The Trump administration’s tariffs (taxes) on Chinese imports are beginning to drive up costs for Philadelphia-area manufacturers. But orders remain so strong that firms are struggling to meet demand on time because they can’t find enough factory workers.
When parts and labor costs rise, “there’s only so much you can pass on to a customer before they source products elsewhere,” warned Michael Coakley, head of the manufacturing group at Kreischer Miller, a Horsham accounting and auditing firm that questioned 94 local manufacturers on tariffs, labor, and other factory challenges for its yearly survey. Some highlights from that survey:
Teikoku USA Inc., the U.S. arm of a Japanese company that makes pumps for grocery and frozen-foods companies at its Warminster plant, is among the nearly half of firms that Kreischer Miller surveyed who think that higher tariffs are threatening their growth. These levies are designed to discourage imports and pressure China into complying with international copyright, trademark, and anti-dumping rules.
Teikoku was “hit with a 25 percent tariff” imposed by the Trump administration on the Chinese parts it uses, said Linda Scheurer, the firm’s director of finance, in an email. That’s an unplanned expense that company accountants say will cost around $500,000 -- or more if sales of Warminster-built pumps continue to rise.
The company employs 75 at the plant, where it had hoped to double volume over the next five years and to hire another 15 or so factory workers, salespeople, and engineers.
"We are currently the market leader and we don’t want to lose business to any of our competitors, so there’s not much room for a price increase,” Scheurer said. So the company has to absorb the added expense, cutting the company’s gross profit margin in the sector by six percent.
Low-cost Chinese parts have made the Warminster plant “competitive in the marketplace,” Scheurer added. The company has been unable to find comparable American-made parts.
It’s not just a question of price: For some parts, "no one in the U.S. will even give us a quote.” That could slow the planned expansion: “We will need to increase our prices to cover the tariff costs,” Scheurer said. "If our growth is stifled by the tariffs, who wins?”
Teikoku will also have to replace current workers nearing retirement age, Scheurer concluded. "We really struggle with finding skilled machinists, welders, and metal fabricators,” she said.
Over in Cinnaminson, N.J., the 80-worker Ram Electronic Industries, Inc. plant faces similar pressures. The contract manufacturer of computer and audio/video cables buys parts from U.S. distributors who, in turn, buy from China and other foreign manufacturers.
Controller Eric Sklansky says Ram is able to pass tariff costs onto its U.S. customers, but the “administrative burden” of tracking and assigning tariff expenses on a product-by-product basis keeps too many employees busy when they should be producing or out selling.
It’s also been getting harder to bring parts out of China, Sklansky added. Shippers aren’t clear whether this is "a result of general trade conditions, or deliberate moves on the part of the Chinese government in response to the imposition of tariffs.”
Like Teikoku, Ram faces a tough time finding younger people, especially with fewer people immigrating to the U.S. to work in factories. “Legal immigration helps us. When it slows, our potential labor pool shrinks.” New Jersey’s $10-an-hour minimum wage coming by July will boost costs, but Ram already gives annual wage hikes, so it’s more an accelerator than a shock.
International Chemical Co., a family-owned Philadelphia manufacturer of industrial metalworking compounds such as tool-rust preventers, buys materials in the U.S. so it’s not directly affected by tariffs, said president Michael Pelham by email. But its customers -- sink manufacturers, for example -- buy a lot of metal, so they are more directly affected by rising import prices.
Pelham worries that higher costs could slow the economy. He’s less concerned about labor, crediting a careful balance of profit-sharing, retirement savings, free summer hours off, and other benefits with boosting recruiting.
Some of these challenges are side effects of the growth that has sustained U.S. manufacturing. Among the factory accountants polled, four-fifths expect higher sales this year; two-thirds expect to hire more workers, up from just over half two years ago, though many complained of uncertainty over future demand and the long-term impact of last year’s federal tax cuts.