The Effect of Trump's tariffs on American Manufacturing Industry.

At first, Element Electronics threw its support behind the Trump administration's tariffs on Chinese goods.

The South Carolina company, the only mass assembler of televisions in America, said proposed penalties on imported TVs would finally help it compete against cheaper models from China.
Then the Trump administration expanded its planned tariffs and targeted TV parts, rather than fully assembled sets. Now the company is on the verge of shutting its US operations, unless some powerful allies in Washington intervene.

"I can't believe the US government's intention is to shut down our South Carolina facility," David Baer, Element's general counsel, told a government panel Tuesday, referring to the administration's potential tariffs. "That makes no sense. The only logical explanation is ... [it] must be a mistake and is a result that the administration did not realize."

Element has already told the state that it intends to lay off 126 employees — almost all the workers at its facility in the town of Winnsboro.

Baer said Tuesday that the factory will close after the company exhausts its inventory in October. Element has already moved production abroad to avoid possible duties that might kick in this fall. He did not say where, and it's not clear from company filings where else Element has production capacity.

The administration is considering a 10% or 25% tariff on LCD panels and motherboards as part of a package of additional penalties on Chinese goods worth $200 billion. Element says it must import those parts to assemble televisions in the United States.

"Let me be very clear, there are no places for us to obtain those parts other than China," Baer said. "All of our parts originate there."

Element's troubles demonstrate how hard it is for companies to dodge the administration's growing web of tariffs. As Trump readies the additional penalties, businesses with global supply chains are forced to make difficult adjustments.

Switching sides

In May, after Trump rolled out a 25% tariff on fully assembled television sets from China, Element wrote to the Office of the US Trade Representative to express its support.

"Element Electronics and its American workforce compete at a disadvantage every day in a US television market that is flooded with large volumes of low-priced TV imports from China and Mexico," the company said.

But the administration, facing pressure from industry groups such as the National Retail Federation and the Consumer Technology Association, eventually took assembled TVs off the list.

Then it said it was weighing tariffs on LCD panels and motherboards from China, which could go into effect as soon as September.

Element said that those tariffs would make it too expensive to continue assembling TVs in the United States.

"The result of the US tariff policy strongly incentivizes production in China and Mexico at the expense of US production," Baer said Tuesday.

Element makes TVs for the lower end of the market, where profit margins are extremely thin, according to Paul Gagnon, an analyst at IHS Markit who specializes in the TV sector.

"There's very little room in the margin structure on the set to be able to absorb such a dramatic cost impact," Gagnon said.

LCD panels are the most expensive components of TVs, he added.

Powerful friends

Element has kept a low profile since it told the South Carolina government that it intends to close its plant. The company said on social media that it was working to have its parts removed from the tariff list.

But one state lawmaker is tapping powerful allies throughout the state — and in Washington — to help the company win relief from potential tariffs, including two Trump administration officials.

"We need everyone's help," said South Carolina state senator Mike Fanning, a Democrat who represents the district where Element is headquartered. "I have been reaching out to every single human being that might be able to articulate our unique need."

Fanning said he has reached out to Mick Mulvaney, a Republican former congressman and Trump's budget director, as well as former South Carolina governor Nikki Haley, who is now US ambassador to the United Nations. He also contacted South Carolina Governor Henry McMaster and Senators Lindsay Graham and Tim Scott.

Mulvaney has appealed to other administration officials to protect Element, Fanning said. The news was first reported by McClatchy.

Jessica Cahill, a spokeswoman for Representative Ralph Norman — whose Congressional district includes Winnsboro — also said Mulvaney had been trying to win a tariff exclusion for Element, and had been working on getting the White House to look at it.

"These discussions are internal and pre-decisional," a senior official at the White House's budget office said. "Director Mulvaney continually advises the President on many policy matters, including trade and tariffs as a whole, and ultimately President Trump will make the final decision."

The senior official told CNN that Mulvaney has never spoken with the president specifically about Element.

Element's Baer declined to comment to CNN on Mulvaney's role.

Kevin Bishop, a spokesman for Graham, said the two men speak regularly, but doesn't know if they discussed the issue. Representatives for Scott and McMaster could not be reached for comment by CNN.

Haley was the governor of South Carolina when Element first said it would spend $7.5 million to build a plant in Winnsboro in 2013.

She hailed the decision and visited the Winnsboro plant the following year, when she was running for a second term. According to Haley's office, Fanning "has ‎not contacted" Haley or her office.

Element has had well-placed friends in the corporate world, too.

Walmart (WMT) helped facilitate discussions between Element and the state of South Carolina before Element announced it would set up shop in Winnsboro in 2013.

"Through collaboration with Element Electronics we have facilitated discussions at the state level to make their partnership a reality," Bill Simon, the former president and CEO of Walmart US, said in a statement released by the South Carolina Department of Commerce at the time.

Walmart began stocking Element TVs in 2014 as part of the retailer's initiative to buy more products made in the United States. Element TVs are now sold in most US Walmart stores, as well as on Walmart.com.

Asked whether the company has reached out to the Trump administration on Element's behalf, a Walmart spokesperson said the company doesn't discuss conversations with US government officials.

Element has drawn scrutiny in the past.

The Alliance for American Manufacturing in 2014 filed a complaint against Element Electronics with the Federal Trade Commission. The group claimed that the company "harms consumers by making false, deceptive, and misleading representations regarding the extent of domestic assembly for its televisions," since its parts come from China and minimal assembly takes place in the United States.

Element touted its US bona fides by putting an American flag backdrop on its boxes, which also included a "large, prominent" red, white and blue logo, the petition said.

The FTC dropped its investigation in 2015 after Element clarified on its website that some, but not all, Element TVs were assembled in the United States.
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