Trade Wars and Tariffs – a 3D Printing Perspective

>>Trade Wars and Tariffs – a 3D Printing Perspective

Trade Wars and Tariffs – a 3D Printing Perspective

A tariff is defined as a tax or duty paid on a certain class of imports or exports.  The term has been around for centuries and has been used in the never-ending struggle for “balanced trade”.  For the last thirty years, however, tariffs had fallen out of favor as a punitive instrument in favor of the philosophy of free trade, where international trade was left to its natural course without tariffs, quotas or restrictions.  The guiding principle behind free trade was that free trade under the influence of natural markets would benefit everyone over time. In its own way, free trade as a concept had become the ultimate form of trickledown economics.

     But as 2018 dawned, the US under President Trump set a different course and embarked once again on a mission to “level the playing field” through the implementation of tariffs on many goods coming from many countries.  Generally, these tariffs affect large equipment such as farming equipment, automobiles, medical equipment and goods made with steel and aluminum.  Although commodity and consumable goods such as soybeans, pork and whiskey have also been hit.

     Then, in August of 2018, the Office of the US Trade Representative released a second tranche of goods totaling an additional $16 billion in tariffs.  In this release, tariffs were less aimed at industrial and big-ticket items and instead impacted a steady supply of materials such as oils, lubricants and man-made products such as plastics.  And while everyone knows what can and can’t be done with a car or a tractor or an X-ray machine, this list could impact more downstream processes within industry in the US and potentially disrupt supply chains for a variety of goods that, while produced domestically, rely on materials sourced overseas.

     3D printing has not found itself immune to the tariff list as raw materials in the form of powder, pellets and perhaps finished filament could be impacted.  Item 3903.30.00 specifically targets acrylonitrile butadiene styrene, or ABS, in its “primary form”.  ABS has long been one of 3D printing’s biggest “go to” materials and is just one example of many materials that could impact 3D printing domestically.  This threat is broader than most because many of the items on the list contain the designation “nesoi”, meaning “Not Elsewhere Specified or Indicated”, meaning that the tariff could not only be applied to the raw material in pellet form, but also to filament.  And more specific references to “filament over 1.0 mm” are also mentioned in the release, casting gloom over 3D filament in general (3916.10.00, 3916.20.00, 3916.90.10, 3916.90.30).

My President Went to Summer Camp and All I Got Was this Lousy Tariff

     The media has provided a steady stream of news and commentary since the tariffs began to take effect, including the obligatory apocalyptic warnings of economic collapse that will result from a protracted trade war with China.  However, a closer look at the impact of tariffs may instead present opportunities for 3D printing. 3D printing has always been a disruptive technology. And as the trade wars continue apace in the months to come the very nature of this disruptive capability could be a net gain for many industries to mitigate some of the negative impacts to their product class.

  • Improved Quality:  A long time knock against imported goods has been the quality of those goods surrendered in the name of lower pricing.  And the same can be true of 3D filament. While the extrusion process for filament is essentially the same from producer to producer, the purity and processing of raw materials across a wide range of suppliers can see variations in thermal characteristics.  Variations in the component monomers can affect the characteristics of the final product.

The same is true of the purity of those raw materials as well.  ABS, for example, can see variations in thermal characteristics related to everything from dust particles in the virgin mix, degraded polymer from excessive use of regrind and trace contamination of the polymer with other materials.

But, if current tariffs force an end user is going to pay higher cost for filament anyway, then why not use the situation to improve the overall quality of their final part through better, domestically produced filament?  It is here that domestic suppliers may have an advantage. Options exist domestically for filament using 100% virgin resin under strict controls for quality. And some companies, such as IC3D Industries in Ohio, already make a “made especially for 3D” filament line where tight production controls produce filaments optimized for printing.

 

  • Better Use of JIT:  One headache in sourcing volume raw materials or partially processed materials from Asia has always been lead time.  To secure lower pricing, many companies must take a large position in incoming goods. With some exceptions, a lot of this material is shipped via ocean container.  This limits a manufacturer’s ability to utilize JIT manufacturing to control costs in two ways:
    • Lead Time – Shipping via ocean container can range from three to five weeks depending on port of shipment and port of entry.  These times can also vary depending on weather, labor availability at the port, trucking availability from port to destination and other considerations.  Planning lead times for large shipments over a long period of time reduces the ability to plan production based on JIT and drives up cost.  
    • Inventory – With the long lead time and large shipments, manufacturers and distributors can see an increase in inventory levels.  And market conditions up or down may mean that supplies of some raw materials are stretched into months and even years while others are consumed faster than trend data indicated.  Both realities carry associated indirect costs for warehousing and labor. And in cases where certain raw materials making up part of the shipment turn faster than others, buyers may see themselves placing spot orders in large quantities and long lead times thus compounding the problem.

With new tariffs on the horizon, there is an opportunity for users of 3D printing to take advantage of JIT principles by using domestic sources, an option not always possible with overseas sourcing.  This advantage will accrue to both the higher volume industrial users as well as hobbyists and makers who can have specific quantities of material sourced or produced in the quantities and colors required with much shorter domestic lead times.

 

  • New Clients:  As previously discussed, the second tranche of tariffs impact component materials and raw materials more than finished goods.  In this case, producers may find themselves caught off guard when supplies tighten or increase in price. While they may not be a 3D printer and may not have used 3D printing in the past, the scarcity and expense of certain classes of goods may help 3D printing to develop inroads with clients who may not have considered the technology previously.

Tooling is always an expensive endeavor and other assembly aids such as jigs and fixtures are also expensive to produce.  With tariffs on steel and aluminum products, 3D printing of temporary tooling, short run tooling and assembly aids such as jigs and fixtures are options to reduce the impact of tariffs on the cost of doing business.  The same is true of prototyping where use of 3D printing can see reductions in time and cost of up to 90% or greater.

 

  • Price:  One primary concern for many companies is the expectation of increased pricing due to tariffs.  But while tariffs may increase the price of raw materials and filament this increase won’t be a direct 1:1 relationship.  Due to higher margins for domestic distributors the spread between wholesale overseas bulk price of filament and US domestic retail price is already quite large.  Many purchasers of bulk filament can buy at a current rate of $11 per kilo, and the proposed 25% tariff would raise that to $13.75 per kilo.  However, average retail price currently works out to $35 per kilo, meaning that distributors can cover the spread without significant price increases passed on to the consumer if they are passed on at all.

Pulling for the Home Team

It remains to be seen whether the effects of tariffs will result in economic apocalypse as depicted in the news, or in the rebirth and Renaissance of American manufacturing freed from unfair competition by a perceived level playing field.  Like all things political and media related, once the hyperbole is sorted out the answer may lie somewhere in the middle with winners, losers and neutrals across a new economic landscape.

So what options are available for 3D printing to moving forward with the reality of tariffs? What opportunities exist to increase its penetration into existing markets and to grow into new ones?  What can be done to shore up 3D printing’s impact to change perceptions and mature it as a key business element if or when the pendulum shifts from tariffs back to free trade? 3D printing in the time of tariffs is open to options such as:

  1.  Allow companies to better utilize JIT manufacturing.  With shorter lead times and lower inventory of components and raw materials, locally or regionally sourced filament will reduce associated cost of inventory management and over-purchasing.  Time to market can be shortened and companies can react to market trends and exhibit greater agility in shifting consumer preference. The material they need will be readily available in at higher quality and in smaller lots.
  2. Set the quality bar higher:  By using domestically produced filament specially produced for 3D printing, companies can enhance the value perception of their products overall.  This can act as an insulator against future trade agreements that reignite free trade markets and a higher value perception may not result in a flood of lower quality goods.
  3. Make the Move to Green:  Tariffs may help drive increased development of corn and other naturally derived plastics that take advantage of local supplies.  It would also reduce transportation and fuel costs resulting in an overall greener footprint.
  4. Ride the price differential to mass customization:  As previously discussed, the price increases many are expecting due to tariffs may only wind up being marginal, and due to the current wholesale/retail spread they may not happen at all.  If the price of filament doesn’t shift as many worry it will, improved quality of domestic filament, lowered cost of temporary tooling and the ability to take advantage of and produce in JIT could be leveraged for a huge shift in value added products through mass customization.  And it could be undertaken by companies who could not or would not have perceived of mass customization as an option prior to tariffs when they depended on slow moving, high bulk, low cost goods to shore up profits.

The end game in the current trade environment won’t play out for a long time.  But in the interim; manufacturers, distributors, suppliers and other players within the 3D printing industry can use the time to explore opportunities and develop new clients.  It will allow companies to re-localize supply chains and to develop a “cellular”, greener and faster supply chain to the direct benefit of their business and their domestic suppliers as well.

     IC3D produces its own line of 3D filament in ABS, PLA, and PETG.  We don’t use recycled material thus eliminating possible variances that could be caused by recycled scrap during print.  To further reduce filament variation our 100% virgin material is extruded in house in Ohio in the USA using strict production standards and achieving tolerances of +/- 0.05mm and within 4% ovality.  Our filament is backed by a 100% satisfaction guarantee.

     Check out our line of materials online, or, if you’re looking for consulting, enterprise solutions or design needs, contact us and our staff will be happy to help guide you to the solutions you need.

 

By | 2020-02-15T09:44:57+00:00 February 13th, 2020|Articles|0 Comments

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