What’s the potential impact  of a trade war on woodshops?

One doesn’t usually associate motorcycles with woodworking, but a news item in the last week of June made a number of industries sit up and take notice. The iconic American manufacturer Harley-Davidson, which is based in Milwaukee, announced that it is moving some of its production offshore to avoid tariffs that are being imposed by the European Union. The new taxes increase the cost of American made bikes being sold in Europe by more than $2,000 apiece.

Financial industry analysts say that this is just the tip of the iceberg.

One of the most telling chess moves that same week was a step taken by China to cut existing tariffs by about one-third in its trade with South Korea, India and other neighbors. China is preparing for a trade war with the U.S. which its president, Xi Jinping, says will be a ‘brutal fight’.

Closer to home, Mid-Continent Steel and Wire is the largest maker of steel nails in the U.S. The company recently announced that it has laid off 60 of its 500 production people as a direct consequence of the increased cost of raw materials – specifically, the 25 percent tariff that the administration has added to Mexican and Canadian steel. Company spokesperson James Glassman told CNN that the firm could be completely out of business by Labor Day. And the U.S. Chamber of Commerce has issued a statement that includes the dire prediction of 2.6 million American jobs being in jeopardy because of the administration’s tariffs and the retaliation to them. When the U.S. increases the cost of raw materials by imposing import taxes, that’s the first shoe to drop. When foreign governments respond to those taxes by making it much harder to sell U.S. products overseas, the second shoe is off.

Steel and aluminum tariffs are going to create problems in the mainstream casework industry, but there will be a trickle-down problem in specialty markets, too. Take, for example, the recreational vehicle industry. Manufacturers of those vehicles are dealing with significant cost increases in metals, which will affect their retail prices, which will result in negative sales numbers. Those companies buy casework – everything from cabinets and Murphy beds to dining booths and dashboards. As they lose their markets, so do woodshops.

It’s difficult to see where there is any advantage to following this trade policy. Most of the people who should know have said something along the lines that these tariffs protect inefficient industries and deter growth in efficient ones. USA Today estimates that for every job created by tariffs, 18 will be lost (June 6). And Brad Tuttle of Money Magazine wrote on June 26 that “analysts say that tens of thousands of American workers are likely to lose their jobs as a direct consequence of the Trump administration’s trade policies, and the retaliatory tariffs that follow.”

How many of those jobs will be in the cabinet and furniture market is anyone’s guess. But it’s safe to say that companies who buy or sell directly with Canada, Europe and China are already among the first to find out, and that every woodshop in North America is going to feel the effects before long. The most immediate impact will be on metal elements such as drawer slides, plus steel or aluminum drawer bodies, hinges and pulls. But there will also be some shockwaves in laminates and other plastic components, finishes, machines and software.

Technology impact

For woodshops, a large part of the industry’s most advanced machine and software technology comes from either China or the E.U. Emerging news now indicates that the U.S. administration intends to bar Chinese companies from investing in U.S. industries that have what it calls ‘industrially significant technology’. This isn’t national defense related, but simply business based. Whether it includes CAD/CAM, production software or machine controls, nobody knows yet. Treasury Secretary Steven Mnuchin added fuel to this particular fire when he tweeted on June 25 that such measures are “not specific to China, but to all countries that are trying to steal our technology.”

Among the machine companies that will need to take a long, hard look at this issue are industry stalwarts such as Felder, Altendorf, Casolin, Doucet, Griggio, Homag, Logosol, Roblund and Vitap. These businesses and hundreds like them have overseas roots but a deep and abiding presence in the woodshops of the United States. The same is true of software suppliers such as Alphacam, ArtCAM, Cabmaster, EfiCAD or Vectric. And power tool suppliers such as AEG, Lamello, Mafell and even Skil.

Then there’s the multinational angle. As with automobiles, toolmakers often import components from several different countries and assemble them in the U.S. (or in Mexico) for the American market. Parts of almost everything made by Bosch, Fein, Festool, Ryobi and just about any other manufacturer come from overseas and have implications for both tariffs and investment issues.

Made in China 2025

Most woodworkers are by now familiar with Industry 4.0, an initiative that began in Germany and has caught on well in the U.S. The AWFS describes Industry 4.0 as technology that will heavily influence the future of manufacturing, including artificial intelligence, augmented and virtual reality, robotics, 3D printing, cloud computing, the Internet of Things (IOT), and the Internet of Services (IOS).

Well, China has come up with its own version of the revolution. Called ‘Made in China 2025’, it is a government led plan to drag Chinese industry into the future by, in large part, producing more at home with home grown materials. Focusing on the most high-tech aspects of its own economy, the plan wants to have 70 percent of its raw materials produced within China’s borders by the year 2025.

This has been one of the major driving forces behind the U.S. administration’s rush to tariffs and protectionism. In a compilation of 1,102 products subject to new tariffs, a May 29 press release from the Office of the United States Trade Representative specifically states that the list “generally focuses on products from industrial sectors that contribute to or benefit from the Made in China 2025 industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles”.

On June 15, senior editor Powell Slaughter wrote in Furniture Today that the administration’s list going into effect on July 6 includes machinery and parts for woodworking shops, and a further list currently undergoing refinement will include drilling and mortising equipment. Among the machines listed are those used for planing, milling, molding, sanding, bending and assembling. Tariffs are also being imposed on particleboard and fiberboard manufacturing presses, and some machines used to treat wood for outdoor use.

Plus, robotics are included, although the actual parameters there are still a bit unclear. The intent seems to be to discourage American companies from buying Chinese machines that were built in some part by reverse engineering U.S. technologies.

In recent months there have been trade skirmishes in the wood industry, most notably with China over plywood and Canada over softwoods. Even though the tariffs imposed on Chinese plywood as a result of that were postponed, prices have risen. And on the Canadian issue, Randy Noel, the chairman of the National Association of Home Builders, has expressed some deep concerns about the 20 percent tariffs on imported Canadian lumber.

“Lumber prices have risen sharply higher than the tariff rate would indicate,” he said on June 19, “and this is hurting housing affordability in markets across the nation. Rising lumber prices have increased the price of an average single-family home by nearly $9,000 and added more than $3,000 to the price of the average multifamily unit.”

However, that doesn’t seem to have had a big impact yet on new home sales. HUD reports that sales of newly built, single-family homes rose 6.7 percent in May to a seasonally adjusted annual rate of 689,000 units. That’s the second highest monthly total since the end of the recession. However, it takes a few months for existing supplies to work their way through the construction market, so it bears watching over the next couple of fiscal quarters and lower numbers are expected.

The bottom line here is that the woodworking industry is already paying higher prices for wood and plywood and is now adding anything made of steel or aluminum to the list. Plus, things look a bit questionable for software, and machine prices have already been hit.

The impact of this now-in-progress trade war is that costs are skyrocketing, housing starts will in all likelihood taper off or decline over the next few quarters, and we’re still dealing with a shortage of qualified workers and rising interest rates.

What seems out of balance here is that the industry is seeing a lot of downsides from the tariffs, but there doesn’t seem to be much of an upside. The only positive so far is that most custom shops don’t export cabinets overseas, so at least their casework isn’t being hit by European or Chinese import duties.

But that hardly seems like a fair trade. 

This article originally appeared in the August 2018 issue.