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New Era says tariffs weren't factor in plant closure, but Higgins isn't sure

WASHINGTON – In August, New Era Cap Co. Inc. said President Trump's promised tariffs on headwear made in China would have a devastating effect on the company.

"If the tariffs on headwear go into effect, the new costs will force us to make immediate and significant cuts to our U.S. operations, including workforce reductions," New Era's CEO, Christopher H. Koch, said in an Aug. 8 letter to Trump's top trade official.

Three months and five days later, New Era on Tuesday announced plans to close its manufacturing plant in Derby in March, a move that will claim more than 219 jobs.

But the company now says Trump's tariffs on consumer goods made in China – which went into effect on Sept. 24 – had nothing to do with its proposal to shutter its local factory.

"New Era’s contemplated decision to discontinue operations at its Derby facility was not the result of the tariffs that went into effect on Sept. 24," the company said in a statement to The Buffalo News. "Today’s announcement is about a change in the long-term operating footprint of the company in order to focus on emerging areas of growth, like e-commerce and social marketing."

Even so, New Era's earlier concerns about Trump's tariffs make Rep. Brian Higgins wonder if those tariffs hastened the company's plans to close its local plant.

"Look at their own words – New Era – in their testimony this summer," said Higgins, a Buffalo Democrat. "I think there is an implicit message in there that they're going to have to take drastic measures if the tariffs weren't removed. And they weren't removed."

The tariffs were changed, however, and New Era said in its statement that those changes helped reduce the tariffs' impact on its business.

"When the tariffs on consumer products from China were first announced in July, New Era – like many other U.S. companies – expressed its concern about the potential impact to the United States Trade Representative in very strong terms," New Era said in its statement to The News. "However, when the effective date of the tariffs was pushed back to late September and the (rate) was reduced to 10 percent from 25 percent, the company was able to mitigate the immediate impact of the tariffs via shifts in its global production network."

At issue is Trump's trade war with China and New Era's future. Angry about China's longstanding trade surplus with the U.S., Trump slapped a 10 percent tariff on an estimated $200 billion in Chinese imports on Sept. 24. The tariffs hit a wide range of consumer products.

Flex team member Sharon Sager attaches the panels together at the New Era factory in Derby.  (Mark Mulville/Buffalo News)

While New Era's contract with Major League Baseball calls for it to manufacture its official baseball caps in the U.S., the company contracts with manufacturers in China and elsewhere to make other products.

Higgins said that means the tariffs could be putting financial pressure on New Era and forcing it to cut costs elsewhere – such as by closing the Derby facility and moving the production of official Major League Baseball caps from that plant to a facility in Miami.

The congressman said he's not implying that Trump's tariffs directly caused the proposed closure of the New Era plant in Derby.

"What I'm saying is that a company takes a comprehensive look at its balance sheet, at its revenue and costs, and if there are stresses in one area, they might make a shift in another area – in this case, production," Higgins said.

Higgins wasn't alone in thinking that tariffs might have something to do with New Era's move. Erie County Executive Mark C. Poloncarz -- a vehement critic of Trump's tariffs -- saw the letter New Era sent to the U.S. trade representative and thought the same thing.

"Tariffs can have unintended consequences," Poloncarz said, pointing to the recent shutdown of Bak USA, a Buffalo-based maker of computer tablets. "New Era might be an example of it, too."

But in announcing the planned closure of the Derby plant on Tuesday, the company never even mentioned tariffs.

And when asked about the tariffs a day later, the company said in a statement: "As part of New Era’s regular and ongoing evaluation of its operations, the company reviews all aspects of its business, including the Derby plant. During the first quarter of 2018, it became clear to the company that it needed to move away from operating a manufacturing plant and move more aggressively into branding and marketing."

In other words, the company was contemplating shifting its strategy months before Trump announced his tariffs.

But Higgins said he still believes Trump's tariffs did no good for the Derby facility.

"One way or another, there appears to be a connection," he said.

Higgins noted that the tariffs on imported headwear from China are scheduled to increase to 25 percent by the end of this year – which is exactly the rate New Era complained about in its letter to Robert E. Lighthizer, Trump's U.S. trade representative.

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