Tom Lazzaro and Jack H. Schron Jr., the presidents of Greater Cleveland companies, view tariffs differently because the recent tax hikes on imported goods are affecting their businesses differently.
Schron, whose Jergens Inc. is in Cleveland’s Collinwood neighborhood, said tariffs have already increased business. They have helped close the gap by making the company’s products more competitive with those from abroad, which he said are often sold at artificially low prices.
Lazzarro, who runs Midwest Transatlantic Lines, Inc. (MTA Lines) in Berea, said tariffs have been problematic for the company that moves cargo from China, other parts of Asia and Europe to businesses in Northeast Ohio and elsewhere. The sudden and steep increases in tariff rates, especially the 145% one on goods from China, has hit many clients. MTA Lines has sought to make the tariffs less burdensome, and hopefully keep customers importing goods, by walking them through the application process for a federal program that gives businesses more time to pay tariffs.
The experiences of the two businesses offer a glimpse at how tariffs are affecting Greater Cleveland as the Trump administration enters trade talks with China. President Donald Trump has said he imposed high tariffs as a way to strengthen domestic manufacturing. He has imposed and then rescinded tariffs and also granted exemptions.
What is a Tariff?
A tariff is a tax that countries impose on imported goods. Tariffs are intended to have economic consequences for foreign businesses but that isn’t always the case. Because of globalization, businesses and economies throughout the world are often depend on each other. For example, a Greater Cleveland company may need parts from China in order to make a product here. The local company ends up paying the tariff because it is the one importing goods from abroad.
When international cargo arrives at a U.S. port, it must be cleared through U.S. Customs and Border Protection. This involves paying tariffs, which are based on the type of product, how much it is worth and the country where it was made.
Whether Trump’s tariff policy fails or succeeds, it will ripple throughout Northeast Ohio’s economy. Manufacturing consistently remains one of the top employment sectors here. The full effect of Trump’s vast number of tariffs has probably not been felt since the first rate increases went into effect in February. Some early data shows reason for concern. A recent Federal Reserve Bank of Cleveland survey found that 75% of businesses said tariffs would cause them to increase prices. Other research by the Cleveland Fed shows that tariffs have caused uncertainty in the business community.
Schron, a former Republican member of Cuyahoga County Council, said tariffs have increased sales for the $10,000-plus electric screwdriver the company’s Advanced Systems Group makes. The screwdriver is used in industry to assemble electronics such as cellphones and computers.
Ethan Karp, chief executive officer of MAGNET, which focuses on strengthening manufacturing in Northeast Ohio
I have heard from the manufacturing community hoorahs because they are getting more business,” he said. “I also have heard, ‘This is going to destroy the economy and I am going to be out of business in three months.’ It’s that diverse in the many rooms that we’re in, and it all depends on your trade relationships with China.”
“We’re going to put an American flag on it,” he said of marketing the product. “We are getting so much positive response from our customers saying, ‘This is so fantastic that we can get an American alternative to having to buy something coming from overseas.’”
Lazzarro’s customers don’t express such enthusiasm, especially those importing from China. MTA Lines provides door-to-door service moving cargo, ranging from pigments used in cosmetics to components needed for manufacturing products.
“The message put out by the administration is that China’s going to pay for this, but ultimately it’s the consumer here in the U.S. who is paying,” he said.
Foreign knock-offs of American-made products cause trouble
Schron said he stands by the products Jergens makes and always has been willing to compete against any manufacturer. He has this major requirement:The rules can’t be stacked against American companies.
Schron has often believed that they were.
In addition to the sophisticated electric screwdrivers, his company makes items used to clamp, assemble and position parts during the manufacturing process. One of them is a quick release pin.
“We are seeing competitors’ products that are knock-offs of what we spent years to make,” he said with muffled outrage. “We put a lot of money and time and energy into engineering and working on it.”
He said the knock-offs are often made abroad and sell for 30% to 50% less than Jergens’ price. Schron said this has become more common in the last 10 to 15 years. He believes knock-offs will suffer once tariffs wipe out the unfair price advantage.
Many have argued that Trump’s goal of substantially increasing manufacturing in the United States can’t be done in the short term. Building a new factory and getting it up and running can take several years.
“This may be true of the bigger guys, but not mid-sized companies like us,” he said. “We’re very nimble.”
Jergens has about 450 employees, 250 in Cleveland. If business increases dramatically due to tariffs, Schron said the company will be able to handle it in minimal time. He said the company has always placed a premium on such things as automation, robotics and training to stay competitive.
When manufacturing slowed during the pandemic, the company worked on creating the next generation of its screwdriver. Schron relishes selling them in what he believes will be a level playing field.
Finding ways to import now but pay tariffs later
The spike in tariff rates has been difficult for many of MTA Lines’ customers to absorb, which has caused a cash flow problem for them, Lazzaro said.
MTA Lines is a freight forwarding service and U.S. Customs broker. This means that when the company moves cargo internationally, it pays tariff fees on behalf of customers and is soon reimbursed. He said that, as tariff rates skyrocketed, “this practice introduced heightened financial exposure.”
Guiding customers through the process of joining the U.S. Customs program that gives them up to a 45-day delay in paying tariffs is good for MTA Lines as well as its customers.
As Trump imposed tariffs, it took Lazzarro back to the early days of the pandemic, when much of China’s manufacturing base shut down. He and others at the company remember scrambling to find other countries making the products customers needed. Now, they’re looking for countries with lower tariffs.
“Oh, boy. Here we go again,” he said when he learned of Trump’s tariffs.
MTA Lines’ pandemic experience wound up being beneficial. Before the pandemic, companies often kept minimal inventory on hand. When factories in China shut down, it wasn’t long before many American companies were left without inventory. Since the pandemic, many companies have started keeping more inventory.
Lazzarro believed there was a way for MTA Lines to capitalize on the trend by becoming part of the federal Foreign-Trade Zones (FTZ) program. This is how the program works: The company warehouses cargo received from overseas, but businesses only pay tariffs when they take inventory out of storage. This allows a company to better control costs and respond to uncertainty.
MTA Lines began applying for the program about six months ago, never conceiving that it could help customers cope with escalating tariffs. The company was accepted into the program just as Trump was imposing tariffs. Lazzarro said business has been “very busy.” The FTZ has allowed the company to offer more services because it has a better sense of its customers’ network of suppliers used in making and distributing products.
The 70 employee-owned business is winning at fighting back against a spike in tariff rates, but it hasn’t always been easy.
“It creates added stress all over the place, including longer hours,” Lazzarro said. “People are at their wits end. It just filters all the way through to everything.”
So far, the impact of tariffs has been mixed for Greater Cleveland
How well are tariffs doing so far in the goal of boosting economic prosperity here in the industrial heartland?
Answering such a question is “insanely complicated,” said Ethan Karp, chief executive officer of MAGNET, which focuses on strengthening manufacturing in Northeast Ohio through such programs as workforce training and advanced technology consulting.
“I have heard from the manufacturing community hoorahs because they are getting more business,” he said. “I also have heard, ‘This is going to destroy the economy and I am going to be out of business in three months.’ It’s that diverse in the many rooms that we’re in, and it all depends on your trade relationships with China.”
Companies that don’t rely on China and other countries hit with high tariff rates for materials and supplies have been the winners. Karp said many of them didn’t even look for new business they received. Soon after tariffs were announced, customers sought them out to buy components that weren’t subject to tariffs. To meet the new business, many are adding workers and relying on MAGNET to provide automation solutions and other ways to quickly expand capacity.
Many of the companies that depend on products from China are focused on finding nontariff alternatives in hopes of avoiding going into a death spiral.
The 145% tariff on China, which many companies see as the most problematic since so much is imported from there, wasn’t imposed until April. David S. Gutheil, the interim head of the Port of Cleveland, told Signal Cleveland in an email that it would take until early to mid-summer to see if tariffs would affect the volume of international cargo into Cleveland.
An April 23 Cleveland Federal Reserve Bank report on the economic conditions in its district showed early signs of concern about the impact that tariffs were having. For example, those in manufacturing contacted for the report “cited uncertainty about import tariffs and other government policies as the primary reasons for softer orders.” The report said business activity was flat, “suggesting a weaker-than-usual spring” in the district that includes Ohio and parts of Kentucky, Pennsylvania and West Virginia.
The results of the Trump administrations’ trade talks with China could potentially reverse or deepen the trend.
In the meantime, Schron will keep working on his Made in America branding for Jergens, and Lazzaro will continue looking for ways to soften the blow of tariff rate hikes for MTA Lines’ customers.
