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back December 04th 2018 back

Tariffs leave South Florida businesses wondering how to plan for the year ahead

As a potential trade war between the U.S. and China escalates, some South Florida business owners fear the tit-for-tat tariffs between the world’s leading economic powers could threaten their operations.

And for good reason.

Many manufacturing, real estate, construction and marine businesses in the tri-county region have skin in the game if a series of tariffs on Chinese imports persist – and expand – in 2019.

Already forced to pay higher prices for imports, business owners worry that the Trump administration’s plan to impose a 25 percent tariff on a wide array of imports next year could further erode their profits, curb job creation and hike prices on everything from boats to stereos.

President Donald Trump and Chinese President Xi Jinping are scheduled to meet at the G20 summit in Argentina this month to discuss trade. If they don’t reach an agreement, the U.S. has threatened to levy tariffs on $267 billion worth of products, only months after imposing a 10 percent tariff on more than $200 billion in Chinese goods. China retaliated with its own tariffs on $60 billion in U.S imports.

Trump hopes the U.S. tariffs will force China to lower its trade restrictions and help boost U.S. manufacturing. Whether that’s a winning strategy remains to be seen. For South Florida business owners, the uncertainty around the future of U.S.-China trade has created a daunting atmosphere that’s left them questioning how to plan for the year ahead.

“The most frustrating aspect is how inefficient this makes the business,” said Robert Oxenhorn, director of finance and accounting at Miramar-based JL Audio. “It’s ironic that the intention of these tariffs is to create U.S. jobs when it’s actually hurting our bottom line.”

The company, which manufactures consumer audio products like stereos, speakers and amplifiers in Broward County, began to import parts from China in the early 2000s. Importing less expensive parts allowed JL Audio to use the savings to create more jobs, Oxenhorn said.

JL Audio had to increase prices on its products in November to keep up with the rising cost of production due to the U.S. tariffs, he said. And because there are no American manufacturers of the parts the company needs, it will likely have to import those products at higher prices from either Taiwan or Vietnam.

The real concern is whether importing from more expensive markets could lead to job cuts. At this point, it’s too soon to tell, but Oxenhorn said the possibility can’t be ruled out.

 “We’re looking for ways to mitigate tariffs, but It’s difficult to plan ahead or change our sourcing or operations when we really don’t know how long the tariffs will last,” he said.

South Florida’s marine industry is also keeping an eye on the looming trade war with China and how it could impact boat manufacturers. 

Tariffs on Chinese aluminum are driving up costs for some builders, which will likely be passed down to consumers, said Phil Purcell, CEO and president of the Marine Industries Association of South Florida.

As a major regional employer and economic engine – the marine industry supports about 136,000 regional jobs and has an annual economic impact of $11.5 billion – Purcell said uncertainty surrounding trade makes it difficult for businesses to plan for the future. 

“I don’t have a crystal ball, but anytime you impose additional regulations or suddenly increase costs, it’s never positive for manufacturers or the industry,” he said. “We would prefer that our products not be affected by tariffs until there’s thoughtful discussion as to what the potential, long-term consequences could be.”

The last straw for builders

Higher prices on the materials needed to build the region’s staple of residential and commercial projects couldn’t come at a worse time, said Noah Breakstone, managing partner and CEO of Fort Lauderdale’s BTI Partners, a real estate developer and land investor.

In an economy with low unemployment, expensive land and higher interest rates for borrowers, tariffs are the latest test for the region’s real estate and construction industry.

“When you consider the cumulative effects of more expensive labor, constrained land availability, added interest rates and now rising material costs, they’re all causing big concern,” Breakstone said.

Sustained tariffs on Chinese steel imports could slow the growth of South Florida’s thriving construction industry, a top job producer. In October, Florida led the nation in new construction jobs, according to data from the U.S. Bureau of Labor Statistics.

Tariffs impact pricing

Trade concerns linked to China aren’t just related to U.S. imports. South Florida’s lobster industry has been battered by China’s 40 percent tariff on American lobster.

Eighty percent of the spiny lobster caught in the Keys are exported to Asian buyers, a majority of which are based in Hong Kong or mainland China.

The tariffs haven’t stopped orders from China, but “we’re not getting as much for the product now,” said Billy Kelly, executive director of the Florida Keys Commercial Fishermen’s Association.

In the past, Chinese buyers would offer $9 to $10 a pound, but since the tariffs have been imposed, that’s been reduced to about $7 a pound. It’s a loss, but Chinese buyers are still paying more than American buyers, he added.

Still, South Florida’s lobster fishermen got lucky this year, Kelly said. Because damage from Hurricane Irma shortened last year’s season, there’s been more lobster to go around this year. That means business owners have sold more product, making up for the reduced prices. 

But the industry can’t rely on that next season.

“What doesn’t go to China will be consumed in Florida, but businesses will get less money for it,” Kelly said. “Hopefully, the U.S. and China will hit the bargaining table soon to see what they can work out. Because, at the end of the day, this is about way more than lobster. This is about the global economy.”

Trade friction never good news 

The U.S. tariffs are designed to punish China for controversial trade practices, like its penchant for forcing international businesses to hand over technology to Chinese companies in exchange for access to its enormous market. Making Chinese products more expensive for American consumers and businesses would force U.S. buyers to look elsewhere – penalizing China – and could even bring manufacturing jobs back to the U.S., the Trump administration said.

But if the tariffs are here to stay, some economists say South Florida, a center for international trade and supply chain management, could see Chinese imports and exports plummet.

More than $5 billion in trade with China has passed through Miami International Airport and PortMiami in 2018. Trade with the country also helps create local jobs: Florida’s exports to China supported 31,000 American jobs in 2016, according to the U.S.-China Business Council.

So far, tariffs have not led to a significant slowdown in Chinese imports through the region’s ports and airports. But that could change if trade tensions rise and tariffs on Chinese goods hit 25 percent next year, said economist J. Antonio Villamil, founder of the Washington Economics Group in Coral Gables.

“A major trade war that disrupts global markets would not be in the interest of either the U.S. or China,” he said. “That will definitely hurt wholesalers, importers, ports and consumers, who will absolutely see prices go up.”

A silver lining

Not all business owners bemoan the tariffs. For Ignacio Edenburg, business has been booming since the U.S. placed tariffs on Chinese-made furniture.

Edenburg, CEO of furniture manufacturer Edenburg Hospitality, said he has been getting more orders than ever from American hotels, which usually import less-expensive Chinese-made products.

“We’ve had 30 to 45 percent more quotes, almost 20 percent more orders, since the tariffs on Chinese imports went into effect,” he said.

Edenburg Hospitality manufactures its products in Spain, but has offices in Miramar and Doral, the base for its business in the U.S., Latin America and the Caribbean.

In the past, the company typically worked with luxury hotels, the only brands willing to pay higher prices for Edenburg’s higher-quality, sustainably made products. But after the tariffs on Chinese imports, Edenburg began securing orders from mid-range hotels.

“The tariffs have leveled the playing field for European manufacturers. Right now, we have better prices and better-quality products, and you can’t beat that combination,” Edenburg said.

But even as he revels in his company’s success, Edenburg acknowledged that the uncertainty of the tariff policy makes it difficult to know how long the good fortune will last.

“Everyone is saying the same thing: We’re scared of what’s happening in China, scared of more tariffs. There’s a fear factor,” Edenburg said. “It’s unpredictable, and I think that’s what’s scaring people.”

TIMELINE: The U.S.-China trade war

In early July, the Trump administration followed through on months of threats and imposed sweeping tariffs on Chinese imports. The tariffs are intended to punish China for what the administration says are unfair trading practices. So far, China has retaliated with its own duties on U.S. imports in a back-and-forth that has encompassed most of 2018.

In early July, the Trump administration followed through on months of threats and imposed sweeping tariffs on Chinese imports. The tariffs are intended to punish China for what the administration says are unfair trading practices. So far, China has retaliated with its own duties on U.S. imports in a back-and-forth that has encompassed most of 2018.

March 23: The U.S. imposes a 25 percent tariff on all steel imports (with an exception for certain countries) and 10 percent on all aluminum imports.

April 2: In retaliation, China imposes 15 to 25 percent tariffs on 128 products, including wine, fruit and pork.

May 20: After meeting for trade talks in Beijing, the U.S. and China agree to put the trade war on hold.

May 29: The U.S. reinstates tariff plans on Chinese imports.

July 6: The U.S. imposes a 25 percent tariff on $34 billion in Chinese imports, including nuclear reactors and drilling machines, the first wave of tariffs specifically targeting China. The same day, China responds by placing 10 to 25 percent tariffs on $34 billion in U.S. goods, including soybeans, pork and rice.

Aug. 23: The U.S. places a 25 percent tariff on an additional $16 billion in Chinese products. This time, plastics, refrigerators and railway equipment are affected. China responds that day with a 25 percent tariff on $16 billion in U.S. products such as coal, copper scrap and medical equipment.

Sept. 24: The U.S. imposes a third wave of tariffs, this time placing a 10 percent tariff on an additional $200 billion in Chinese goods. Bicycles, roof tiles, car tires, handbags and more are affected. The U.S. says that rate will rise to 25 percent on Jan. 1, 2019. China responds by placing new tariffs on $60 billion in U.S. goods, including a 5 percent duty on small aircraft and textiles, and 10 percent on chemicals, meat, wheat and wine.

Oct. 30: U.S. officials report they are preparing to announce tariffs on all remaining Chinese imports, totaling about $267 billion, if imminent trade talks between President Donald Trump and Chinese President Xi Jinping at the G20 in Argentina are not successful.