Not all the tariffs recently affecting Lancaster County businesses are the result of recently launched trade wars.
A few months ago, Conestoga Wood Specialties found itself caught in the wake of a tariff fight that began in 2012.
The resolution of the ruckus over imported Chinese plywood will prompt Conestoga to raise prices of affected products by 7 to 18 percent in early August.
“The consumer will feel the impact, because the cost of making products will go up,” said Chris Watson, Conestoga’s chief operating officer.
Conestoga has nearly 1,200 employees at five sites nationwide, including about 700 at its East Earl headquarters. It produces doors, drawer fronts, drawer boxes and other components for kitchen cabinet makers.
No jobs will be lost or any products eliminated because of the Chinese plywood issue, Watson said.
Domestic plywood makers began complaining about the price of imported Chinese plywood six years ago.
They said the Chinese government was subsidizing the production of the plywood, allowing the product to be sold in the United States for much less than domestic plywood.
At that time, the U.S. International Trade Commission concluded that the domestic plywood industry was not being materially harmed.
But the price disparity soon pushed up U.S. imports of Chinese plywood by more than 20 percent a year.
This devastated the domestic plywood industry, prompting 42 mills to close and 52,000 employees to lose their jobs, industry officials said.
The Coalition for Fair Trade in Hardwood Plywood — consisting of six leading domestic producers — renewed the battle in October 2016 by again taking the case to the U.S. International Trade Commission.
In December, the independent federal agency voted 4-0 to impose tariffs totaling 204 percent on Chinese plywood, delighting the domestic producers.
“If you’re a plywood manufacturer, you’re extremely happy, because now you probably have a chance of surviving, whereas before, you may not,” Watson said.
“By contrast, the users of the plywood — companies like Conestoga and all of our customers (2,500 kitchen-cabinet manufacturers in the U.S.) — took a massive price increase, which clearly we cannot absorb.
“I mean, how do you absorb a 200 percent increase in your raw material cost?” Watson said.
Plywood is the second-biggest raw material for Conestoga, trailing only hardwood. About 40 percent of its plywood came from China. Now, zero does.
“People look at Conestoga as just this little company tucked in cornfields. But nationwide we produce over 20,000 kitchen cabinet components a day. ... The impact to us is huge,” Watson said.
“It’s not like we’re using 20 sheets a month. We’re using truckloads every week.”
As Conestoga pondered its possible responses to the new tariffs, it immediately ruled out just sticking with its Chinese providers and passing along the full price increase to customers.
That would have been fatal, Watson believed.
“We didn’t want to go out with an immediate knee-jerk reaction of 200 percent, because that’s the fastest way we could become the least viable player in our industry,” he said.
“Just because we’re taking those price increases doesn’t mean our customers are going to want to accept them.”
Instead, Conestoga invested the time and money to find more affordable ways to replace the Chinese product, a process that took months.
“We shifted some of our business back to domestic sources. In other cases, we’ve had to identify and qualify other plywood mills abroad — in Malaysia, Indonesia and Vietnam,” Watson said.
“In every case, we’re taking a 40 to 50 percent price increase,” he said, “but it’s not 200.”
That’s not good for Conestoga’s profit margin, though the company has remained in the black.
“Our margins have been significantly impacted,” tumbling 20 percent, Watson said.
“And this is not a high-margin industry. Wood component manufacturing, like most manufacturing, operates with very narrow margins to begin with. We don’t have a lot of room. If you’re making high single digits in our industry, you’re way ahead of the pack,” he said.
Watson declined to specify Conestoga’s profit margin.
Conestoga got a little protection from the fact that only a third of its production uses plywood.
“That’s one of the reasons we’re doing OK, because not everything was impacted,” Watson said.
But now that Conestoga has solved the challenge of Chinese plywood, a new issue has emerged — drawer box components that it imports from China.
The U.S. last week imposed a 10 percent tariff on imports of Chinese wood components. These include the drawer box components made in China from Russian birch.
Watson estimated that 80 percent of its drawer box components (the drawers’ sides, fronts and backs) are made in China from Russian birch; the rest are made from domestic maple.
“I’ve got to figure out what our options are,” he said. “For us to go out and look for new supply lines is going to take some time. It’s not like going on Amazon.”