The Daily - Caught in the Middle of the Trade War

Episode Date: May 16, 2019

Yesterday, we told the story of President Trump’s trade war with China. Today, our colleague speaks with two Americans who have been feeling the effects of that war. Guests: Natalie Kitroeff, a business reporter for The New York Times, talked to Kevin Watje, a truck manufacturer in Iowa, and Eldon Gould, a farmer in Illinois. For more information on today’s episode, visit nytimes.com/thedaily. Background reading:President Trump’s tariffs, initially seen as a cudgel to break down trade barriers, increasingly look like more permanent measures intended to shelter American industry.Some Republicans are balking at the president’s trade policy as the Trump administration considers another bailout for farmers.

From The New York Times, I'm Michael Barbaro. This is The Daily. Yesterday, we told the story behind President Trump's trade war with China. Today. Hello? Hey, Eldon. It's Natalie from The Times. Well, we finally made connection. My colleague Natalie Kitchueff speaks with two Americans. Okay, we finally made connection. My colleague Natalie Kitchueff

speaks with two Americans. Okay, we hooked up? Hey, long time no talk. Yeah, yeah. Caught in the middle of that war. It's Thursday, May 16th. Remind me exactly what you manufacture and how you use Chinese metal.

Yes, we manufacture trash trucks and street sweepers. First, Kevin Weichi, a manufacturer of garbage trucks in Iowa. Are you driving? No, I'm not. Somebody else is driving. Okay, good. Kevin spoke to Natalie on his way to the airport for a business trip to China. We don't get so much raw materials from them as we get components from China. Might be like hydraulic cylinders, that kind of stuff.

Do you feel as though the relationship with China in the past, before President Trump took office, that that relationship was bad for your business? No, absolutely not. It had no bearing on us whatsoever. In our opinion, that relationship was not broken. We did business with them, but we were, you know, on the buying end of it for the most part. Kevin, how long have you been running your business?

I believe it's 14 years now. So when the president imposed tariffs last March, what did that mean for you and your business? Well, it cost us more to procure those products now, and it disrupted our supply chain quite a bit. You know, like chrome rod for cylinders, a lot more of that is procured by our domestic manufacturers as well from over there because it's easier to obtain it over there. So that's interrupted a lot of supply chains. And on a whole, it's kind of like throwing a rock into the pond. It ripples out over the whole entire pond. And that's what it does when you say we're going to raise tariffs on steel.

And then that starts impacting something else. And that impacts something else. So we get requests for orders, and they say, how soon can you get it? We go, well, we're at the mercy of those suppliers because they're at the mercy of their suppliers. How much more are you spending? Well, I would say it's probably added 10% to the cost of our product, which we don't have that high of margins. You know, 20% margins is probably, you know, in the norm. So even 10% is a big hit for you. Absolutely.

How have you managed that? How has it affected the business? Well, we keep slugging along, got to do what we got to do. And we're at the mercy of politicians in this case. So the only change that you can make to some degree in manufacturing is go more robotic. So there's less and less labor involved to cut costs. So that's one strategy. But in our case, we don't have a lot of options because like I say, we're buying for our suppliers and they don't have a lot of options either. We don't have easy answers for this. And the economy being as robust as it is, we also can't get employees. So one of the reasons we go overseas is that they get plenty of labor. they get plenty of labor. And here in the Midwest, everywhere you go, you see signs out on their front lawns saying, now hiring. And everybody is trying, scrambling, trying to get employees.

In the last, I'd say maybe last year, we've lost about 30% of our workforce. Wow. You've lost them to your competitors. Lost them to my competitors. They have hired them away. Now, we're in a union contract, so we're stuck in wage scale. But even if we weren't, I'm not sure being able to outbid somebody else would be beneficial to us because, as I said before, we don't have the margins in our products to be able to do that. So it's difficult. Has it always been that way? Why is this happening now? Well, some years back, it was about four or five years back, a young lady came to me from the economic

development group in our area. They had been doing studies where every year they would go to the high school graduates and say, if you were guaranteed a job after you got out of tech school, we would pay the tuition and we would guarantee a certain wage rate. Would you be interested in doing this? And so this young lady came to me and said, when they started doing this 20, 25 years ago, you know, I think it was like 60 some percent of those people they questioned about this said, yes, they would be willing to do this. She said, we're down to 5%. Wow. So she said, you're looking at just a de minimis amount of people that want to come and do these type of jobs, work in a factory, do welding. She said,

everybody wants to go to college and get some kind of job in gaming or something like that. She says that they're not as attracted to these kind of jobs as they were before. And she was certainly right. So the jobs that President Trump says, let's bring back, I don't know who he thinks is going to do those jobs. Kevin, you support President Trump, right? That's correct. Do you think President Trump doesn't understand this situation, the one you just described? Well, I would say that's correct. I think it's his advisors have let him down the wrong path. You know, I get it. There's an imbalance of trade and that needs to be dealt with.

And I support him in that. But we just want to make trucks out here. Okay. We want to employ people. We want to pay them a fair wage. And we want to be able to produce a product efficiently of a good quality to sell to our customers. So the politicians get together and, you know, kind of get in there and mess this thing up for us. And, you know, I understand it needs to be done, and I support his efforts.

But I think it's been adding a lot of stress to our company because of these tariffs and how it's disrupted our supply chain. How do you understand that larger goal? What would success look like on the ground if Trump were to succeed in the larger mission here on trade? What would that look like? Well, I think it would be more open trade with China and to reduce the tariffs because, you know, free trade is free trade. There's no tariffs on either side. The Chinese market would be open to American goods as easily as they are to us getting them from them. And I support our president's efforts into trying to

correct that. But I wish we could just go back to what it was before. Kevin, you were describing before that you have a labor challenge, that you can't find enough people who want the jobs that you have to fill. What's the solution to that problem? Well, I think the solution to that problem is having a real guest worker policy. Instead of building walls, I think we ought to build a few bridges down there, and we ought to have a real guest worker policy. The politicians, Republicans and Democrats alike, are just playing games. We need workers here, and we literally cannot get them. People in Mexico are coming in here to work to better their lives. If they just would open up the

borders and have it in a reasonable way, set down rules and regulations, monitor where they're at, we would get workers, they would send money back to these places and increase the overall economy of those countries. his approach is not necessarily working out well for you, and yet you continue to be a big supporter of his. Can you explain that? Yep. I think it's pretty simple. He wants to get something done. He's a leader.

He's not playing the political game as much as everybody else is. And he tells it like it is. I think it's surprising to everybody that they actually, oh, wait a minute. You mean he's really going to do this? We didn't think he would. You know, it's been a long, long time since we've seen somebody who's determined and forceful about getting their political agenda accomplished. But could you imagine a world in which the tariffs end up sinking businesses like yours, even though they have the purpose of bringing jobs back to the United States, that the tariffs do the exact opposite of what Trump wants? Yep, that's absolutely, that's certainly possible. Yep, that's the danger of it.

But as I say, if you're a business manager, you know, you have to put a plan B and a plan C together and have a strategy to deal with those things. And, you know, the danger is that you've miscalculated. And, yeah, it does sink your company. And that certainly will happen to businesses. You know, when I was a young man, President Reagan, when he first took over, they raised the interest rates. They choked off the stagflation that was going on. I lost my job. I was out of a job for 13 months. But had we not done that, I shudder to think how the world would have been had they not done that. I could not buy a house back then, Natalie, because a house mortgage was 16%. It's unfathomable compared to what it is today.

So what could it have been? Could have been even worse than that had people not done some things to choke that off. And I lost my job because of it. You know, it impacted me personally. It was 13 months of pain. But I would say this, when I look back on it, I am happy, you know, Reagan and his administration did that. It was the right thing to do. And, yep, personally, I suffered for it.

But long term, I benefited. And you think that this is like that, that Trump is thinking long term here and the pain is worth it? Absolutely. You know, what have we ever gained if we haven't tried? I think it's important. It's absolutely important on anything you do. And I think if he continues the fight, and if we ended up saying we went back to the same old thing, we at least gave it a real try and a real honest try.

And, you know, so be it. We'll look for another opportunity next time to do a better job of it. Even if that fight hurts you personally? Well, listen, Natalie, there's men and women that go to war and put their lives at stake. And we're Americans. We all ought to fight this fight with our president. And we're not risking the things that soldiers do to keep our future safe and prosperous.

So I think it's a small price to pay. I think we ought to stand in there and help them. pay. I think we ought to stand in there and help them. Well, Kevin, thank you for talking with me. Sure. Thank you. Take care. Bye. Bye-bye. We'll be right back. We'll be right back. Well, that pond is actually on the neighbor's property, but I can look out the window and it's really kind of a barometer of the soil moisture conditions. You know, when that pond is high and the ducks are landing there, I know things are pretty wet.

When it's dry and gets close to being farmable, I know we're in good shape. Next, Eldon Gould, a farmer in northern Illinois. So, Eldon, I want to hear a little bit about the farm, about what you grow there, and about what's happening in your part of the world. Okay. I'm currently farming with my son. We're in northern Illinois. We're 50 miles straight west of Chicago. Together, we plant corn and soybeans and also have a hog operation, and all totaled somewhere maybe just short of 6,000 acres. So we spoke to you almost exactly a year ago because China had just responded to Trump's tariffs on Chinese metal by imposing their own tariffs on soybeans, corn, and pork, three things that you farm and you export a lot of your crops overseas. And a year

ago, you were expecting that these tariffs would impact you. So we wanted to ask, how's it been going? Just like I predicted. There's a number of factors that have come together, one of which is the tariffs. We also have the fact that the United States produced excellent crops last year. So we have an abundance of both corn and soybeans. And then on the hog front, you know, the fact that we are not exporting pork or not as much, that's been a problem. And Eldon, can you give a rough estimate of perhaps how much you're selling soybeans for this year versus a year ago before the tariffs? Is there some way of at least broadly understanding the impact of the tariffs on your farm? broadly understanding the impact of the tariffs on your farm?

I would say, boy, this is going to be a little bit shooting from the hip, but I would say probably at least 20%. And if you would ask me three days ago, it would have been a lot more than that. So 20% less. I mean, that feels pretty big to me. From what I know, farming, you're dealing with pretty low, pretty narrow margins. Well, that's right. Typically, agriculture operates on large volume and slim margins. So you're right, 20% is a bite. If you'd ask us today, we're operating in the red. Now, I haven't missed any meals yet, and I still got a roof over my head, but we're borrowing more money than we would like to.

And for a farmer like you, how do you deal with being in the red when you're not making a profit? Well, you try to be prudent and try to take good care of what you do have and maintain good relationship with your lender. Even though you're operating in the red, I guess you live off of equity for a little while. I guess it would be about the same as not having a job. I mean, you can go along for a while without having a job, but sooner or later, you've got to have some income that lets you operate on the black. And we've postponed trading some machinery. And we've got a utility building that we would like to have put up. But again, that's something you can live without.

So we're living without it until it makes economic sense. Do you feel nervous just day to day knowing you're living in the red? Oh, if I was 50 years younger, I might. But, you know, I guess after you've been through this a few times, you know, you have ups and downs for a lot of reasons. And this is just one more reason. You know, I guess there's that old saying that says it's darkest right before dawn. And hopefully that holds true this time. It's disturbing that we are in the situation we are. I'm more concerned about long term demand destruction.

Do you mean that you're worried about China pursuing other avenues to buy soybeans? Are you worried about losing your customers? Well, yes, I am. You know, I think the South American producers are kind of laughing all the way to the bank. We're doing everything we can to help market their crops. And, you know, global markets don't change on a dime. I mean, they take a long time to develop and a long time to destroy. Maybe China is the country that gets all the headlines, but there's other countries that are customers as well. They're watching what's going on. And if we cannot be a reliable supplier,

they may be a customer of the United States, but the United States is not going to be their only supplier. And Eldon, did you vote for President Trump? I did vote for President Trump. And during the campaign, I lacked everything except that I was concerned about what he said he was going to do with trade. And now I guess my words were even more prophetic than I thought at the time because I thought surely he'd listen to somebody

and he would not do what he said he would do as dramatic a fashion as it has turned out to be. How would you describe the president's larger goal in this trade fight? Well, I wish I knew. When he tweets, as some people would call it, a tweet storm every day, one day you're bullish and the next day you're bearish. All that causes a lot of uncertainty in the market. That even makes it worse. So there's a lot of factors. And I guess the uncertainty factor is just one more. It's one day, it sounds like we're going to have a deal tomorrow. And then the next day, it sounds like we don't know if we're ever going to get one. Eldon, are you on Twitter?

I am not. Do you follow the president's tweets on this stuff? Oh, yes, only because it's so well publicized in the media and for sure in the ag media. So, yeah, I don't think I miss much and probably hear more than I wish I did. Yeah, I don't think you're missing much by staying off Twitter. I can tell you that. It sounds, though, like the president's back and forth on the trade deal. You know, first, we're going to have one. Next, it doesn't seem like it. That sounds like that uncertainty alone is really tough for you to stomach as a farmer.

Yes. And I think in general, the farm community put a lot of value on their word. Obviously, in today's world, you got to have contracts and all that. But we do a lot of deals just on the value of your word or at most a handshake. a handshake. And, you know, to have somebody that's here today and gone tomorrow is just counterculture for our part of the industry. Eldon, I just spoke to a man named Kevin who manufactures garbage trucks in Iowa, and he was impacted in a different way by this trade war. He was affected directly by what President Trump did by imposing tariffs on Chinese metal because he relies on that metal. You were impacted by China's retaliatory response. But both of you are in some ways the collateral damage in all of this. But for Kevin, this man I spoke to, the idea of taking on China feels worth it. I wonder if you agree. Is there any way in which it feels like the president

is working toward a broader goal that would eventually help you? a broader goal that would eventually help you? Well, that's what he keeps saying. I'm less convinced, and I guess I'll have to wait and see if I'm proven wrong. And I hope I am. Today, I'm not certain. So you don't agree with how the president is approaching trade. And earlier you said that you voted for President Trump. So I'm wondering if you continue to support him

beyond just this issue. Yeah, I would say that, yes, I do support him with other than the trade policies. Help me understand your support for the president because on the one hand, his policies are having a huge impact on your business. But on the other, it seems that there is something, perhaps many things, that are still appealing to you about him. Well, I guess the fact that he's not given in to the traditional political process, you know, he's, you know, a businessman and has operated a businessman. And I think he is learning that government and politics is a to some of his advisors and key people that, you know, have been around Washington before. You know, you kind of got to sort the wheat from the chaff and you listen to the people that would represent the wheat, the good, solid people that have common sense and understanding, but at the same time know the ramifications of what you do and what you don't do. At a certain point in all of this, I remember that President Trump came out

and said something to the effect of, you know, our farmers will be able to withstand this. Do you feel that that's the case, that there is a sense that, you know, the farming community is in it for this fight and willing to hang tough? Or is there a breaking point down the line? I think we're at the breaking point. And if you talk to the lending community, I don't think they would disagree with me. I mean, there's parts of the United States that are tougher than we are here in northern Illinois. But in general, I think, you know, agriculture is coming up short and probably the patience is getting a little thin.

Ellen, do you think it makes sense for the president to sacrifice some short-term pain by people like Kevin, the manufacturer in Iowa, by people like you, in order to achieve a longer-term gain that he views as good for the country? the country. Yes, I would concur with that. And I would think most of the ag community would have said so a year ago. But at the same time, we're probably at the point now where, where do we find short-term versus long-term? It doesn't make any difference how good the long-term effect is going to be if you're not in business. You know, that may be a dramatic overstatement, but that's why I say we need to determine what's long term and what's short term. I know you've been in this business for a while and your skin is pretty thick at this point. But how close do you feel to being put out of business by this trade war? Well, I'd like to think I've got a little time left. I mean, I don't think I'm going to get put

out of business next week, but I'm old enough that I don't want to see my equity drain away either because, you know, I don't have enough years left to regain or rebuild that. So this thing will get resolved one way or another, whether it's election or a deal or something. It'll get better. I don't know when or how, but it will get better. Eldon, thank you so much for your time. We really, really appreciate it. All right. Well, you're most welcome. We'll talk soon. Okay. Bye now.

Here's what else you need to know today. Good morning. Today we have UK Major General Chris Gika from Baghdad, Iraq, for an update on coalition operations. Sir, the floor is yours. The United States and its allies broke into open disagreement on Wednesday about whether Iran is posing a growing military threat, with the U.S. insisting it is, and its allies insisting it is not.

Have you seen any threats by Iranian-backed groups in either Syria or Iraq against coalition forces? No, there's been no increased threat from Iranian-backed forces in Iraq and Syria. A top British general declared that he saw no increased risk from Iran. Soon after, citing threats from Iran, the Trump administration ordered the partial evacuation of the U.S. embassy and consulate in Iraq, despite skepticism from Iraqi officials that there was any meaningful risk. And Alabama's Republican governor, Kay Ivey,

signed a sweeping and controversial law passed by the state's legislature that would ban most abortions in the state. Legal challenges are both expected and welcomed by the law's authors, who say they want to use those challenges to undermine existing abortion law in the U.S. That's it for The Daily.

I'm Michael Barbaro. See you tomorrow.