June 7, 2019 / Modified jun 7, 2019 3:25 p.m.

Southern Arizona companies impacted by tariffs on Chinese trade

Both companies say their bottom lines have been affected.

At least two companies in Southern Arizona are experiencing the far-reaching effects of new tariffs imposed on trade between the U.S. and China over the past year, and they're concerned about the potential for new duties on imports from Mexico.

In Tucson, Southwest Strings has spent more than 30 years fine tuning its reputation as one of the country's biggest sellers of bowed-string instruments. The majority of its customers are schools located across the country. Most of its instruments come from overseas, with 85% from China alone. According to spokesman Mark Mason, manufacturers in China are the most reliable source of the entry-level instruments schools and beginners prefer.

"Really nobody has tried making entry-level instruments in the United States, and the economics just don't work out. You can't do it with the labor costs here," Mason said.

A few months ago, the company began feeling the pinch from the ongoing trade conflict. Imported cases already subject to a 4% duty got hit with an additional 10% tariff imposed by the U.S. The same tariff will increase to 25% by the time Southwest Strings accepts its next delivery of cases in a few months, Mason said. He added that the company expects to pay more than 29% in duties on that order.

Southwest Strings can afford to absorb the costs through the rest of the year without having to raise prices. Mason hopes the added tariffs will be lifted by then. He foresees long-term consequences facing the entire industry if the U.S. levies higher duties on instruments imported from China because retailers like Southwest Strings would be forced to pass the costs onto schools.

"The higher-end American manufacturers of course depend on schools being able to buy instruments so that people can be taught the violin. Because very few people are able to figure out how to play the violin on their own. For the most part, you've got to have a teacher and for the most part that happens in schools," Mason said. "So, really the orchestral music scene in America is dependent on China."

Reverberations from the rising tariffs on U.S. and Chinese trade echo south of Tucson in Sahuarita at the Green Valley Pecan Company. Its products ship around the world. According to company president Dick Walden, when the U.S. enacted new tariffs on Chinese steel and aluminum last year China answered back with a 40% tariff on pecans imported from the U.S.

"It has a big effect. You can't lower your cost by 40%. They're relatively stable. So, the net effect is there's a big reduction in profits," Walden said.

Walden said pecan exports to China are down by more than 90% over last year, resulting in more of the nuts staying in America. That has caused domestic prices to plunge along with profits for growers like the Green Valley Pecan Company. While the company hasn't had to lay off any employees, Walden said the company will consider putting off future investments.

"We are looking at all of our capital expenditures. We have a three year and a five-year capital expenditure plan and we're looking at which ones need to be done and which ones can be delayed," Walden said.

The possibility of more tariffs on Mexican trade adds another layer of uncertainty for Walden. President Trump threatened to impose a 5% tariff on all goods from Mexico this month unless the country does more to stop illegal immigration from Central America. Mexico is now the largest producer of pecans, according to Walden. He worries that new tariffs will encourage Mexican growers to ship more of their pecans to other markets besides the U.S., which would increase competition abroad.

"We expect that the potential exists in the case of Europe where we have strong marketing position that we will severe competition from Mexico," Walden said.

At Southwest Strings, Mason said duties on Mexican trade could also impact mariachi instruments the company imports from the city of Paracho in Mexico.

"We're worried. But all you can do is prepare for the worst and hope for the best, which is what we're doing," Mason said.

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