How tariffs and trade policies are impacting machinery makers

March 10, 2020
The industry reacts to the ups and downs of the trade war.

It was like a whack upside the head, twice. And neither Bill Duff nor his competitors or colleagues saw it coming.

First, on March 1, 2018, President Donald Trump — declaring that “trade wars are good, and easy to win” — applied a 25 percent tariff on imported steel and aluminum. And then, just three weeks later, the administration said it was considering slapping similar penalties on up to $60 billion worth of Chinese goods. About a week later, the Chinese government retaliated with tariffs of its own on 128 imported products from America, and an escalating U.S.-China trade war was on.

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Duff is GM of sales and marketing for Yizumi-HPM Corp., part of Guangdong Yizumi Precision Machinery Co. Ltd., Foshan City, China. The Iberia, Ohio-based Yizumi-HPM makes injection molding presses in China, some of them designed specifically for the North American market, and also manufactures die-casting equipment at a plant in Marion, Ohio.

 The tariffs hit both parts of the business. Hard.

 “It’s certainly been a juggling act, and been very difficult to navigate,” Duff said. “The tariffs just basically came out of nowhere, and all of a sudden, our pricing went up 25 percent overnight.

 “We had several big [injection press] orders [being built] over in Asia, and we had contracts with U.S. and North American companies to deliver at a given price. You have a $2 million project coming in the door, and all of a sudden you’re paying 25 percent out of it — it’s very difficult to do business,” Duff said.

 “We had to work with our customers the best that we could and try to pass some of the cost on. Some of the customers refused to, because we had a contract with them. ... One customer met us halfway; another one refused to. So, we managed the best we could.”

 Duff explained that Yizumi-HPM’s longer-term business approach is helping. The company continues to diversify its offerings, which is allowing it to tap into new, more specialized market sectors, usually with higher margins. 

 “We do have a lot of specialty equipment — we have packaging machinery, we have a new electric [injection molding] machine we just developed, we have products that are providing solutions with robotics and multimaterial and different processes. We’re opening up different markets for our products, and that allows us to grow as a company.”

 Yizumi-HPM also has invested millions of dollars in tech centers in both Germany and central Ohio. So, unlike many foreign-owned machinery importers, the company is “not just someone setting up an office to sell machinery that’s coming off the boat.”

 Fighting for market share

 Ningbo, China-based Haitian Group — the world’s largest maker of injection molding machines — also felt the squeeze. Glenn Frohring, along with partners Nate Smith and Mike Ortolano, founded Absolute Haitian Corp. in Worcester, Mass., in 2006 to serve the North American market for Haitian.

 Frohring said he and his partners worked with company leaders in China to come up with a plan to deal with the tariffs. With Haitian Group selling 25,000 to 36,000 machines a year, it has the heft to absorb more than most players in the market.

 “We reduced our margins in the U.S., and Haitian did, too,” Frohring said. “We limited the impact to our customer, as well — they weren’t seeing the effect of the total 25 percent hit.”

 Additionally, he noted, “We always have existing inventory. So, when the tariffs hit, we still had a lot of stock machines that didn’t have tariffs tied to them, which gave us some flexibility. It also allowed our customers to plan a little bit. It certainly had an effect on our margins.”

 Frohring said the company is “very, very pleased” with its 2019 performance, while admitting its year-end numbers are still not cause for a big celebration. “Our sales figures are up while profits and our margin may be a bit down, but we didn’t want to reduce market share. We just got aggressive and went after the business we could get.”

 Haitian continues to move aggressively to solidify its position in the North American market. Last May it broke ground on the first phase of a 290,625-square-foot manufacturing plant in Mexico. Days later, it held a grand opening ceremony at its U.S. operations center in Moncks Corner, S.C.

 Frohring acknowledged that the 116,000-square-foot building in South Carolina “is much larger than it needs to be today. It’s basically a growth strategy. The reason it’s the size it is, is because Haitian isn’t just a machine manufacturer. It gives us a lot of flexibility to assemble. Right now, it’s a huge stocking facility for us. It looks sort of big right now, but five years from now, we might be saying it’s a little too small.”

 It’s also a hedge against future tariffs and trade spats.

 Frohring doesn’t really see the sense of the current trade war, noting that the tariffs aren’t going to cause U.S. plastics machinery companies to suddenly rise from the ashes and start making machines again in the U.S.

 He contends that buying advanced, affordable machines such as those from Haitian allow U.S. molders to remain competitive and continue making plastic products domestically.

 “We’re just collateral damage for the trade war with China, which is really based on intellectual property infringement and a lot of other stuff. We work with a global economy.”

 The data tell the story

Perc Pineda, chief economist of the Plastics Industry Association (PLASTICS) in Washington, D.C., tracks the effects of changes in trade policy on plastics
machinery companies as closely as anyone. While exports and imports rise and fall due to a variety of reasons, such as the pace of economic growth, the tit-for-tat tariffs between the U.S. and China was followed by less trade between both countries. It is without question that higher tariff rates have caused trade in plastics machinery between the U.S. and China to slow.

 He provided statistics — based on his association’s analysis of data from the U.S. International Trade Commission — showing that following the higher tariffs on Chinese goods, the value of U.S. imports of plastics machinery from China plummeted in the second half of 2018. U.S. import value fell by 32 percent in the third quarter (compared with the same period the previous year), and by 48 percent in the fourth quarter, to roughly $75 million in each quarter (see Table 1).

 Similarly, after China’s retaliatory tariffs, U.S. exports of plastics machinery to China fell by 7 percent and 30 percent (to less than $29 million), respectively, in 2018’s third and fourth quarters (see Table 2), compared with the same periods in the previous year.  

 The latest trade data, Pineda said in mid-January, show U.S. plastics machinery exports had dropped by 29 percent through November 2019, to $88.3 million, compared with the first 11 months of 2018 (see Chart 1).

 Pineda favors free trade and is not a big fan of tariffs. Protectionism is not the answer, but countries should practice fair trade, he said.

 “In the long term, you want more balanced trade, but you don’t fix that with a short-term solution by making it impossible to trade with one another. The negative consequences were bigger than we had hoped for,” he said, noting that PLASTICS had to revise downward its forecasts for U.S. machinery sales.

 Pineda acknowledged the ongoing issues with China, and the need to work toward a solution. But, he added, “While the persistent U.S. trade deficit with China and the long-standing concerns of China’s unfair trade practices — such as lack of intellectual property protection enforcement, market access, etc. — are legitimate concerns, the prolonged uncertainty around tariffs and trade between the U.S. and China has definitely affected business sentiment. This has led to lower investment spending that negatively impacted plastics machinery business.”

 Dealing with unpredictability

 Increased volatility in economic policymaking is a wild card. Interviews with more than a dozen industry sources around the world show the broader impact on plastics machinery makers.

 “The biggest impact we’ve seen is really driven by the uncertainty,” said Jim Murphy, president and CEO of Pawcatuck, Conn.-based Davis-Standard LLC. “It directly impacts the ability of our plants in North America to ship and sell into China,” he said, noting that his firm does about a third of its production outside the U.S. “Even for countries not directly impacted by the tariffs, what we’ve seen is a bit of a concern as people are looking to make pretty significant capital investments.

 “We really saw [lower capital investment] in the first half of 2019, across the globe,” Murphy said. “The first half of 2019 was noticeably quieter. We still had reasonable quote activity, but customers were very hesitant to make decisions and move forward with projects.”

 Business activity — particularly in China and Asia — did improve in the last half of last year, he added, noting that this uptick has continued early this year, though concerns about the coronavirus in China may lead to “a whole other level of indecision, I guess.”

 The unpredictability of fast-changing economic policies has had a bigger impact on business than the actual tariffs, Pineda said. This uncertainty “has caused investment spending to be lower than it could have been. It’s difficult to plan when you don’t know what could be around the corner. There’s this overhang of trade and tariffs. It was just difficult for the business sector to make sound investment decisions.”

 Thorsten Kühmann, managing director of VDMA, Germany’s plastics and rubber machinery association in Frankfurt, told PMM: “All companies are concerned equally by the uncertainty. It is therefore good that Phase 1 of the China-U.S. trade deal has led to a ceasefire and that there are no further escalations. On the positive side, neither party has an interest in making things worse. This means that the situation is currently stable, and companies can adapt their business plans accordingly.”

 Noting the export-driven nature of the plastics and rubber machinery industry, Kühmann cited 2018 data that the sector’s global production rose 1.9 percent to $40.7 billion, and 62 percent of those machines (by value) were exported. He also essentially agreed with Pineda, saying: “Every trade barrier has a negative impact on exports.”

 Kühmann said that tariffs impact far more than just machine makers. As a result of such policies, plastics processors can either no longer purchase the machines they need or have to pay a much higher price for them. “In the end,” he said, “there will be more losers than winners.”

 Separately, at the K 2019 show in Düsseldorf last October, Euromap — the European umbrella organization of major national plastics and rubber machinery associations — noted that it does foresee the strong economic cycle slowing, and projected a dip in global production of such machinery. Euromap estimated that 2019’s final numbers would reflect about a 10 percent decline (in production sales value) from 2018, with a further 5 percent decline in 2020, to an estimated $34.67 billion.

 "After 10 years of continuous growth and an increase in the Euromap production of 59 percent since 2010, 2019 will see the expected economic dip," Luciano Anceschi, the group’s president, said at the time.

 Elsewhere in Asia

 Peter Gardner, VP of sales and GM of Daiichi Jitsugyo (America) Inc., importer of South Korea’s LS Mtron machinery, agreed that the uncertainty has not helped, but downplayed its overall impact.

 “I think that it has had an effect,” Gardner said, “but I don’t think we see it as much, because the headwinds created by that economic uncertainty are overcome by the thrust created by the great economy, with strong consumer demand and full employment and things like that.”

 The Wood Dale, Ill.-based company, which sold Niigata-brand injection presses in North America for 37 years, switched its allegiance to LS Mtron right after NPE 2018.

 “As we’re competing against the Chinese, our price may have been significantly higher when our machines were coming from Korea, or from Japan for that matter, when we were selling Niigata machines. Now I hear a lot more customers saying, ‘You’re right in line, you’re pretty close.’ So, the imposition of tariffs does level the playing field a little bit for us.”

 Because of the U.S.-South Korea free trade agreement, LS Mtron’s Korean-made machines carry no tariffs or duties, Gardner said, noting that his company has been playing up that fact in its promotions. LS Mtron — which makes a full range of injection presses with clamping forces from 20 to 5,000 tons — has shipped more than 130 presses to the U.S. since May 2018.

 “Tariffs probably aren’t the best things in the world,” Gardner said, “but I think, unfortunately, they were necessary to right some of the wrongs” with China.

Dodging the trade bullet

 Not everyone is finding the current trade situation disruptive. Conor Carlin, managing director of Illig LP, the North American subsidiary of German thermoforming machinery maker Illig Maschinenbau GmbH & Co. KG, said the trade dispute has not impacted his company at all.

 “Since joining Illig [in May 2019], I haven’t been involved in a single conversation about tariffs. The Germany economy is down compared to 2018, but that is a result of many factors of which trade uncertainty is just one. Illig is highly vertically integrated with lots of (German) metal moving through the factory for the tools and machines.”

 Brian Marston, president and CEO of blow molding machine maker Uniloy Inc., Tecumseh, Mich., said: “As far as the impact tariffs have had on imports, we have seen an increase in costs on industrial blow platens (castings), electrical cabinets (sheet steel), and other miscellaneous fabricated metal components (steel raw stock). Some of these have been up as much as 18 percent. These items are still more cost-effective to source overseas vs. domestically.”

 That said, “We have not seen customer decisions being changed on tariffs, as overseas competitors are still very active and undercutting market prices for our machinery and molds. We continue to conduct efforts to make ourselves more efficient and offer better quality and service as our added value when competing for business,” Marston said.

 “I find currency exchange rates to be of much larger importance than what one day may be looked back upon as a relatively short trade war,” said David Preusse, president of Torrington, Conn.-based Wittmann Battenfeld. The company has nine manufacturing locations globally, he said, which helps insulate against trade disputes, and much of the production in its Chinese plants supports the local market.

 “It’s not news China has subsidized various industries’ pricing to give China an advantage in various world markets. And as for intellectual property replication, it’s pervasive in China for technical product innovations and there’s been no world order to stop this plain-sight theft,” Preusse said. “Other countries’ leaders may likely see as quite negative the current U.S. administration’s protectionism, and deglobalization, and question the long-term impact. Many also argue, however, that leveling the playing field was long overdue.”

 The view from Milan

 Another European trade group sees the U.S.-China trade spat as actually helping its members. Amaplast, the Milan-based association of Italian rubber and plastics machinery and mold makers, has largely managed to steer clear of the crossfire.

 Amaplast GM Mario Maggiani said that with few American OEMs producing plastics machinery, U.S. molders need to find a new source of imported machines when one channel largely dries up.

 “You need to buy from someone,” he said. Machine makers in Italy, as well as in Germany and elsewhere, he said, most certainly “will benefit from the commercial war between the United States and China.”

 Maggiani said when he first started in the plastics industry about 25 years ago, Italy had 14 manufacturers of primary plastics and rubber machinery; now it has three. And those companies export roughly 70 percent of their production.

 Amaplast member companies have seen a positive trend in U.S. trade in recent years. He cites government and industry data that the value of Italian plastics and rubber machinery exports to the U.S. has risen steadily, from $254.8 million in 2016 to $305.4 million in 2017 and $325 million in 2018. (He estimated that roughly 95 percent of those exports represent plastics machinery, and just 5 percent rubber machines.)

 And for the first nine months of last year (the most recent period for which statistics are available), Italian machinery exports to the U.S. were up roughly another 15 percent, year over year, he said.

 Even so, a broader softening of key markets, especially in the automotive industry, will likely cause U.S. imports of Italian machinery in 2019 to dip by about 8.5 percent compared with 2018, according to Amaplast.

 Maggiani feels this is just part of the normal economic cycle. Business overall has been really positive for the past seven years or so, and a downturn of some degree must be expected, he said.  

 Hoping for more trade deals

 Pineda said that the recent signing of Phase 1 of the trade deal between the U.S. and China is helping to calm the waters a bit, while noting it took three years to get just this far. The agreement’s second phase, observers suggest, is not likely to happen before the election.

 Yizumi-HPM’s Duff said, “We’re keeping our fingers crossed that this second phase of negotiation between the U.S. and China bears fruit. I think it’s a positive that we have some sort of agreement that limits the Chinese from stealing intellectual property, and from them forcing companies to transfer technology. That’s a good thing,” he said, while acknowledging it’s not clear exactly how the U.S. will ensure enforcement of these new terms.

 Another reassuring development relates to the recent U.S. ratification of the new U.S.- Mexico-Canada Agreement. The USMCA replaces the North American Free Trade Agreement (NAFTA).

 Just minutes after President Trump signed the USMCA on Jan. 29, PLASTICS released a statement from President and CEO Tony Radoszewski that said: “This agreement is an absolute win-win for the U.S. plastics industry. It brings the trade relationships with our two largest trading partners into the 21st century and paves the way for growth throughout North America.” At press time, the U.S. and Mexico were waiting for Canada to ratify it.

“We were very supportive of the USMCA,” Davis-Standard’s Murphy said. “The Plastics Industry Association was very proactive in lobbying Congress to pass that bill. By all accounts, it improves free market access. For someone who wants to compete in the global market, that’s all we can ask for.

 “It would have been very disruptive if NAFTA was to be removed and there was nothing in its place. So, clearly this is very positive. Canada and Mexico are attractive markets for us. There are some things that are improved, but for the most part, I think we’ll see little change,” compared with the previous NAFTA deal.

 Looking at the big picture

 Manufacturing consultant Laurie Harbour closely tracks plastics machinery and mold makers, the tool- and die-making sectors, and the automotive market. As president and CEO of Southfield, Mich.-based Harbour Results Inc., she said she’s constantly telling machine manufacturers that they have to work to become more competitive.

 Typically, those firms focus on making sure that their products make their customers more efficient. But now, Harbour said, they must take stock and assess how efficient they are themselves in designing, building and assembling their machines.

 While it’s clear that the past couple years have not been easy for firms such as Yizumi-HPM, Duff still is hopeful.

 “We’re hoping to see the negotiations go well and the tariffs go away,” Duff added, “so we can get back to normal business.”

Robert Grace, contributor

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