Some Wisconsin companies seek tariff exemptions

Trek Bicycle says it's facing additional $8 million in annual costs

Last updated on July 2nd, 2019 at 09:07 pm

It should come as no surprise that potential tariffs on $300 billion in imports from China covers a lot of products, but the items Wisconsin companies are seeking exemptions on range from model trains to outdoor fireplaces and specialized men’s and women’s under garments, according to documents filed with U.S. Trade Representative.

The USTR began public hearings last week on a proposed 25% tariff on around $300 billion in goods that the U.S. imports from China. The tariffs are in addition to tariffs previously put in place on $250 billion in Chinese goods over the last year and were levied by the Trump administration after trade talks broke down earlier this year.

The hearings give companies a chance to argue for products they use to not be included on the tariff list. Their arguments generally focus on the potential for price increases for U.S. consumers, the inability to source products outside of China and the lack of relationship between a particular product and the reasons the U.S. is imposing tariffs.

Other manufacturers have also argued the tariffs give advantages to their non-Chinese competitors. A less vocal group of manufacturers does benefit from the protection provided by the tariffs. Some manufacturers have expressed support for the goals of the tariffs while questioning the methods and strategy.

The tariffs are intended to be a response to China’s practices around the forced transfer of technologies and intellectual property and theft of trade secrets.

Stacey Walthers Naffah, president of Milwaukee-based Wm. K. Walthers Inc., was among the leaders of Wisconsin companies seeking an exemption from the latest round of tariffs.

Walthers is a producer, distributors and direct seller of model railroad hobby products and accessories.

“I respect and understand the (Trump) administration’s desire to eliminate China’s acts, policies and practices that are unfair and damaging to the U.S. economy in the near and long term,” Walthers Naffah wrote.

But she argued the tariffs would impact the model railroad industry in the U.S. more than they would harm China.

“I believe severe and lasting harm will be caused not only to our business but to an industry already trying to keep pace with rapid change,” Walthers Naffah wrote.

She said the company’s margins would not allow it to absorb the 25% tariff and prices would have to increase. Independent retailers, core customers – many of whom are on fixed incomes – and families the industry is targeting for future growth, would feel higher prices.

Walthers Naffah also said the company’s supply chain is reliant on experienced contract manufacturing firms in China that provide a finely detailed, high-quality product at an acceptable price. She estimated moving production to another country would take at least 24 to 36 months with no guarantee of retaining the same quality.

She also noted that the industry’s highly detailed products with relatively small orders make it difficult to economically support production anywhere in the world.

“At this time, we do not see the feasibility of bringing our supply chain back to the U.S.,” Walthers Naffah wrote.

Kenosha-based Jockey International Inc. was also among the companies seeking exemptions. The apparel company was seeking a break for specific knit-to-shape garments, including men’s and women’s briefs, bras and women’s tanks and camis.

Mark Jaeger, senior vice president and general counsel, wrote that the company has already taken steps to mitigate the impact of the tariffs without increasing consumer prices.

“Moving knit to shape production takes relatively more time and resources than moving cut and sew production,” Jaeger wrote. “In addition, knit to shape capacity outside of China is limited.”

The company asked for the tariffs to be removed, delayed for six months or reduced to 10%.

Thomas Florsheim Jr., chairman and CEO of Milwaukee-based Weyco Group Inc., also wrote to object to footwear being included in the tariff list. Weyco owns the Florsheim, Stacy Adams, Nunn Bush and Bogs brands.

Florsheim said the tariff would equal the company’s entire operating profit.

“The tax would force us to try to increase prices, which is very difficult to do in this price-sensitive area of the market,” he wrote. “Our retail customers are struggling as it is, and in our opinion, this would put many of them out of business.”

Like other companies, Florsheim pointed to the inability to quickly move production.

“Footwear is a very capital-intensive industry, with years of planning required to make sources decisions and ensure our factories have the highest standards for our customers,” he wrote. “Companies cannot simply move factories in a short timeframe to adjust to this tariff burden.”

Racine-based Real Flame Co. Inc. is seeking an exemption for propane and natural gas outdoor fireplaces, which account for around 18% of its annual sales.

KSP Group Inc., Real Flame’s parent company, has around 140 U.S. employees and also owns Jensen Metal Products and Jensen Castings with domestic manufacturing operations.

Real Flame started sourcing from China around 2002 in response to market pressures.

“For us, this is truly a balancing act to ensure we can keep our business going and continue supporting our customers and all of our hard-working employees,” Geeta Jensen, CEO of Real Flame and KSP, wrote.

Jensen said the company has invested heavily to establish a liaison office in China and to ensure its imported products meet safety standards.

“The tariffs would paralyze our production for almost a year,” Jensen said, noting the company would have to find a new factory and then wait six months to complete safety audits. “Real Flame cannot afford to have this sort of gap in getting products to market.”

Waterloo-based Trek Bicycle Corp. is seeking exemptions for dozens of items, arguing the company is facing $8 million in new duties under the latest round of tariffs. The first three rounds resulted in an additional $30 million in annual cost for the company.

“This unanticipated and unplanned cost would give Trek no other option but to raise prices,” Jodi Gracey, director of global trade and logistics at Trek, wrote.

Milwaukee-based Zurn Industries LLC is seeking exemptions for vitreous China products and parts of water and safety control valves.

The company said that while ceramic sinks, washbasins, toilets and urinals are a relatively minor cost in the overall scheme of commercial building products, they are also required and most be installed at specific times. Applying tariffs to those products would reduce inventory and cause delays “that will ripple through the construction sector.”

“Zurn sources these products from China because there is no adequate domestic supply and no additional domestic capacity for future production,” Wesley Cline, vice president for global supply chain at Zurn, wrote. “Moreover, Zurn has conducted multi-year sourcing investigations in the United States and several other countries outside of China without successfully identifying a supply base that can meet our quality or capacity needs.”

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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.

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