Trump’s tariffs hurt New Jersey companies through increased costs

2019 Forecast Issue: Manufacturing

John Kennedy, president of the nonprofit New Jersey Manufacturing Extension Program Inc., said he expects the manufacturing sector will continue to be challenged in 2019 by President Donald Trump’s imposition of tariffs on the import of foreign steel and aluminum.

John Kennedy, president of the nonprofit New Jersey Manufacturing Extension Program Inc., said he expects the manufacturing sector will continue to be challenged in 2019 by President Donald Trump’s imposition of tariffs on the import of foreign steel and aluminum.

Steel and aluminum are key components in the manufacturing process either as the product being manufactured or in the machinery used to produce other materials. Trump imposed tariffs of 25 percent on the import of foreign steel and 10 percent on foreign aluminum in 2018, causing New Jersey manufacturers to bear the brunt of increased costs and delays.

“Tariffs do hurt companies,” Kennedy said. “Many of the steel and aluminum products that are being tariffed are no longer made in the United States. Certain companies have to go to China, Korea or Japan for this steel or aluminum. That’s a problem. Hopefully, the exemption program will not only increase but get easier because right now it takes a long time.”

Nearly 600 New Jersey manufacturers have applied for exemptions, said Kennedy, who works with the state’s legislators to help companies that want to apply for them.

The tariffs affect companies, by delaying the delivery of the foreign steel and aluminum imports, and customers, who pay as much as 5 percent more for the same products, Kennedy said.

NJMEP, a resource for New Jersey manufacturers, works to improve profitability and competitiveness. Backed by the National Institute of Standards and Technology, NJMEP provides workforce development programs, supports entry-level training, provides credentials to state residents and offers employment to New Jersey’s underserved residents, such as veterans.

“Unlike some retail companies, when you work in manufacturing you are guaranteed 40 hours per week.”

– John Kennedy, CEO New Jersey Manufacturing Extension Program

“New Jersey is a supply chain state that makes components for a lot of things. That feeds up the supply chain,” Kennedy said. “And if it is delayed a week at the lower end, by the time it gets to the original equipment manufacturer it could be delayed by 10 weeks or 16 weeks. It is all a trickle-down or a trickle-up in this case situation.”

Despite these tariffs, American manufacturing is surging at the end of 2018, Kennedy said.

Impact of Minimum Wage

Gov. Phil Murphy campaigned on increasing New Jersey’s minimum wage to $15 per hour. Kennedy said the prospect of such an increase will have an impact on the state’s manufacturers.

“Unlike some retail companies, when you work in manufacturing you are guaranteed 40 hours per week,” Kennedy said. “Manufacturing companies have overtime. Manufacturing is the No. 1 industry in the nation for providing benefits.”

An entry-level manufacturing employee may earn $12 per hour yet have a loaded wage of $21 per hour to reflect the employers’ costs for medical, dental and vision benefits, Kennedy said.

“You have to bring people in at a lower wage because if you have to hire them at $15 per hour, the guys who are making $15 will want $17,” he said.

Employees’ desire to be paid more according to their tenure with a company and knowledge will continue to cascade up to the higher wage earners, Kennedy said. As part of this wage consideration, manufacturing companies are using their profit margins to buy new technology, expand their facilities or move to a new building, Kennedy said. Some companies would struggle to pay the higher wages.

Kennedy said he worries the labor market cannot sustain a legislatively mandated $15 per hour minimum wage. “If the market cannot sustain it, companies will go elsewhere,” Kennedy said. They will manufacture in other countries again, he said, and automate at a faster pace.

Automation increases companies’ productivity but reduces the need for employees. When the cost of automation is less than the cost to pay the employees, manufacturing businesses buy the automation technology.

According to Kennedy, New Jersey manufacturing jobs pay $90,540 a year and employ about 360,000 professionals.

“Everyone wants to have a living wage and to have a great life,” Kennedy said.

The next couple of years will be banner years in manufacturing yet also challenging, he predicted. Manufacturers struggle to attract enough qualified applicants of all ages and to replace retiring Baby Boomers with younger professionals.

“We still have issues with people coming into the industry to work,” Kennedy said. “We’ve got to fill those gaps. We want our young people to have three things: a good career path, to stay in New Jersey, and to have the opportunity to have a good life. It could be home ownership or not, travel or not. You cannot do that without a good income.”

David Hutter
David Hutter grew up in Darien, Conn., and covers higher education, transportation and manufacturing for NJBIZ. He can be reached at: dhutter@njbiz.com.