NEWPORT, R.I. (AP) — MJM Yachts has already felt the sting of tariffs.
CEO Bob Johnstone was negotiating the sale of a 53-foot (16-meter), $2.2 million yacht to a buyer in Monaco when the European Union announced a 25 percent tariff on American-made boats as retaliation for the Trump administration's tariffs on imported aluminum and steel.
The deal is now dead. So is the Rhode Island-based company's plan to expand sales into Europe.
American boat makers are getting pummeled on multiple fronts by tariffs and stand to be among the industries hardest-hit in an escalating trade war.
President Donald Trump's decision to impose tariffs on imported steel and aluminum has driven up the price of those essential materials for many boat makers. Europe, Canada and Mexico retaliated with tariffs on American-made boats. Meanwhile, new tariffs imposed on parts such as engines and navigation equipment imported from China are also pushing up costs.
As a result, they are selling fewer boats, considering raising prices and bracing for layoffs across an industry that employs 650,000 people in the United States at manufacturers, marinas and dealers.
"We have the unfortunate situation of being caught up in every part of this trade war," said Nicole Vasilaros, of the National Marine Manufacturers Association.
Industry leaders have met with Commerce Secretary Wilbur Ross and trade representatives and tried to make the case that this is a truly American industry being used as a pawn in a trade war. Ninety-five percent of the boats sold in the U.S. are made in America. They've also appealed to congressional delegations, especially in states heavy in boat manufacturing, while watching the trade fight escalate this week as China and the U.S. proposed new tariffs that include some hitting their industry.
Among those who have considered reducing their workforce is Regal Marine Industries, which builds everything from sport boats to 53-foot (16-meter) yachts with price tags ranging from $35,000 to $1.2 million. It employs 750 people at its headquarters in Orlando, Florida, and in Valdosta, Georgia, from factory technicians to engineers to office staff.
Before the tariffs were imposed, around 15 to 20 percent of Regal's sales went to Europe or Canada. CEO Duane Kuck said orders from the EU are down 90 percent. They've seen millions of dollars in of cancelations and delays.
"We were expanding prior to the tariffs. The expansion has been put on hold," he said.
Asked whether that means layoffs, he said he would have to see whether the company can grow enough business in the U.S. to offset the loss of exports, a strategy several other boat builders are trying.
The timetable for many manufacturers thinking about layoffs is in the next two to three months, Vasilaros said. She also noted that any benefits the industry saw from a Republican-led tax overhaul have been "almost completely negated" as the industry deals with higher prices for materials and components while losing customers to global competitors.
"The president's trying to help U.S. manufacturing, but we are the key case to show that he's doing the exact opposite," she said.
The industry, Vasilaros said, is being specifically targeted for retaliatory tariffs by countries wishing to make a point to Trump.
For example, Mercury Marine employs most of its 4,800 workers at its headquarters in Fond du Lac, Wisconsin — a county that Trump won by a nearly 2-1 margin in his 2016 presidential victory. Other states with a large boat-making presence are GOP strongholds like Florida, Indiana and Arkansas.
Mercury Marine is the last American-based producer of four-stroke outboard engines. It assembles the smaller, 40- to 60-horsepower engines it makes at a facility it owns in Suzhou, China. Mercury estimates that a 25 percent tariff the Trump administration imposed on the Chinese-made engines would raise the average cost of a small, recreational boat by nearly $2,000.
Mercury CEO John Pfeifer wrote in a letter in May to the U.S. trade representative that similar price shocks in the past caused a more than 50 percent drop in demand for its products. He also said engine manufacturers from Japan and Canada could end up with an advantage in the U.S. market, causing the company to shift highly skilled jobs from the U.S. to Japan.
Tennessee-based Brunswick Boat Group — which is owned by the same parent company as Mercury — warned in its own letter to the trade representative that tariffs could cause a drop in sales, and in turn, layoffs in the industry.
Adding to the frustration for the industry is the fact that American boat manufacturers primarily buy domestic steel and aluminum and were already seeing shortages. Now, they also face rising prices as a result of the tariffs.
Bill Yeargin, CEO of Orlando-based boat builder Correct Craft, said he expects the company's aluminum costs could rise 20 to 30 percent when its contracts are renegotiated this fall. Overseas sales, which make up about 30 percent of the company's revenue, are already at a near standstill.
"We're getting hit on both ends," he said.
The tariffs don't make sense to Johnstone, whose luxury-boat maker is based in the yachting hub of Newport.
He points to the incredible amount of labor that goes into just one boat. He said the yacht that the Monaco buyer canceled after the tariffs "has 8,000 man hours in it. That one boat is four families supported for a year. This really dampens our future."
MJM Yachts makes high-end, fuel efficient boats at a shipyard in Boston, where it employs about 180 people, Johnstone said. The yachts are priced between $800,000 and $2.2 million.
It now faces retaliatory tariffs of 10 percent in Canada, 15 percent in Mexico and 25 percent in the European Union. That means a yacht which once cost $2 million for a European buyer now goes for $2.5 million.
Those three markets represent 69 percent of the U.S. export market, according to the National Marine Manufacturers Association.
The industry is hoping that negotiations between the White House and European Union will at least result in the end of the 25 percent retaliatory tariff. Talks have yielded no news of a change so far.
"The message that we're getting is, 'We're in this war. We have to be to protect U.S. steel and aluminum,'" Vasilaros said.
Associated Press write Christopher Rugaber contributed to this report from Washington.
(Image credit: AP Photo/Michelle R. Smith)