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Tariffs continue despite trade deal, but impact seems limited

President Trump and Canadian Prime Minister Justin Trudeau this week patched up their feud and struck a new trade deal – which does nothing to help Buffalo-area companies bearing the weight of the steel and aluminum tariffs the two leaders imposed this summer.

But the strong economy is helping some of those local companies bear the higher costs that come with tariffs.

That seemed to be the consensus of several local executives and trade experts interviewed this week about the tariffs, which took effect this summer and which continue despite the much-heralded United States-Mexico-Canada Agreement that Trump announced this week.

One local facility, Welded Tube of Lackawanna, cut jobs and curtailed expansion plans because of the tariffs, but executives at other local companies said they are getting by despite the added costs they're facing, largely because business is so strong.

"The good news is masking what could be much more significant bad news," said John Darby, president of Niagara Transformer, a Cheektowaga company that relies on imported Canadian steel.

A strong economy

Even though the U.S. and Canada implemented 25 percent tariffs on steel and 10 percent tariffs on aluminum in July, manufacturing employment in the Buffalo area grew in August to 52,800 – its highest level since January 2009.

Trade experts and company executives said that proves two points.

The tariffs have not devastated many local companies – yet.

And the economy is so strong that whatever damage the tariffs are doing is going unnoticed so far in the big picture.

One reason many local companies have not suffered under the tariffs is that they stocked up on the steel or aluminum they needed before the tariffs took effect, said Craig W. Turner, president of World Trade Center Buffalo Niagara.

"They're not expecting a slowdown until 2020," Turner said.

While enduring higher prices for steel and aluminum thanks to the tariffs, many companies also are enjoying the benefits of the Trump administration's tax cuts and deregulation efforts, said Veljko Fotak, an assistant professor of finance at the University at Buffalo.

"A lot of us don't support what the Trump administration is doing, but there's no denying that some of the things they've done have been good for the economy," Fotak said.

Companies tighten belts

Of course, companies that use steel and aluminum can't count just on tax cuts and deregulation to maintain their bottom lines. Some have had to raise the prices of their products or get used to lower profits, at least for the time being, to account for the higher prices they're paying for the metals they use.

"We've been able to pass on the costs," said David Smith, materials manager at Rigidized Metals Corp. on Ohio Street in Buffalo, which molds steel into decorative signs and architectural products. "We're having a solid year."

That's partly because steel prices have increased only about 15 percent recently despite the 25 percent tariff, as steel suppliers decided to absorb some of the cost of the tariffs rather than passing all of it on to their customers.

"For a while, the prices were going up rapidly because of the tariffs, but if anything, they're gone down a bit recently," said Joe Klein, president of Klein Steel, a Rochester steel supplier that has a facility in Buffalo. "The tariffs distorted the market to a little degree."

But that distortion has made a difference to companies such as Niagara Transformer.

"We are certainly less profitable, without a doubt," said Darby, whose company relies on a kind of steel that's made only in Canada. "Because of the prices our foreign competitors charge, we've had no ability to raise prices."

Darby said the strong economy has helped his company muddle through with lower profit margins, but he fears what will happen when the economy inevitably slows.

Federal trade deal prompts relief, optimism in WNY

An expansion scuttled

For at least one local company, Trump's tariff's already have prompted a slowdown.

Welded Tube of Canada laid off 47 of the employees at its Lackawanna facility this summer and postponed plans for an expansion there, all because of the tariffs, said Jeff S. Hanley, the company's vice president of sales for energy tubulars.

"We'd dearly like to see the tariffs removed and to put that crew back to work in Lackawanna," Hanley said.

To ease the burden of the tariffs, Welded Tube moved some of its work from the Lackawanna facility to a plant in Canada. Hanley thought that might be a temporary move, because he figured that the tariffs would be removed if Trump struck a deal with Canada and Mexico to replace the much-derided North American Free Trade Agreement.

Now Trump has struck such a deal – but he's left the steel and aluminum tariffs in place.

That puts Welded Tube's Lackawanna facility in a precarious position.

"It's not sustainable" if the tariffs continue, Hanley said.

At the same time, Hanley echoed what Trump said after he announced the trade deal: The tariffs likely pressured Canada to agreeing to that new trade deal.

"He's a supreme negotiator," Hanley said of Trump.

What happens next

Both Trump and Trudeau signaled that the steel and aluminum tariffs may not last forever.

At his news conference Monday, Trump said the tariffs will remain in place "until such time as we can do something that would be different — like quotas, perhaps — so that our industry is protected. We are not going to allow our steel industry to disappear."

That means the United States and Canada might strike a separate, smaller trade deal on steel and aluminum that sets import limits similar to those in Trump's recent trade deal with South Korea, several executives interviewed for this story said.

Trudeau sounds anxious to get some sort of a deal done.

“Moving forward on eliminating the tariffs on steel and aluminum remains a priority for us, for Mexico, and is something the Americans have indicated they are more than willing to work on,” Trudeau said at a news conference earlier this week.

Rep. Tom Reed, a Corning Republican who praised the trade deal – and who won a Twitter shoutout from the president as a result – said the tariffs don't appear to be having a devastating effect in his Southern Tier district.

"I'm of the opinion that we're going to see a resolution on these tariffs in due time," Reed added.

Rep. Brian Higgins, a Buffalo Democrat, hopes so. Higgins agreed with several of the executives and trade experts who said that the longer the tariffs last, the more likely they are to do serious economic damage.

Predicting that the tariffs could cause the economy to slow in the year's last quarter, Higgins said Democrats in Congress might make their support of Trump's big trade deal contingent on him ending the tariffs.

"I think the issue of tariffs will be at the front and center of discussions among Democrats in the House and Senate" on the trade deal, Higgins said.

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