Economic Trends: Beyond workforce challenges, the one thing that’s certain in manufacturing is uncertainty

Austin Ramirez
Austin Ramirez

As a general rule, uncertainty is not good for business, but for almost two years manufacturers have been getting a heavy dose of it as President Donald Trump seeks to dramatically remake the relationship between the United States and its trading partners, especially China.

“The uncertainty around tariffs is really impactful as we think about next year,” said Austin Ramirez, chief executive officer of Waukesha-based Husco International.

Husco makes components for the automotive and off-highway markets. Its facilities around the world generally make products for use in local markets but the company sources components globally, so new tariffs by the U.S. and retaliatory actions are both adding costs for the company.

In some cases, Husco has been granted exclusions that provide some tariff relief but those are set to expire soon, creating more uncertainty about how the Trump administration will treat them.

Ramirez will be among the speakers at the 19th annual BizTimes Media Economic Trends breakfast on Jan. 24. Among the topics he’ll address is how Husco has managed the challenges of increased tariffs and uncertainty, including concessions from suppliers, sourcing from other countries and raising prices.

“It’s kind of all of the above and no single action is going to address 100% of the issue, but you just do your best to take as many bites out of the problem as you can,” he said.

Husco isn’t alone in facing challenges from tariffs. The Marquette-ISM Report on Manufacturing, a survey of area businesses, hit a peak in February 2018 of 75.2, just before the first announcements about tariffs were made. Any reading above 50 indicates growth in the manufacturing sector and for nearly two years now the index has been generally trending down. It was below 50 during the entire second half of 2019 and seven of the past eight months (see chart).

Marko Bastl, assistant professor of supply chain management at Marquette, noted that many manufacturers in Wisconsin are both buyers and suppliers from and to markets hit by tariffs, making the state particularly susceptible to the impact of tariffs.

“Wisconsin literally sits in the middle,” he said.

Bastl pointed to Federal Reserve research that suggests, at the national level, the drag on hiring, rising input costs and retaliatory actions are outweighing the protectionist benefits of Trump’s tariffs.

“The bottom line, short-term at least: tariffs are hurting the manufacturing sector,” he said.

In the latest survey of businesses by Wisconsin Manufacturers & Commerce, more than 50% of respondents said tariffs are hurting their companies, up from 47% in the summer.

At the same time, 79% of respondents support using tariffs as a negotiating tactic to force other countries to play fair.

Bastl said some companies feel that tariffs, particularly with China, will stay in place one way or another and so they’ve started restructuring their supply chains, moving work to countries like Vietnam and Cambodia.

In fact, through the first 11 months of 2019, imports from China were down by 20.5%, according to data from the U.S. Census Bureau. That $1.53 billion decrease was partially offset by increases from other Asian countries, but those gains only amount to a combined $253 million or 10% increase.

Even with the uncertainty, Bastl is cautiously optimistic about the prospects for growth in 2020, drawing confidence from the national environment, which is still trending toward growth.

“Demand is still there. It’s a little bit volatile, but it’s still there,” he said.

Tim Wiora, executive director and chief executive officer of the Wisconsin Manufacturing Extension Partnership, said it is clear the manufacturing sector has slowed down. Vendors are beginning to offer shorter lead times and better prices, but there is nothing to suggest things are about to come to a screeching halt.

“They’re still busy, but not at the rate they’ve been running for the last few years,” Wiora said.

For Husco, business is particularly weak in Europe and India while the automotive market in China is also down significantly, Ramirez said.

“North America is probably the best from a fundamental economic perspective … but there’s a lot of question about what’s going to happen (in 2020) and what demand is going to look like,” he said.

Ramirez noted that 2019 ended with many customers taking out inventory to go into 2020 in a leaner position. It could set them up for a strong year of financial performance or position them to weather a downturn, he said.

“I don’t think anybody knows which of those two scenarios is going to play out,” Ramirez said. “The problem right now is there’s just so much uncertainty out there that manufacturers and all sorts of businesses are being very cautious with new investment because they don’t want to get over-extended and put themselves back in the position they were in 10 years ago when the market fell apart.” 

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.