Tariffs Stress as CLAAS Grows US Roots

DECATUR, Ill. (DTN) -- Every newly manufactured forage harvester in the United States comes with tariff considerations. Of course, that's true with nearly every newly manufactured anything now if steel or aluminum is involved. But forage harvesters were on the mind of Eric Raby, CLAAS senior vice president of sales for the Americas region, and he talked about them as he tried to explain the hurdles CLAAS and other companies are trying to clear as they do business in the United States.

"There are four brands of forage harvesters sold in the world, and all of them are made in Europe. All of them," he said. "If it's light green, it's made in Europe. If it's dark green, it's made in Europe. If it's yellow, it's made in Europe. If it's a different couple shades of green, it's made in Europe. So, all of the forage harvesters are now under this import duty."

CLAAS used an appearance at the Farm Progress Show here in late August to introduce its newest forage harvester, the Jaguar 1000 series, four models that provide a range of horsepower topping out at 1,110 to what CEO Jan-Hendrik Mohr said is the company's top forage harvester country market.

But they're built in Germany, and that adds some complications.

The United States' on-again, off-again tariffs have left the company, based in Harsewinkel, Germany, fighting to figure out a plan and guessing as to what's coming next. Raby said the company has tried to manage the impact the changes have on customers since they started to roll out in April, but that's growing more difficult.

"We didn't pass on (the cost of) all the tariffs (to customers), and we still haven't. We are eating a significant chunk of that," he said. "We thought (in mid-August) we were in great shape and had everything done and put in our new pricing, and then it came out with 50% tariffs on steel."

The Aug. 19 announcement from the Department of Commerce strengthening the steel and aluminum tariff has led to complications for Raby and CLAAS.

"It's very problematic," Raby said, citing a steel and aluminum supply network that's global and can be difficult to track.

"Let's say I buy a gear box for a header from a supplier," Raby said. "They need to tell me what portion of that gear box came from where, because if they don't, I have to pay 50% tariff on the whole gear box, not just the steel or aluminum parts. (Tariffs are) by country of origin, where the steel was poured and molded. We have steel from many different countries in that machine. Some countries are experts in cold rolled or hot rolled, all those different things. It's a royal pain."

The shifting tariffs haven't led the company to change many actions yet. The forage harvester, for instance, wasn't delayed to miss certain tariffs or bumped up to slide ahead of others. No parts were swapped out, reengineered or procured from different sources.

But longer term, what's a European ag equipment company committed to operating in the North American market to do? Find new sources of supply? Raise prices? Stop selling certain products?

"It could be a combination," Raby said. "There are going to be some price increases. So far, we haven't passed that on."

But he said price increases may come.

"If we know we're going to have to look at onshoring different components or different suppliers, that's fine," Raby said. "But the amount of time it takes to ramp up steel production or aluminum production, it's a long time. It's not an overnight thing."

Raby said his problems don't stem from tariffs in general.

"The 10%-15% from the EU, those are all good, equalizing tariffs," he said. "But when we get to the really punitive ones, 50% on steel and aluminum, that's a problem. We'll have to figure out how to get around that unless we can see some reprieve from the government."

The company doesn't plan on going anywhere, and Raby said onshoring more production could be in the future.

CLAAS actually started bringing manufacturing to the United States nearly 25 years ago when it opened a combine manufacturing plant in Omaha, Nebraska. The company said it's currently sending 600 machines a year out of that facility, with room to expand available on the factory floor. CLAAS started in late August with work on more new buildings in Omaha, breaking ground for a 44,800-square-foot research and development center that will add two office buildings and other research facilities to the campus.

Some of the work has previously been done off-site, but the new work promises more jobs and deeper roots in the United States.

"Our strategy is to grow in North America," said Mohr, the CEO. "We came to stay here. ... We always bring the most current, new technology to North America once it is available from the CLAAS side. We believe in it. At the moment, the circumstances are not positive in agriculture in the U.S., but nor are they in North America or South America or Europe. Agriculture is under tremendous pressure globally, and agriculture machinery is no expectation. But people continue to consume food, so we believe in that, and this is why we are here in North America."

Mohr said the construction plans predated tariff talk.

"It has nothing to do with tariffs. It's something we intended to do anyhow, and now it's coming," he said. "The tariffs don't irritate us. We are here for the long haul."

Joel Reichenberger can be reached at Joel.Reichenberger@DTN.com

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