New U.S. Tariffs Are Bad News for This Plant in Trump Country

(Bloomberg) -- President Donald Trump’s 25% tariff on goods from China could hurt exactly what the tax was intended to encourage in the first place: more manufacturing on U.S. soil.

Procter & Gamble Co. makes about 90% of the products it sells in the U.S. domestically, sourced from its 25 plants across the country. And it’s building its 26th and largest plant yet in Martinsburg, West Virginia. But an application last year to exempt some equipment for the plant from tariffs is still pending.

“There are a number of pieces of machinery and infrastructure that are made in China that will be subject to tariffs, that will increase the cost of building that new facility,” spokesman Damon Jones said Friday in an interview.

Tariffs Hit Corporate America Again

More Bloomberg coverage of companies affected by the escalating trade war:

In a September 2018 letter, the company said it wanted “reservoirs, tanks, vats” and other parts for the factory exempt from tariffs. The additional costs would “undermine P&G’s manufacturing competitiveness and future investment decisions to expand U.S. production.”

Aside from 1,800 full-time employees, the plant -- which will stretch about nine Manhattan blocks when it’s completed in 2022 -- is projected to support 1,000 construction jobs, and additional tariffs would “negatively impact new P&G employment in West Virginia,” according to the the letter.

‘Administrative Challenge’

“P&G believes strongly in free trade, because it does help us serve consumers, and puts both us and our international competitors on equal playing ground. Tariffs create a barrier for that,” Jones said. Every time new levies are announced, the company has to go through the exemptions process again. “It’s an administrative challenge,” he said, adding that the company’s positions haven’t changed since the September letter.

Large corporations breathed easier a few months ago when Trump delayed raising tariffs on $200 million of Chinese goods to 25% from 10%, on optimism for a deal between the two countries. But as talks broke down and that increase was imposed Friday, the sudden escalation in the trade war has forced companies to again review supply chains to limit their exposure to the higher taxes.

While some companies, like Coach parent Tapestry Inc., have already switched some sourcing to other countries, P&G isn’t likely moving in that direction. “We’ve already sourced for the lowest price, and best quality materials,” Jones said. “If you move things around, there’s also a cost to that.”

Besides the materials for the West Virginia plant, P&G also gets some parts from China for its consumer products including pump dispensers for its Pantene haircare line and some components in Oral-B power toothbrushes and Braun shavers, Jones said.

Whether the costs of higher tariffs will be passed on to customers is still an open issue, he said. “We need to maintain good value for our consumers.”

©2019 Bloomberg L.P.