A Message From a C.E.O.: Tariffs Are Going to Hurt American Companies

An engine at Cummins’s plant in Seymour, Ind. Eighty percent of the products there rely on global trade.

In 1976, Cummins began operations at our engine plant in Seymour, a small town of about 20,000 people in southern Indiana. The Seymour Engine Plant now produces engines for equipment like locomotives, large boats and power generators that back up critical infrastructure like data centers and landmarks like Wrigley Field. Nearly 80 percent of the products that Cummins makes in Seymour are exported; in other words, the existence of this plant is a direct result of our company’s ability to access global markets.

Cummins employs about 1,000 people in Seymour, and we have invested more than $300 million into the plant in the past seven years, including a technical center that employs hundreds of engineers. In the past year, we have added nearly 50 employees. While other small towns are struggling, Seymour is thriving.

However, increased supply-chain costs because of the recent tariffs will raise the price of the products from Seymour. We may also face retaliatory tariffs, which could result in lost sales and restrict or reverse our growth.

International trade has been the single most important contributor to growth and hiring at Cummins for nearly two decades. Half of our business is outside the United States, and more than 20 percent of the 25,000 Cummins jobs in America are directly tied to international business. And when we are growing, it often means our suppliers are also growing.

Let’s be clear: a tariff is a tax, plain and simple. For Cummins, the impact of tariffs on steel and aluminum, tariffs applied to products we bring to the United States, as well as retaliatory tariffs imposed on products we export to other countries will be difficult to mitigate even with the benefits of tax reform. And this does not take into account the latest and additional proposed tariffs, nor does it include the indirect costs that, inevitably, will be passed through to us and other companies like us by suppliers.

Our supply chain, which has been developed and optimized over decades, cannot be reorganized in short order. We rely on more than 2,500 American companies for components and materials, but for certain components — such as cylinder blocks, connecting rods and electronic controls — there are very few suppliers anywhere. Our products are specialized — we make engines for large tractor-trailer trucks, garbage trucks, trains, construction and mining equipment, among other things — and our markets are much smaller than the American auto market, so we sometimes look beyond our backyard for suppliers.

One model of engine, for example, was developed in the United States but is manufactured in China for the Chinese market. A small number of those engines — approximately 5,000 — are exported from our plant in China to the United States, so they are considered subject to tariffs under the administration’s recent actions.

So this product — developed by American engineers and sold by an American company — faces a 25 percent tariff here at home and must compete against products from European and other Asian engine manufacturers that are not subject to the tariffs. This will make it very difficult for Cummins to compete, putting our ability to sell these engines in the United States in peril.

Given its size and standing in the world, China should modernize its trading practices and improve intellectual property protection, among other issues, and improve access for American and other foreign companies. To make this possible, the United States and its allies need a long-term strategy to apply joint pressure over a sustained period. We should work openly and transparently with the Chinese government and American businesses. Unilateral and escalating tariffs are not the answer.

These tariffs put us in a worse position now than when we started these negotiations, and we are concerned there is no end in sight. Because of this uncertainty, companies like ours are standing still, unclear on how and where to invest. Even an imperfect trade deal — one that gets us a bit closer to a level playing field — is better than no trade deal, and no trade deal is better than implementing tariffs.

Businesses face a real dilemma. Can they absorb the tariffs? Or do they pass the increased costs to consumers?

We see no upside in the implementation of tariffs. They are a tax, and the risky proposition of entering a trade war could slow down the economy. Even putting up short-term barriers with trading partners in China and Europe can cause long-term losses in market share, resulting in lost jobs in the United States. The mere threat of tariffs results in significant costs for Cummins that cannot be recovered.

As the leader of Cummins, I am charged with providing opportunities for shareholders, customers, employees and our communities and working with policymakers to create a healthy climate for business. What’s at stake is not just the company’s profits, but jobs in Seymour and other communities where we work, such as Rocky Mount, N.C., and Jamestown, N.Y. This is what concerns me most. American workers and their families will be the real casualties of a trade war.

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