tariffs are based on country of origin so companies are prohibited from using other countries as middlemen to avoid the new regulations. China has hit back by targeting about $120 billion in U.S. goods, focusing on farm products.

Envoys from each nation started their 13th round of trade negotiations Thursday since the feud started 15 months ago. Trump also announced he would meet with the head of China's negotiating team at the White House on Friday and claimed China wants to make a deal. "Big day of negotiations with China. They want to make a deal, but do I?" he tweeted.

The stakes are high for companies being hit by the tariffs — some of whom discussed their situation, while exemption applications tell the stories of other businesses.

PRESONUS AUDIO ELECTRONICS: For the Baton Rouge-based music business, the manufacturing landscape has changed significantly since it was founded in 1995. PreSonus had manufactured its products inside of the Bon Carré Business Center until 2008. In the early 2000s, the company began importing metal from China, then moved its manufacturing operation there within a decade. 

"It was for economies of scale, meaning that we can go into a factory in China with like products and the price goes down for everybody," said Jim Odom, founder of PreSonus. "We've looked around the U.S. but we can't compete in our market."

PreSonus has more than 100 employees around the world, with about 75 in Baton Rouge. It spent nearly $7 million on a headquarters and research facility locally several years ago. 

"It's been very annoying more than anything," Odom said of the company's experience with tariffs so far. "Our hope is that this tariff situation will go away."

About 60% of the company's customers are in the U.S. so the tariffs only impact some of its product sales. It hired a law firm that specializes in tariffs to file exemptions and is awaiting a decision. 

The company contends that its mixer cannot be sourced from U.S. manufacturers because it’s not a high-volume business. Any manufacturers that would accept an order of fewer than 10,000 mixers each month can't produce the quality PreSonus needs, according to its application. 

“A large competitor of ours builds similar types of mixers elsewhere in Asia, and not subject to the tariff can easily undercut us,” the application says. 

Odom said the tariffs affect his company's products in varying ways. "A lot of them (tariffs) are still at 10% but if they go up to 30% we'll have to raise prices even further. We have to maintain a gross margin on our products to keep us profitable and do research and development."

PreSonus raised prices for some consumer products sold in the U.S., but not on those where competitors weren't doing the same. One of its audio mixers can cost upwards of $3,000 already. In some cases, the company was able to share the increased cost with its manufacturing partners.

Many of its mixers are sold to K-12 schools, universities and churches at a discount, but that will likely have to stop.

It's also been looking at alternatives.

"We sell more hardware than software but all of our products aren't manufactured in China, we're starting to move to Malaysia," Odom said.

One of its partners in China also owns a plant in Vietnam. 

There are trade-offs in every country and there is an extra cost to relocate to a new factory with new test equipment, tooling and training, Odom said.

BBQ GUYS MANUFACTURING LLC: The Baton Rouge-based outdoor grills business submitted exemption requests for small refrigerators and gas grills it imports and is waiting for a final decision. 

Without relief, the company would be required to make a capital investment of $10 million into a manufacturing facility in the U.S., according to its application. 

“BBQ Guys Manufacturing has attempted to move production to U.S. factories, however, component availability and higher costs have prohibited BBQ Guys Manufacturing from producing required volume to sustain profitable growth for the company,” the application says. The company has also attempted to move operations to Mexico but it didn’t work out either.

In a filing opposing BBQ Guys' exemption, Canadian business Onward Manufacturing Co., which has gas grill manufacturing operations in Indiana and Tennessee, disputes BBQ Guy's assessment of the market. 

“Onward’s operations, however, demonstrate that it is possible to manufacture high-quality, affordable gas grills in the United States. We urge that BBQ Guy’s request be denied.”

Chase Shelton, general counsel for Blaze Outdoor Products, which is affiliated with BBQ Guys, said responded an exemption application letter that Onward's "grills do not meet the standards and quality associated with the Blaze brand of grills.”

CROWN CRAFTS INC.: The Gonzales-based seller of bedding, toys and feeding supplies for infants submitted a request for exemption of bibs created by subsidiary Sassy Baby Inc. It was denied. 

Crown Crafts, a publicly traded company, estimated that the 25% tariff already in place increased the price of its products between 15% and 25%. The company has sought alternatives in the U.S. and abroad but has not been successful so far. Manufacturers in Vietnam and Thailand quoted the company prices that would increase the retail cost by 150%, according to the company's exemption application. 

Crown Craft's CEO told investors recently that he expects most of the company's products to be subject to tariffs by the end of this year.

"We're going to raise prices and that we've done … our margins are healthy but they aren't healthy enough to meet those kinds of increases," said Randall Chestnut, CEO of Crown Crafts. "We've had some pushback but by and large most people understand. We've had some people say you've got to give us six months notice on a price increase but our answer to that is that we didn't get six months notice on the tariffs." 

ALFORTISH ENTERPRISES: The Terrytown business run by Alfortish brothers David and Blake has been in business since 2002, but the family has been building mausoleums and monuments in cemeteries for more than a century. Alfortish Enterprises is seeking an exemption for black granite blocks sourced from China, but has not been given a final decision. 

Some granite colors can only be sourced in China and often customers are looking to match tombs built decades ago, said Blake Alfortish, co-founder of the company.

"In some cases, the color only comes from one part of the world," he said. "Granite is a product of mother nature, it's not like they are making it in a plant."

It takes several months before an order overseas arrives in the U.S. so Alfortish Enterprises was forced to pay tariffs on granite that customers had already paid for before the tariffs went into effect. 

"We can't go back and charge our customers more, so the business has to eat it," he said. "For new jobs we had to raise prices."

In the tombstone business, that can mean thousands of dollars more for a monument, which can cost nearly $100,000 — of which about $30,000 is for materials. The company has paid nearly $40,000 in tariffs over the past year.

"That's money for 401Ks, raises, new equipment and unfortunately it's going to the government," he said.

Alfortish Enterprises does source some of its materials from a quarry in Georgia, but the quality is often better overseas and still several thousand dollars cheaper even with the new tariffs, he said. 

CAJUN KOOLING: The small Broussard business claims that it cannot manufacture its portable evaporative air cooling systems outside of China due to patents on the design held by the Chinese manufacturer. Cajun Kooling is waiting on a review of its tariff exemption request. 

"The Chinese manufacturer wholly owns the rights to each of the molds that are used to make each component of the fan," the company's request says. "These proprietary molds and designs maximize the efficiency of each fan."

The company would be required to create 15 new molds, which could cost $500,000 to move to a new factory overseas. New molds for a U.S.-based factory could cost upwards of $900,000 — in addition to $950,000 for the factory itself. 

"We have thoroughly explored the option of manufacturing the fans in the U.S. and found that it would be entirely too costly to do so and we would not be able to sustain our business. The raw materials would also cost an additional 30% on top of our current invoice price," the company said. 

Before the tariffs were enacted, the company was only paying 2.8% in duties. The tariff hike was described as "financially devastating for our business" and the company plans to raise prices. 

Cajun Kooling did not respond to a request for comment.

PETROCHEMICAL MAKERS: Among petrochemical companies seeking tariff exemptions is BASF Corp. It's unclear whether any exemptions affect operations in Geismar; BASF declined an interview request. The company wants an exemption for a scrap metal catalyst, which is used in catalytic converters to reduce emissions from conventional vehicle engines for its service of recycling materials. BASF also is seeking an exemption for triethyl phosphate, used as an industrial catalyst for creating plastics and polyurethane foams that are flame retardants. The company said that the chemical compound is not produced outside of China. Eastman Chemical is one company that produces triethyl phosphate in China.

BASF received denials on four previous exemption requests related to polyurethanes and filtering machinery for liquids. 

"As an international company with integrated global value chains, minimizing trade barriers and tariffs is essential to BASF's operations," the company said in an emailed statement. "We are therefore concerned about the continuing escalation of the U.S.-China conflict over trade and economic policy issues, which is leading to the imposition of import tariffs on a wide range of products that affect the chemical industry and its numerous customer industries."

Wanhua, a Chinese chemical maker, has been weighing its options for a $1.25 billion plant that produces methylene diphenyl isocyanate, or MDI, from scratch in St. James. The material is often used to make polyurethane foam for bedding, furniture, automotive interiors and the cushiony material placed under carpet.

Wanhua told St. James Parish officials in September that tariffs would increase the cost of the project by 60%. 

In November 2018, Wanhua requested more than 60 exclusions from tariffs for products it needs. Since then, 11 were granted, 16 denied and most of the rest remain under administrative review. Wanhua filed four new exemption requests in late September, all of which are in an early public comment period. 

Acadiana Business Today: Broussard-based Cajun Kooling among Louisiana manufacturers seeking Chinese tariff relief; Airport gets approval for second TSA security checkpoint, will be installed early next year

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