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As China Tariffs Loom, Some U.S. Companies Say Buying American Isn’t An Option (#GotBitcoin?)

Business owners struggling to find alternatives to Chinese imports urge Trump administration to drop tariff plans. As China Tariffs Loom, Some U.S. Companies Say Buying American Isn’t An Option (#GotBitcoin?)

Stephen Pelkey said he has scoured the globe to find fireworks that match the quality of what he buys from China, without success.

So Mr. Pelkey has joined hundreds of other business owners and executives in begging officials in the Trump administration to drop plans to slap 25% tariffs on $300 billion in Chinese imports.

“It would be great if I could just say, ‘I’m going to get my [fireworks] containers from U.S. companies,’ ” said Mr. Pelkey, chief executive of Atlas PyroVision Entertainment in Jaffrey, N.H. “They don’t exist.”

President Trump has said a new round of tariffs are needed to force a recalcitrant China to end unfair trade practices and help U.S. manufacturers compete. But with public hearings on the new tariffs set to begin Monday, the U.S. trade representative’s office has been flooded with letters from companies like Atlas PyroVision saying they have few options besides China.

A Wall Street Journal analysis of federal import data gives weight to the claims. Items to be hit by new tariffs include 273 categories of goods—such as consumer fireworks, fishing reels and electric blankets—for which China accounts for more than 90% of imports. Last year, $66.3 billion worth of these items were imported from China.

On Sunday, U.S. Commerce Secretary Wilbur Ross tempered expectations of a last-minute trade deal, despite a likely meeting between Mr. Trump and President Xi Jinping of China at the Group of 20 summit in Japan later this month. Mr. Ross, in an interview, said the most likely outcome from such a meeting would be an agreement to resume negotiations, rather than a cessation of the next round of tariffs.

“Even real shooting wars end with negotiation, and this will ultimately end in negotiations,” Mr. Ross said. “Whether that will be in 10 minutes, 10 weeks, 10 months or longer, it’s not possible to judge.”

But the uncertainty of when—or even if—Beijing and Washington will strike a deal has already taken a toll on businesses.

Window curtain importer S. Lichtenberg & Co., which supplies Walmart Inc., Kohl’s Corp. and Inc., stopped sewing hems and rod pockets at its U.S. facilities in 2007. President Scott Goldstein said restarting that work isn’t on the table.

“I don’t even know if we can get sewers or what we would have to pay them,” said Mr. Goldstein, adding that none of the U.S. textile mills or dye houses that the 300-worker company, founded in 1933 and based in New York, used to buy fabric from are still in business.

Illinois collectibles maker Bradford Exchange began using Chinese workers in 1985 to paint intricate scenery on porcelain figurines and assemble devices that light up and play music. Now, more than half of its products are hand-painted or involve handwork, said Chief Executive Richard Tinberg.

It takes a skilled artisan to paint the figurines that adorn the four tiers of the company’s spinning musical Christmas tree, or to put together the mechanics inside its “Nightmare Before Christmas”-themed wall clock, which dangles characters and a swinging pendulum, Mr. Tinberg said. Both products, made under licensing deals with Walt Disney Co. , sell for about $200 apiece.

“There are very few people over here who want to do the type of detailed handwork on products that are sold to the middle class,” said Mr. Tinberg, whose company records more than $400 million in annual revenue.

Company officials at baby-gate and bedrail maker Regalo International LLC told U.S. trade officials that the threat of tariffs 18 months ago prompted them to look for new manufacturing partners in Mexico and other foreign countries that may have pockets of cheaper labor.

But the search turned up short. Vietnam can handle orders for wood products and textiles but “has very weak infrastructure in metal fabrication,” officials at the Minnesota company said in a letter. In general, factories couldn’t match China’s prices or keep up with production demands.

“It was NOT even close,” they wrote.

Strikeforce Bowling LLC, which imports hundreds of thousands of bowling shoes and bags from China, began searching for alternate suppliers in the Dominican Republic, Cambodia and Bangladesh soon after Mr. Trump won the election in 2016, said the company’s president, Bradley Handelman.

But suppliers in those countries wanted larger orders than he required, he said, so his company continues to source its goods from China.

In New Hampshire, Atlas PyroVision used to make its own fireworks. But rising costs forced it to close its factory in 1995, Mr. Pelkey said, and it now relies almost solely on Chinese imports to stage municipal fireworks shows and to sell sparklers and other pyrotechnics to consumers.

According to trade data from the Census Bureau, the U.S. now imports 86% of display fireworks used in shows from China.

Mr. Pelkey said he has looked for suppliers in countries including Vietnam, Cambodia, India and Mexico, and has yet to find one that can make fireworks of the quality he typically sees in China.

Mr. Pelkey said reviving the dormant U.S. fireworks manufacturing industry is unlikely, given the high costs of insurance and the tight regulation that comes with the manufacture of explosive devices. It would also take years to hire and train a workforce, he said.

Some manufacturers, however, have filed comments either supportive of or neutral on tariffs, including car-seat maker Dorel Juvenile Group Inc. of Columbus, Ind.

The company’s 700 workers now produce three million seats a year, and it stands ready to boost production, Timothy Gallogly, the company’s director of legal affairs, told U.S. trade officials in a June 6 letter.

“Dorel is confident that its workers can handle additional capacity,” Mr. Gallogly said.

Even so, companies with the ability to increase production in response to Chinese tariffs are minorities in the industry, said Kelly Mariotti, executive director of the Juvenile Products Manufacturers Association. Most baby products sold by U.S. companies, including car seats, cribs, highchairs, play yards and strollers, are made in Asia, she said.

Ms. Mariotti’s organization is pushing trade officials to remove baby products from the next round of tariffs in an effort to keep them affordable.

“Higher costs for these products will place an unfair burden on families that will undoubtedly result in fewer babies and toddlers having access to products critical to their safety,” she said in a statement.

The tariffs have also drawn opposition from broad coalitions of business groups, including the U.S. Chamber of Commerce and the National Retail Federation. In a letter to Mr. Trump on June 13, tariff opponents, including Walmart, Target Corp. and Costco Wholesale Corp. , said current and proposed tariffs would raise costs to a family of four by an average of $2,000 a year.

Updated: 1-3-2021

Manufacturers Want Biden To Boost ‘Buy American’ Practices

President-elect has proposed more domestic government purchasing, which President Trump and others pursued with mixed results.

President-elect Joe Biden is pledging to use the power of the federal government to buy American goods and jump-start domestic manufacturing. Some companies say rules that are too restrictive could raise their costs and complicate supply chains for items not made in the U.S.

Mr. Biden’s “buy American” proposals echo those of previous presidents, including President Trump, who issued executive orders to spur more federal purchases of U.S. goods and sought to use tariffs to disadvantage foreign producers. The results for companies have been uneven, with some benefiting from increased sales and others dealing with higher expenses.

Mr. Biden said during his campaign and in a speech after the election that he would tighten “buy American” rules. He has proposed $400 billion in federal spending on infrastructure projects that use American products such as domestically made steel and protective gear for medical workers battling the coronavirus pandemic. He has also proposed that Congress devote an additional $300 billion to research and development of new products.

“From autos to our stockpiles, we’re going to buy American,” Mr. Biden said in November.

Those promises could be difficult to turn into reality, however, and could face resistance in a divided Congress. Some economists and trade experts said such government purchasing might help some companies but not the industrial sector overall. The policies carry risks including higher prices and retaliation from other countries against U.S. exports, said some executives and economists.

“It raises the cost of things that will be purchased,” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.

Mr. Trump also pledged to buy American, but some manufacturers want the federal government to go further to give priority to their products. Tariffs boosted some companies such as domestic aluminum makers while raising costs for others that import components and materials from abroad.

Mr. Biden’s transition team declined to comment on his plans beyond his public statements and proposals on his website.

Many U.S. manufacturers have weathered the pandemic well, but a year of economic dislocations continues to present challenges for the sector. Manufacturing output fell sharply at the start of the pandemic, but has expanded for seven months to 3.4% below year-ago levels, Federal Reserve data shows. Strong consumer demand for products such as appliances and cars has kept factories humming even as a rise in Covid-19 cases and a shortage of available workers hampers production at some companies.

Some manufacturers said supply-chain problems during the pandemic and tensions between the U.S. and China could help Mr. Biden build support for “buy American” initiatives.

Morey Corp., an Illinois-based manufacturer of wireless communications equipment, has been relocating production and engineering operations to the U.S. from Asia for five years. Chief Strategy Officer Ryne DeBoer said Morey found that truck and construction-equipment makers were willing to pay more for U.S.-made products in exchange for better quality and more service support from Morey. He said he hopes that proves true of the Biden administration as well.

“We believe we’re perfectly primed to get more government work,” he said.

But other manufacturers rely on global supply chains and demand from other countries that could be hurt by made-in-America requirements. Many of these companies said the Trump administration’s imposition of double-digit tariffs on imports from China hurt their business.

“We have to depend on raw materials from other countries,” said Rakesh Tammabattula, chief executive of QYK Brands LLC.

The California company in 2020 began producing surgical masks with imported fabric from China that he said is subject to a U.S. tariff. Mr. Tammabattula said prices for masks made in China have dropped below what he pays for fabric to make masks in the U.S. He said QYK has started making disinfectant wipes rather than masks because there are fewer competitors.

The International Safety Equipment Association, a trade group representing manufacturers with global operations, said requiring personal-protective equipment to be made in the U.S. could make supply chains less flexible if other countries implement their own restrictions.

Supporters of Mr. Biden’s plans say a willingness to pay more for domestic goods will help companies cover startup costs and restore supply chains that disappeared as production moved overseas.

Sherrill Manufacturing Inc., the last maker of stainless-steel flatware in the U.S., lobbied for years for its products to be added to a law known as the Berry Amendment, which requires the military to buy certain supplies domestically. Provisions to extend Berry requirements to more defense contracts were included in the defense spending bill that the Senate voted into law on Friday.

Mr. Trump signed off on stainless-steel flatware’s addition to the law in 2019. “The forks were in there because we fought for them,” said Sherrill’s president, Matthew Roberts. He said the government should add more items to the law: “We need to be as self-sufficient as possible.”

Michael Liberatore, president of HPK Industries, another manufacturer based near Sherrill in upstate New York, said he has lobbied unsuccessfully for similar protections for his company’s gowns and masks.

In 2019, HPK lost a Defense Department contract to make nearly 500,000 disposable shorts to a manufacturer in Asia, Mr. Liberatore said. He said adding protective gear to the Berry Amendment would help his and other companies keep production capacity in the U.S.

“You have to have the mandatory purchases, otherwise you are not going to get companies to make investments,” Mr. Liberatore said. “This is a national-security issue at this point.”

Updated: 1-24-2021

Biden’s ‘Buy American’ Plan Eyed Warily By Other Countries

Executive order expected Monday; trading partners looking to see if access to U.S. contracts is diminished.

President Biden is expected to fulfill a campaign pledge Monday by detailing his “Buy American” plan, an initiative that will be watched closely by other countries mindful of another of his promises—to mend fences with trading partners.

Domestic-purchase plans put other governments on alert, causing concern that their companies would be excluded from the U.S.’s huge government-procurement market when Washington is making massive investments to fight the fallout of the Covid-19 pandemic.

“It’s particularly relevant to Canada and the U.S. because of our deeply integrated economies,” said Colin Robertson, a former Canadian diplomat who is now a vice president at the Canadian Global Affairs Institute. “Once the thing goes into effect, there will be Canadian companies who will say, ‘Oh, we are excluded.’ Then, they will begin to squawk.”

Although there are differences in the details, Mr. Biden’s initiative echoes former President Donald Trump’s own “Buy American” program, which was part of his “America First” policy that fueled tensions with trading partners through tariff wars and confrontations with the World Trade Organization.

The Buy American plan Mr. Biden espoused during the campaign called for tightening existing rules on government procurement by raising domestic content requirements and closing loopholes available for purchases of foreign products.

He also called for spending $400 billion in government procurements, which would boost demand for American products and services together with his clean-energy and infrastructure-investment projects.

Ron Klain, Mr. Biden’s chief of staff, said in a memo that the coming executive order will “fulfill his promises to strengthen Buy American provisions,” without elaborating.

Trading partners will be closely watching whether the executive order will include language that ensures foreign access to U.S. government procurement in compliance with an existing WTO agreement, said Gary Hufbauer, a nonresident senior fellow at Peterson Institute for International Economics.

“For Biden coming into office with a tone that he wants to cooperate with allies and do away with these frictions, how he writes the Buy American executive order is a real test,” Mr. Hufbauer said.

A European Union spokesman in Washington declined to comment before the release of the executive order. Officials for the Japanese Embassy didn’t respond to a request for comment.

In their report analyzing Mr. Biden’s trade policy toward Asia, analysts at Dentsu Public Relations Inc., a Tokyo lobbying firm, urged Japanese companies to pay close attention to the Buy American pledge because it could have a powerful impact on supply chains linking the two countries.

Trade and manufacturing experts said the coming executive order will likely include technical fixes to the existing government-procurement rules. These rules will then be applied to Mr. Biden’s ambitious investment programs for infrastructure and clean energy, and possibly pandemic-related spending. Such spending would require congressional approval.

“A big piece of this is, if you are to invest trillions of dollars either in infrastructure or in federal procurement, that will obviously have a big impact,” said Scott Paul, president of the Alliance for American Manufacturing, a group representing domestic manufacturers. “Coupled together with Buy American domestic preference, that can spur factory-job creation and investment.”

According to the Government Accountability Office, federal agencies spent $586 billion on direct procurement contracts for goods and services in fiscal year 2019, with the Defense Department—the world’s largest purchaser of manufactured goods—spending nearly two-thirds of that amount.

The GAO said foreign products accounted for less than 5% of direct federal procurement but has warned that the actual amount might be larger owing to system errors and limitations.

Mr. Biden has a model for how to address foreign trading partners’ concerns. Former President Barack Obama’s $800 billion stimulus package in 2009 during the global financial crisis had a “Buy American” provision requiring the use of U.S.-made iron and steel and manufactured goods in public works projects. The package, however, excluded procurement covered by the WTO agreement.

Jean Heilman Grier, trade consultant at Djaghe LLC and a former Office of the U.S. Trade Representative official who helped to negotiate WTO procurement rules, said Mr. Biden’s Buy American policy could look similar.

“The assumption with the Biden administration is that they are going to do things that are consistent with trade rules and trade-agreement obligations,” Ms. Grier said.

Mr. Trump started his term with a Buy American policy, but his legacy is mixed, experts said.

His January 2017 order requiring energy-pipeline makers to use U.S.-made steel was never implemented, and his attempt to mandate that federal agencies review their procurement practices never resulted in publicly available reports.

Late last year, in response to the Covid-19 crisis, the U.S. proposed to the WTO that it exempt a number of essential medicines from the group’s government-procurement rule. Talks are continuing.

Mr. Trump’s most significant policy change on procurement came out little noticed on the day before his departure. The administration issued a new rule on Jan. 19 to strengthen domestic-preference rules under the 1933 Buy American Act.

The rule, among other things, calls for an increase in the percentage of domestic content required for a product to be considered American-made from 50% to 95% for iron and steel products and to 55% for other products.

It also raised the price thresholds for American products to be considered “reasonable” compared with competitive foreign products, narrowing the window for government purchases of foreign products.

The last-minute rule change followed November guidance issued by the Office of Management and Budget to encourage state and local infrastructure projects to increase domestic content. Ms. Grier said it is too early to determine the impact of these most recent policies.


Biden Signs Order Boosting Federal Spending On U.S. Products

President Joe Biden signed an executive order on Monday to boost federal agencies’ purchases of U.S. products, fulfilling a campaign pledge to lay out a “buy American” plan.

The order directs agencies to strengthen requirements so that they acquire more goods and services from U.S. companies and workers, according to administration officials. The agencies spend almost $600 billion through these contracts.

“I don’t buy for one second that the vitality of American manufacturing is a thing of the past,” Biden said before signing the order. “We are going to use taxpayers money to rebuild America.”

The new policy makes it harder for federal officials to obtain waivers to purchase products from overseas, addressing what the administration called were loopholes that allowed agencies to skirt existing requirements.

It establishes a new position in the White House Office of Management and Budget to oversee the changes and forces agencies seeking a waiver to post them on a public website where U.S. companies can check if they could fill the contract.

Biden’s order also directs a federal panel to finalize changes within six months that would tighten standards defining American-made products to ensure they are manufactured with a higher percentage of U.S. components and labor, officials said.

The order is part of a slew of unilateral actions the president is expected to take this week to begin checking off campaign pledges and advance his agenda. During the 2020 race, Biden pledged to make a $400 billion investment in products and services from American workers.

Former President Donald Trump signed a buy-American-and-hire-American executive order in April 2017 aimed at boosting the wages of U.S. workers in part by imposing stricter enforcement of immigration laws.

Updated: 1-29-2021

Biden’s Buy-America Dream Relies On Buying EVs That No One Makes

President Joe Biden has ordered the federal government to buy electric vehicles made in America with union labor. There’s just one problem: No such vehicles exist.

Tesla Inc., the leading U.S. electric vehicle manufacturer, has several American-made models, but it isn’t unionized. And while General Motors Co. employs union labor to make the electric Chevrolet Bolt, roughly three-quarters of its components come from outside the U.S. — missing the 50% threshold to be considered American-made under federal procurement law.

To be sure, Biden’s executive order, issued Wednesday, is designed to spur investment in the nascent plug-in car market and didn’t come with a deadline. So there’s time for automakers to adjust. Two of them — General Motors and Nissan Motor Co. — announced commitments this week to produce carbon-neutral fleets in coming decades. Ford Motor Co. has previously pledged to become carbon neutral by 2050.

And with a U.S. government fleet of 645,000 vehicles — only 3,200 of which are electric — there’s plenty of incentive.

“Do I think GM and Tesla will contort to access a big U.S. government market? Yes I do,” said Scott Sklar, director of sustainable energy at the George Washington University’s Environment & Energy Management Institute. “They follow the money.”

Biden’s push could also help drive more domestic electric vehicle — or EV — manufacturing overall, given the scale of the government’s annual vehicle acquisitions, said Sam Ori, executive director of the Energy Policy Institute at the University of Chicago.

“The federal government acquires 50,000 to 60,000 new vehicles a year, and, in an EV market where you’re looking at 300,000 to 350,000 units a year, an additional several tens of thousands could have an impact for manufacturers,” Ori said.

Plug-in cars account for about 1% of U.S. car sales and 2.6% of global auto sales, according to the Paris-based International Energy Agency.

Currently, the Chevrolet Bolt is the only electric car on the United Auto Workers’s 2021 Union-Built Vehicle Guide, which identifies vehicles that are made in the U.S. or Canada by members of the UAW or Canada’s Unifor union.

Brian Rothenberg, a UAW spokesman, expressed confidence that unionized auto workers will be able to ramp up production to meet the federal government’s level of demand for electric cars.

“The UAW has been working closely with the Biden transition team and now the administration on policies regarding the shift from combustible engines to EVs,” Rothenberg said in an email.

Rothenberg said it will be some time before the transition occurs, but it’s important that Biden “agrees with our position that these new jobs replacing combustible engines are union wage and benefit jobs that are created right here in the U.S.”

Only 24% of the parts used in the Bolt, GM’s primary electric car offering, came from the U.S. and Canada, which is defined as domestic under the American Automobile Labeling Act, according to 2020 data from the National Highway Traffic Safety Administration. Most of the parts come from South Korea.

Electric Future

“We are excited that President Biden shares our enthusiasm for American manufacturing as well as electric vehicles,” Jeannine Ginivan, a spokeswoman for GM, said in a statement. “Adding EVs to government fleets and the needed infrastructure to support them is a great way to get more EVs on the road as we work towards a zero-emission, all-electric future.”

The Nissan Leaf, which is built at a non-union plant in Smyrna, Tennessee, uses 35% domestic parts. Tesla has several models above 50% for domestic content that it makes in Fremont, California, without union labor: the Model X is 55%, the Model Y and Model S are 60%. Ford came out with an all-electric Mustang Mach-E this year, but it’s being built in Mexico and China.

Spokespeople for the White House and General Services Administration declined to comment on the ability of carmakers to fulfill Biden’s pledge.

Under longstanding federal law, U.S. agencies are directed to purchase domestic products — a status that applies only to manufactured goods where more than half the value of their components are produced in the U.S. Biden on Monday signed an order directing a federal panel to tighten standards defining American-made products to ensure they are manufactured with a higher percentage of U.S. components and labor.

“Right now if you manufacture a vehicle for the federal government, you need to show that at least 50% of the components of that vehicle were made in America,” Biden said Monday in announcing his Buy-America initiative. But, he said, loopholes allow cars to meet the criteria even if the most valuable parts, including the engine and steel, is made overseas.

Bush, Obama

Biden isn’t the first president to try cleaning up the government’s vehicle fleet. Former President Barack Obama also focused heavily on trying to buy more electric vehicles. And before Obama, President George W. Bush was pushing the same.

Those efforts ran into challenges overhauling a government procurement system that naturally favors cheaper acquisitions. The mandate to save money generally gives conventional, gas-fueled vehicles an edge over electric models.

And the variety of the government fleet — which ranges from small, compact cars to tactical utility vehicles and heavy-duty trucks — also means the solution isn’t one-size-fits-all.

“The federal fleet is extremely diverse,” the University of Chicago’s Ori said. “If you have this idea of someone going and buying a bunch of Nissan Leafs or something, that’s not going to satisfy the requirements for the federal fleet.”

To succeed, Ori said the Biden administration will “have to figure out the procurement problem, but even once that’s solved, there’s a ton of analysis that’s going to have to be done, agency-by-agency” to match up “vehicle technology with vehicle needs.”

Biden’s pick to be energy secretary, former Michigan Governor Jennifer Granholm, said the agency, which spends billions of dollars on the research and development of technology, would be playing a major role to meet the Buy American requirements outlined in the executive order.

“We can buy electric car batteries from Asia or we can make them in America,” Granholm testified during her Senate confirmation hearing Wednesday. She said she was the proud driver of a Chevy Bolt. “I drive on sunshine.”

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