The CEO of the last company in the U.S. making beer kegs out of American steel says new steel tariffs may come with unintended consequences for his business.
Paul Czachor, CEO of American Keg Co., based in Pottstown, Pennsylvania, says that since tariffs only cover raw steel materials, not finished products like imported kegs, the new rules could actually give the competition an edge. Last week, the president signed an order imposing a 25 percent tariff on the majority of steel imported into the U.S.
Czachor joined Marketplace Weekend host Lizzie O'Leary to discuss how the new rules could affect his business. An edited version of their conversation follows.
Lizzie O'Leary: Can you explain to me just how an American steel beer keg is made? Like what goes into that?
Paul Czachor: So the basic process is, we'll order jumble rolls of steel, stainless steel, and then we'll fabricate that through throughout our manufacturing facility. Takes approximately two hours to make one keg. And then we ship it out to our customers. There's approximately 6,000- 7,000 craft brewers, cideries and wineries that will purchase stainless steel beer kegs.
O'Leary: And you guys are the last company that makes American steel kegs.
Czachor: Yes we're the only company United States making stainless steel beer kegs.
O'Leary: Why? Is it just that much more expensive to do with U.S. steel?
Czachor: Yes. Right now it's definitely more expensive to do U.S. steel.
O'Leary: Well I've got you here to talk about tariffs. So what do these steel tariffs do to your business?
Czachor: I think when the tariffs came out, it was probably a good idea. I'm sure the steel industry needs some protection but there are some unintended consequences for companies such as us that have competition that make imports. And on the U.S. side, our costs for domestic steel is going to increase because of these tariffs. As the import steel goes up in cost so does the domestic steel.
O'Leary: Is the price of your kegs going to go up?
Czachor: Yes, it's already up. As the tariff discussions were taking place, domestic steel was starting to increase in the fourth quarter and continue to increase here in the first quarter.
O'Leary: What does that mean for your customers?
Czachor: Well there has always been a delta between a USA made keg and import keg.
O'Leary: Maybe explain what a delta is?
Czachor: Sorry about that, a price difference between a U.S. keg and an import keg. Today you can probably buy an import keg at around $95 and a USA made keg is going to be around $115.
O'Leary: The sort of wrinkle here is that finished products are not subject to the tariffs.
Czachor: That's correct. The finished products for kegs and many other products coming into the U.S. is at a zero percent tariff. We have customers calling us and saying "hey how can we help?" One gentleman called and stated he was a veteran and he doesn't buy kegs but he'll buy a keg and have many of his other friends buy one.
Czachor: Yes. That was a great voicemail to here that.
O'Leary: Are you losing customers?
Czachor: Yes. It's a difficult situation right now. We have a lot of patriotic customers that want to buy USA made kegs with U.S. labor and U.S. steel but they're only going to go so far as that price difference continues to rise.
O'Leary: I know you've had to downsize a little bit. This is a rough time. What needs to happen for you to stay afloat?
Czachor: We would say at this point there is some unfinished business. So, companies out there that have low cost imports coming in, for finished product that has a high content of steel, we're going to need to see some help on those. Some tariffs.
O'Leary: So another round of tariffs you'd say?
Czachor: Yeah, not across the board but specific industries that are harmed by this and also have import competition using low-cost steel.
O'Leary: You know we're sitting here talking about kegs. Your business is really in many ways a story about globalization. And how much of what we buy and use and consume comes from overseas and yet we also think about American jobs. When you go home at night and sort of think about where you fit into this globalization story, what do you think?
Czachor: Well, it's a very complex topic and I think a lot of people have been wrestling with it for many years. I think what we would say is we would put our engineers or production employees, our entire team against anyone in the world. We just need a level playing field. So, I think some of these industries are going to need some help from the government to look at that.
O'Leary: If you had the chance to sit down with the president what would you tell him?
Czachor: I would say we're very in favor to bringing more jobs back to the U.S. We're absolutely excited about rejuvenating manufacturing in the U.S. and we want to see economic growth. So please look at all the variables that we need to do to achieve those goals.
O'Leary: Do you think that's possible? Do you think having a really strong manufacturing economy in the U.S. is something that's possible when you look at prices overseas?
Czachor: I think so. I think if you look at American labor I think they're as competitive as anyone else in the world.