‘Confusing times’: How the Trump tariffs could affect McHenry County-area businesses

It’s been a tough year for coffee.

Prices per pound rose 400% in the past year, Michael Kivland of McHenry’s Heady Cup Coffee Roasters said. The specter of tariffs being added to his import costs has him worried.

“The coffee market is a blazing inferno of uncertainty,” Kivland said. “Tariffs are throwing gasoline on an already-lit fire of the current coffee market.”

Heady Cup is a small-batch roaster, but the company has commodity contracts to help prevent it from feeling some of the market’s fluctuations. So far, Heady Cup hasn’t had to increase prices for its customers, Kivland said.

But there are a lot of unknowns surrounding the future of the business’s Mexican beans, and even some it gets through Canada, he said. Colombian beans spiked for 12 hours while that country’s president and President Donald Trump disagreed over a military plane full of deportees.

Uncertainty, and figuring out a way to prevent cash-flow problems, is a common refrain from those working for local companies with international flair.

The McHenry County Economic Development Corp. plans to put together a series of webinars to help local companies that may be facing tariffs for the first time.

When, or even if, those seminars will need to happen is the big unknown, said Mark Piekos, executive director of the organization tasked with helping existing business and attracting new ones.

“These are confusing and somewhat unprecedented times,” Piekos said.

For some McHenry County companies, “this is not their first go-round in relation to China. But these new tariffs against Canada and Mexico ... these are not something businesses have navigated before. If they come to fruition, they are going to be slightly different,” Piekos said.

Trump said he is ready, if necessary, to put tariffs on Mexico and Canada on March 1 – after a 30-day suspension – over his belief that they should do more to fight illegal immigration and drug smuggling.

The U.S.-Mexico-Canada Agreement, signed by Trump in July 2020, which replaces the North American Free Trade Agreement, “is on solid ground, as no changes to that agreement have happened yet,” said Jeremy Page, co-founder of Page-Fura, P.C., a Chicago-based international trade law firm.

Trump has moved up a regulatory six-year review window for that trade agreement, Page said, adding that the 25% currently deferred tariff against Mexico and Canada is outside that agreement.

Chinese tariffs, including those on steel, is a slightly different animal.

“There are many stories of overcapacity/production, as [China’s] internal economy has faltered, and the volumes of goods shipped from China as a means of spurring their economy is creating economic risk worldwide,” Page said.

Raymond Monroe is vice president of the Crystal Lake-based Steel Founder’s Society of America. Historically, its member foundries have not been included in “most of the tariff stuff,” Monroe said, and were not included in Trump’s 2017 rounds.

That said, Monroe agreed with Page that China selling steel product below cost has had a negative effect on producers here.

If, as an example, it cost both the U.S. and China $500 a ton to make hot roll steel coil, a U.S. supplier would sell that for $700 to make a profit.

“China sold for $480,″ Monroe said.

That put the domestic suppliers at a disadvantage in the global marketplace, he said.

“China has been selling steel below cost to handle their excess capacity,” Monroe said, adding that Steel Founder’s members import very little from the country.

Many of those tariffs stayed in place during the Biden administration, Page said, but they expect the Trump administration will continue to use legal means and tariffs to address those below-market sales.

On Monday, Trump closed the exemptions to his 2018 tariffs on steel and aluminum, in addition to raising the tariff rates on aluminum.

“That includes taking on the [European Union], whether justified or not, with some form of tariffs as well,” Page said.

Page also has been talking to people such as Carrie Zethmayr, administrator of Foreign Trade Zone No. 176 based out of the Greater Rockford Airport Authority.

Created by Congress in the Foreign Trade Zones Act of 1934, the FTZ “is a program available to help your company manage tariff risk,” Zethmayr wrote in an email.

“The best time to activate your facility as an FTZ was last year. The second best time is now,” Zethmayr said.

It takes time – and often a trade attorney such as Page’s firm – to receive the FTZ designation, she said. But as an FTZ, companies can defer when they pay tariffs, reduce the cost or eliminate it entirely based on where the product is sold.

She’s working to increase awareness of the program, particularly among those taking a “wait-and-see” approach to the tariff question.

“It takes time to implement and, in the meantime, [companies] struggle with the impact,” Zethmayr said.

Businesses within the Rockford airport’s zone also can use facilities such as Capitol Warehousing. The company has a Belvidere facility with an FTZ designation.

“When you ship goods to a foreign trade zone warehouse, tariffs are deferred until you ship the product out,” said Josh Rodman, general manager at the facility.

The Belvidere warehouse has been an FTZ facility for about a year – a designation it received so smaller customers would not have to go through the time-consuming and expensive process.

“You don’t have to do anything. We handle the communications with customs. ... it is seamless,” Rodman said.

Using a coffee company such as Heady Roasters as an example, the business could warehouse beans until they were ready to roast. Although they’d pay for storage and handling, a tariff wouldn’t be charged until the beans left the building, Rodman said.

Warehousing with an FTZ can help a business control cash flow.

“Say they import $1 million in coffee beans. They could have $100,000 in tariffs” if they’re not warehoused in an FTZ, Rodman said.

Large industries that import already know about or have their own FTZ designations, he said. He’s working to educate smaller companies on how warehousing with them might help.

It’s the unknown that has people such as Page worried.

“Illinois companies are certainly impacted, as the threat – let alone imposition – of these punitive tariffs is causing paralysis from an import and sourcing planning perspective. The number of ‘what if’ scenarios companies are considering is off the chart ... and multidisciplinary teams are the norm in determining how best to proceed,” he said.

There also is a concern about retaliation.

“Since Illinois is a top-five exporting state, any tariffs imposed in that manner will hurt the local economy immediately,” Page said.

The Associated Press contributed to this report.