The Journal. - China, an Alabama Business and a 20-Year Battle

Episode Date: September 26, 2024

Milton Magnus, an Alabama businessman who runs one of the last makers of wire hangers in the U.S., has waged a decades-long tariff battle against Chinese manufacturers to try to stay afloat. We hear from Magnus and we talk to Chao Deng about th e effectiveness of tariffs as the trade tool becomes more popular with politicians.  Further Listening: -Why China Is Risking a Trade War  -The Fight Over U.S. Steel and the Community Caught in the Middle  Further Reading: -The Family Business in Alabama That Fights China for Survival  Learn more about your ad choices. Visit megaphone.fm/adchoices

Milton Magnus III is the CEO of his family business. It was handed down to him by his father and before that, his grandfather. How long did it take you to get the hang of your industry? Well, it's taken me 50 years to get the hang of my industry, but it's a good, good, good industry. Milton's business is making wire hangers. It's called M&B Hangers. And when you're not working, where do you hang out?

I hang out in Birmingham, Alabama, at the lake. And are there times when you feel like it's better to just hang back? I've had those times, for sure. I'm sure. Do you have a favorite hanger joke? People ask me how I'm doing, I tell them I'm hanging in there. So that's about it. That's it? Okay. Okay. As you can tell, Milton is mostly humoring me because he takes wire hangers pretty seriously.

So seriously, he's waged a more than 20 year trade war to protect his American made hangers from less expensive Chinese imports. It just kind of made me sad to think that we were going to push all that to China and do away with what my family has grown. Is that what motivated you to start fighting? It did, and I felt honored that my father let me come into business with him, and I was honored that my grandfather started the business, and I wasn't going to let my business die on my watch. Welcome to The Journal, our show about money, business and power.

I'm Kate Leimbach. It's Thursday, September 26th. Coming up on the show, what one person's trade war against China reveals about the effectiveness of tariffs. I'm Scarlett Johansson. My family relied on public assistance to help provide meals for us. These meals help fuel my love for acting.

When people are fed, futures are nourished. Join the movement to end hunger at feedingamerica.org slash act now. Brought to you by Feeding America and the Ad Council. Milton Magnus III is 72. He has wispy silver hair, and he's the type of guy who always has a tie on, even when he's on the factory floor. Milton started working at his family's hangar plant during the summers when he was a teenager.

What was your first job there? Probably sweeping the floor and then loading trucks. At the time, we loaded trucks one box at a time instead of on pallets, and it was a... In the summertime in Alabama, it's hot and humid. In 1974, Milton started full-time at the factory, where he still works today. Can you describe for us the process

of how wire hangers are made? Sure, we buy a wire rod, and then we stretch it and compress it to the diameter we need to make the hangers. We have arbors that spin at about 5,000 rotations per minute. And what that does, it bends the wire back and forth to where it straightens it, and then a knife cuts it. Then a machine forms what's called the body of the hanger,

the main lower part. They run on cams and sprockets, and they'll click, click, click, making hangers. And the twist is pretty silent, and so is the hook. Milton became president of the family company in the early 1990s. silent and so is the hook. Milton became president of the family company in the early 1990s. It wasn't long before his business took a turn. When did your business first start struggling?

In the late 90s, early 2000s with the introduction of Chinese hangers into the market. It happened pretty quickly, too. Their prices were so much less expensive than ours, and they wanted anything we could do about it. At that time, the world was opening up, and lots of goods started pouring into the U.S., manufactured in other countries, especially China. It is clearly a step in the right direction,

and it is clearly in the short and long term best economic interests of the American working people. President Bill Clinton was pushing to normalize trade relations with China, paving the way for China to join the World Trade Organization in 2001. It was the era of globalization, the unleashing of the free market. And Milton can see a direct line between the U.S. opening up to China and his company's decline. Do you remember a moment when it really sunk in?

I guess it was at a conference talking to other people that make hangers too. And it was, my gosh, what are we going to do? It's the surge of hangers coming in from China, and we can't compete. So it was that, and then slowly watching my competitors close plants and go out of business. By 2006, the competition had gotten so intense that Milton had to shut down one of his factories. We closed a plant in Virginia. Had no option but to do that, to stop the bleeding. Was that a hard decision?

It was a very hard decision. I went to our Virginia plant and had a meeting with all the employees to let them know what was happening. And it was 85 people or so that we had to tell that they no longer had a job with us. It was very difficult. Business was tough, and Milton even considered moving his production to China and closing his last US factory, the one in Alabama.

But then he went to a meeting for the wire industry, where he rubbed shoulders with people who make other wired-based products like springs, clips, and nails. I talked to a man in the nail business that was facing the same struggles we were facing. I asked him if he was going to move to China, and he said, no, I'm going to file an anti-dumping case. And that started me thinking.

And I talked to our trade attorneys, and I said, what do you think? And he basically said, we're a poster child for a dumping case. Dumping is when an overseas company sells products in the US at prices that are below market in their home country. This can violate international trade law.

So Milton sued. When we went in to file the case, I didn't know how in the world we were going to be able to pay for it because it is a lot of money to pay for an anti-dumping case. How much did that cost you to do that case? An anti-dumping case is a seven figure number, so it's pushing a million dollars to do that. In the final hearing for Milton's case, the Chinese manufacturers didn't appear. The U.S. importers of Chinese hangers argued that American producers weren't competitive. Nevertheless, Milton won, and the Commerce Department announced steep tariffs specifically

against Chinese wire hangers. The tariffs went as high as 187%. What did it feel like at that moment? Oh, it was wonderful. I took my wife out to dinner. We celebrated. It was besides my marriage day and the birth of our three children, that had to go right up there with the top of them. Did you have steak and wine?

We went to a nice restaurant and a steak and one of our steel suppliers actually called the restaurant and ordered us a bottle of wine. It was very nice. Oh, that's nice. He was happy we did it too. So, he was happy we survived also. Okay, so you win this battle, you win this case. How did these new tariffs impact your business?

We started regaining the business we had lost. At that time, we put on shifts to run 24 hours a day, seven days a week. And it was a very exciting time for us because we were building our business back and growing it further than it had ever been. And it was an exciting time for all our employees. And it was just a great time. Those good times didn't last long. We won a battle. We thought we won the war, but we won a battle. We started seeing hangars coming

in from different countries, Vietnam, Taiwan, several others, and we got feedback from a lot of our customers that these are really Chinese hangers, so we actually hired an investigator to go to Taiwan and Vietnam. Like a private investigator? Yes. Go undercover, act as a purchaser of wire hangers. Whoa. And he went to Taiwan and couldn't find any of the factories that were so-called making

the hangers. And in Vietnam, Milton's investigator found that factories were receiving pre-made wire hangers from China, adding paper covers or paper tubes, and then marking them as made in Vietnam. To Milton, this showed that Chinese manufacturers were trying to avoid U.S. tariffs. So we gathered that information and our attorneys and myself went to Washington and met with Customs and Border Protection, showed them our evidence and they said thank you and I thought everything was going to be wonderful after that, but nothing happened. So we had to file another two dumping cases, one

against Taiwan even though we didn't find any hangars coming from Taiwan and Vietnam. Milton's efforts paid off. He won again but again it was only temporary. But then we had Thailand come in and Laos come in, Malaysia come in. We were meeting with other wire producing companies that were seeing the same thing that we were producing. People that produced nails, interspring wire for mattresses, PC strand for construction, and things like that. They were all seeing the exact same thing we were seeing. So we had a coalition to try to get customs in Congress to pass legislation to enforce the dumping orders we had in place.

Milton was fighting and winning each individual battle, but it became a game of whack-a-mole. He'd stop the flow of Chinese-made hangars moving through one country just to see them pop up somewhere else. Which raises the question, do tariffs even work? That's next. I'm Scarlett Johansson.

My family relied on public assistance to help provide meals for us. These meals help fuel my love for acting. When people are fed, futures are nourished. Join the movement to end hunger at feedingamerica.org slash act now. Brought to you by Feeding America and the Ad Council. At the beginning, Milton was fighting a bit of a lonely journey, pushing for tariffs in the era of free trade. These days, he's got more people on his side because low-cost Chinese goods of all kinds

have poured into the U.S., undercutting American manufacturing and leading to the loss of an estimated 2 million jobs. The U.S. has been talking to China about its unfair trade practices for a long time and nothing's changed. That's our colleague Chow Deng who covers the economy. And so therefore there's this realization by both Democrats and Republicans that they need to take a different tack towards China and that has included tariffs. A big advocate for tariffs has been Donald Trump. While president, he slapped tariffs

on a wide range of Chinese goods, everything from clothing and toys to laptops and smartphones. We've taxed China on $300 billion worth of goods and products being sold into our country. And President Joe Biden not only continued most of those tariffs, he added more. We're also implementing a 25% tariff

on electric vehicle batteries from China and a 25% tariff on critical minerals that make those batteries. But tariffs are still controversial. On the campaign trail, Trump is calling for broader and higher tariffs, while Vice President Kamala Harris is arguing for a more measured approach. Part of it is you don't just throw around the idea of just tariffs across the board,

and that's part of the problem with Donald Trump. Frankly, I... Chow says there's still a big gap between how economists and politicians see tariffs. I think if you talk to most economists, they will still argue that tariffs are more trouble than they're worth. But politically, both Democrats and Republicans have come around to the idea that something needs to be done and that tariffs are a worthy trade tool. Do tariffs work? No.

Economists will argue that they increase input costs for American businesses, which end up passing along those costs to consumers. And studies have certainly shown that tariffs have increased costs for middle-class American families. So what do these economists say should be done? They'll argue, look, the U.S. really doesn't need to be making products like these, which they would argue are low-end and commoditized, and that the U.S. should be making more advanced products like chips and solar panels and electric vehicle batteries. But what does that mean for the Milton's of the world?

I think Milton represents a chorus of American industry saying, you know, we want to be doing what we have been doing without interference from China. And his story and the fact that he's been able to survive kind of shows that lobbying efforts are strong, that trade cases make a difference. I took this argument to Milton. What do you say to economists who say, you know, tariffs protect uneconomical businesses? They're economists. They're not business people. I think the United States is made up of

millions of small businesses like ours, or medium-sized businesses like ours, that without some type of protection would be out of business. Although you think we'd love to just be a high-tech industry and high-tech businesses, there are people that need our business, people that work in our business, people that like to do what they do.

And if there were just high-tech jobs around, they might not be available for them or qualified for them. Milton does see the benefit of manufacturing outside the U.S. He has a plant in Mexico. It makes about half his total output and helps keep his Alabama factory going. And Milton admits that while tariffs have helped his business, they're not a panacea. So the tariffs are easily evaded. They're very easily evaded. Yes.

easily evaded? They're very easily evaded, yes. Why haven't you given up on tariffs? I'm very stubborn and committed to my business and my industry. We have one competitor today that used to produce in the United States and now imports everything from Asia. And I'm sure they do very well, but that's not in my DNA. I like to be a manufacturer. I don't want to be just a distributor.

Milton says he now spends 30% of his time fighting off lower price Chinese imports. But he says that time is what's kept him in business. I'm sort of proud that we're still here and we've fought a good fight and we're continuing to fight. We don't give up. We're going to hang in as long as we can. And we think that we've got a good team working for us in the factory and on our legal team. And we plan on using all tools in our arsenal to stay around. That's all for today. Thursday, September 26. The Journal is a co-production of Spotify and the Wall Street Journal. If you like the show, follow us on Spotify or wherever you get your podcasts.

We're out every weekday afternoon. Thanks for listening. See you tomorrow.