The president of the Baltimore-based manufacturer discusses how to navigate the tariff-heavy landscape as well as the benefits free trade agreements provide.
The Adam Smith Project recently talked to Drew Greenblatt, president of Baltimore-based Marlin Steel, which specializes in making custom metal forms, including washing baskets, racks, S-hooks and sheet metal material-handling containers. The small business does not purchase imported steel, but has seen prices on domestic steel rise since imposition of Section 232 tariffs in the spring. Marlin also exports to several countries that have imposed retaliatory tariffs on steel exports from the United States. Greenblatt spoke with the Adam Smith Project about navigating the tariff-heavy trade landscape as well as the benefits that free trade agreements provide his company.
Q: Since you buy your steel domestically, have you seen the price increase since the 232 and 301 tariffs went into effect?
A: Yes.
Q: How much?
A: Nineteen percent.
Q: About how long has it been at that level? Can you comment on how it’s steadily risen to that?
A: Oh, it went up right away.
Q: So back in the spring when 232 went into effect?
A: Yeah, I mean the conversation started getting heated and getting serious before it was in effect. The prices already started increasing because people started hoarding and buying up like crazy. A lot of the supply was not available. You couldn’t buy more than your allocation. Now, supply’s not a problem but the prices are 19 percent higher.
Q: Who’s covering the price increase? Is it you guys? Or are you passing it on to the consumer or your customers?
A: So we are trying to pass it on as fast as we can. We just can’t do it fast enough. … What happens is we have a lot of deals where we … have a three-year deal and you’re allowed to change the prices every 90 days or every six months or something like that. So we’re getting jammed up by that. So the answer to the question is, theoretically, I’d like to instantly have my clients match our cost increases, but right now, it’s galloping too fast. I can’t keep up.
Q: What have the business impacts of this been? Have you had to lay anyone off? Or are you considering anything like that? Or downsizing? Reducing operations? Anything like that?
A: So this has cut into some margins because we cannot pivot fast enough with pricing, number one. Number two, my German, Japanese, Canadian competitors did not have their feedstock — their steel — cost go up. So my German and Canadian competitors, Japanese competitors have not seen ramifications of this.
Q: So I’d imagine you’re paying higher tariffs when you export to Germany and Japan, right? Because they’re retaliating against the United States’ steel and aluminum tariffs?
A: Yes.
Q: How has this affected relationships with your customers? Is there some horse trading, some argumentation going on about who’s going to pay? And are you concerned about maintaining those relationships into the future?
A: So some of them are very straightforward where we have very explicit contractual arrangements where the price goes up accordingly. In other cases we don’t have that, we have to articulate to them what’s going on. But everybody’s reading the newspaper, The Wall Street Journal, The Washington Post, your magazine, so this is not a surprise to anybody. It’s been very well communicated. People are familiar with this topic. This is not a stealth increase. Everybody knows what’s going on.
Q: So in other words, they know it’s not your fault.
A: Right.
Q: Describe the tariffs that you guys are subject to.
A: When we ship overseas, we have to pay a tariff when we ship to China, for example. We have to pay a 34 percent tariff. When they ship to us, they only have to pay a 3.9 percent tariff. So China is cleaning our clock when it comes to trade deals. I’m talking about if I ship them a wire basket versus if they ship me a wire basket. There’s other tariffs going on where if you buy foreign steel you have to pay 10 or 25 percent more for foreign steel [referencing recent duties imposed by the Trump administration]. In our case, we only buy American steel. So we’re not impacted by this topic because we’re buying domestic. But we are impacted by China not fairly buying our products and the playing field not being level.
Q: Is this based on their retaliatory tariffs? Is that what’s affecting you?
A: No, this is not retaliation. These tariffs were in place before — and are currently. It’s just, unfortunately, our government is really not addressing these topics.
Q: So could you comment on what you’d like to see the government address in this light?
A: So for example, the president recently renegotiated the Korean trade deal. Now baskets are zero-zero: zero to Korea, Koreans back to us zero. So it’s a level playing field now with Korea, which is extraordinarily good for trade with Korea. It’s just mano a mano. It’s a fair economic situation. So we’re going to do very well in Korea over the next couple of years because we finally have a level playing field with Korea.
Haven’t read all of the intel about the Canada/Mexico deal, but that sounds promising as well, where, for example, our intellectual property rates are being protected in Mexico. We recently had a deal where a company in Mexico stole our intellectual property rights and used it to make their baskets. We really had no ground to stand on because Mexico doesn’t really have a solid intellectual property rights foundation like we do. That’s our secret sauce in America. We’re not the cheapest guys because of our labor; we’re the most innovative, cutting-edge guys. So now, 20 percent of my employees are lead mechanical engineers.
So protecting our intellectual property, getting deals where they protect our intellectual property, is going to have wildly outsized benefits to the American factory worker because you put an American factory in Mexico and they pay two bucks an hour. Right? I’m paying my guys 34 bucks an hour or something like that, you know what I mean? So you can’t compete with them on labor, so you got to compete with someone through unbelievably efficient equipment technology and really cutting-edge innovations that have intellectual property rights protection.
Q: Was there anything you wanted to add?
A: We’re optimistic because the Korean deal is now a done deal and that’s a zero-zero end result, which is wonderful. We’ve always had an unfair playing field against the Koreans. So now we have an opportunity to sell to Hyundai and to Kia. In the past, that door was closed. So if the government can continue consummating deals where it’s fair for us, we’re going to slay the competition because we have the best economy, the best system in the world. All right? I have full confidence my team can pull it off. So the problem is, when it’s rigged against us we have no shot. So 34 percent versus 3.9 percent, you just can’t beat that. You know what I mean? So there’s no surprise why Chinese companies temporarily are winning. It’s because they’re gaming the system. But if we can get deals as good as we did with Korea, it’s going to be very good for the American factory worker.
Q: So it’s not all bad, it seems, from your perspective.
A: I mean, the Korean deal is a big win. It sounds like Canada and Mexico are going to be in that bucket. So if Canada and Mexico are a big win, Korea’s a big win, well then you go back and you start negotiating with the Europeans. Maybe we can do something there. The German automotive companies propose a zero percent with America, so BMW is coming to America in a year and Chevy’s going to Germany at zero. So we’re going to take them on. It’s going to be good for us. Currently it’s not fair. It’s 10 percent to Germany when we export a car to them, but it’s only 2.5 percent when Germans export to us. It’s not fair. We sell the baskets to factories in America that make auto parts. Chevys will be sold frequently in Germany, and that means they’re going to need to buy more baskets in Detroit. So we’re very enthusiastic about these deals being consummated fast.
Q: Since you buy your steel domestically, have you seen the price increase since the 232 and 301 tariffs went into effect?
A: Yes.
Q: How much?
A: Nineteen percent.
Q: About how long has it been at that level? Can you comment on how it’s steadily risen to that?
A: Oh, it went up right away.
Q: So back in the spring when 232 went into effect?
A: Yeah, I mean the conversation started getting heated and getting serious before it was in effect. The prices already started increasing because people started hoarding and buying up like crazy. A lot of the supply was not available. You couldn’t buy more than your allocation. Now, supply’s not a problem but the prices are 19 percent higher.
Q: Who’s covering the price increase? Is it you guys? Or are you passing it on to the consumer or your customers?
A: So we are trying to pass it on as fast as we can. We just can’t do it fast enough. … What happens is we have a lot of deals where we … have a three-year deal and you’re allowed to change the prices every 90 days or every six months or something like that. So we’re getting jammed up by that. So the answer to the question is, theoretically, I’d like to instantly have my clients match our cost increases, but right now, it’s galloping too fast. I can’t keep up.
Q: What have the business impacts of this been? Have you had to lay anyone off? Or are you considering anything like that? Or downsizing? Reducing operations? Anything like that?
A: So this has cut into some margins because we cannot pivot fast enough with pricing, number one. Number two, my German, Japanese, Canadian competitors did not have their feedstock — their steel — cost go up. So my German and Canadian competitors, Japanese competitors have not seen ramifications of this.
Q: So I’d imagine you’re paying higher tariffs when you export to Germany and Japan, right? Because they’re retaliating against the United States’ steel and aluminum tariffs?
A: Yes.
Q: How has this affected relationships with your customers? Is there some horse trading, some argumentation going on about who’s going to pay? And are you concerned about maintaining those relationships into the future?
A: So some of them are very straightforward where we have very explicit contractual arrangements where the price goes up accordingly. In other cases we don’t have that, we have to articulate to them what’s going on. But everybody’s reading the newspaper, The Wall Street Journal, The Washington Post, your magazine, so this is not a surprise to anybody. It’s been very well communicated. People are familiar with this topic. This is not a stealth increase. Everybody knows what’s going on.
Q: So in other words, they know it’s not your fault.
A: Right.
Q: Describe the tariffs that you guys are subject to.
A: When we ship overseas, we have to pay a tariff when we ship to China, for example. We have to pay a 34 percent tariff. When they ship to us, they only have to pay a 3.9 percent tariff. So China is cleaning our clock when it comes to trade deals. I’m talking about if I ship them a wire basket versus if they ship me a wire basket. There’s other tariffs going on where if you buy foreign steel you have to pay 10 or 25 percent more for foreign steel [referencing recent duties imposed by the Trump administration]. In our case, we only buy American steel. So we’re not impacted by this topic because we’re buying domestic. But we are impacted by China not fairly buying our products and the playing field not being level.
Q: Is this based on their retaliatory tariffs? Is that what’s affecting you?
A: No, this is not retaliation. These tariffs were in place before — and are currently. It’s just, unfortunately, our government is really not addressing these topics.
Q: So could you comment on what you’d like to see the government address in this light?
A: So for example, the president recently renegotiated the Korean trade deal. Now baskets are zero-zero: zero to Korea, Koreans back to us zero. So it’s a level playing field now with Korea, which is extraordinarily good for trade with Korea. It’s just mano a mano. It’s a fair economic situation. So we’re going to do very well in Korea over the next couple of years because we finally have a level playing field with Korea.
Haven’t read all of the intel about the Canada/Mexico deal, but that sounds promising as well, where, for example, our intellectual property rates are being protected in Mexico. We recently had a deal where a company in Mexico stole our intellectual property rights and used it to make their baskets. We really had no ground to stand on because Mexico doesn’t really have a solid intellectual property rights foundation like we do. That’s our secret sauce in America. We’re not the cheapest guys because of our labor; we’re the most innovative, cutting-edge guys. So now, 20 percent of my employees are lead mechanical engineers.
So protecting our intellectual property, getting deals where they protect our intellectual property, is going to have wildly outsized benefits to the American factory worker because you put an American factory in Mexico and they pay two bucks an hour. Right? I’m paying my guys 34 bucks an hour or something like that, you know what I mean? So you can’t compete with them on labor, so you got to compete with someone through unbelievably efficient equipment technology and really cutting-edge innovations that have intellectual property rights protection.
Q: Was there anything you wanted to add?
A: We’re optimistic because the Korean deal is now a done deal and that’s a zero-zero end result, which is wonderful. We’ve always had an unfair playing field against the Koreans. So now we have an opportunity to sell to Hyundai and to Kia. In the past, that door was closed. So if the government can continue consummating deals where it’s fair for us, we’re going to slay the competition because we have the best economy, the best system in the world. All right? I have full confidence my team can pull it off. So the problem is, when it’s rigged against us we have no shot. So 34 percent versus 3.9 percent, you just can’t beat that. You know what I mean? So there’s no surprise why Chinese companies temporarily are winning. It’s because they’re gaming the system. But if we can get deals as good as we did with Korea, it’s going to be very good for the American factory worker.
Q: So it’s not all bad, it seems, from your perspective.
A: I mean, the Korean deal is a big win. It sounds like Canada and Mexico are going to be in that bucket. So if Canada and Mexico are a big win, Korea’s a big win, well then you go back and you start negotiating with the Europeans. Maybe we can do something there. The German automotive companies propose a zero percent with America, so BMW is coming to America in a year and Chevy’s going to Germany at zero. So we’re going to take them on. It’s going to be good for us. Currently it’s not fair. It’s 10 percent to Germany when we export a car to them, but it’s only 2.5 percent when Germans export to us. It’s not fair. We sell the baskets to factories in America that make auto parts. Chevys will be sold frequently in Germany, and that means they’re going to need to buy more baskets in Detroit. So we’re very enthusiastic about these deals being consummated fast.
