Bringing manufacturing back to the U.S. is one of the prime reasons behind the Trump administration’s tariffs, but Hercules Industries is ahead of the game. The Denver company’s heating, ventilation and air conditioning products have been made in America since its start in 1962.

Roughly 95% of the steel Hercules uses is made in America. And as other countries and companies deal with 25% tariffs on steel and aluminum imports, Hercules Industries is reaping the benefits of long-term relationships with domestic suppliers.

The tariffs are causing many of the country’s smaller manufacturers to worry about the short-term implications of the trade war. So much so that the U.S. Chamber of Commerce has asked the administration for an exemption for small businesses that import goods.

Patrick Newland, whose grandfather, William Newland, started Hercules Industries, said having mostly domestic suppliers gives the company a bit of advantage in the face of tariffs. But it doesn’t make the company immune to trade-war fallout.

Colorado economists question the goals, approach of U.S. tariffs

"Since the tariffs, we have seen a slow increase in prices. We have seen domestic mills raise their prices every month," said Newland, the vice president of business development.

While the company is paying more for its steel, most of which is shipped from the South, it is holding off on raising customers' prices. Newland hopes that will help Hercules pick up more business.

"We’re getting more leads because of the tariff increases and uncertainty," said Nicole Thompson, marketing director, during a tour of the commercial production area.

As costs rise for other countries, "people are looking to source materials domestically," Thompson said.

Don Modesitt, the product manager for Hercules Industries, said the company can look out for its customers thanks to a strong inventory and long-term contracts with steel mills that allows it to plan ahead.

"As an American company that promotes American manufacturing and purchases American products as much as we can, Hercules does everything we can to be proactive, to keep prices as low as we can for our customers and to price them as fairly as we can," Modesitt said.

"We realize it’s not just our pain, it’s also our downstream customers' pain," added Modesitt, who's been in the metals industry since 1975.

The impacts on those "downstream" users of steel products will be substantial, the U.S. Chamber of Commerce said. For every worker in steel production, the chamber said in a blog, there are about 80 Americans working for manufacturers that use steel.

"Ultimately, these tariffs will lead to higher costs for American businesses and consumers and fewer exports for American companies," the chamber said.

President Donald Trump has said Americans might feel pain from higher tariffs, but has urged people to "hang tough" for the jobs and business growth he predicts will follow.

Modesitt also believes the tariffs will ultimately benefit steel manufacturing and other U.S. industries, but "not without short-term pain." He sees the steel and aluminum tariffs as a way to counter China's practice of subsidizing production, allowing Chinese companies to sell at lower prices and undercut other countries.

"If tariffs start to equalize the way in which we work with the global economies, then down the road we will definitely be stronger than we are now," Modesitt said. "We will definitely have more American manufacturing here."

Keith Maskus, professor of economics emeritus at the University of Colorado-Boulder, doesn't expect the tariffs to generate many jobs or boost manufacturing much. Steel and aluminum tariffs were imposed during the first Trump administration in 2017 and 2018.

"It's estimated that they probably generated an additional 1,200 to 1,500 jobs in those sectors," said Maskus, who was chief economist at the U.S. State Department in the Obama administration.

But domestic steel companies raised their prices, which increased costs for other industries using steel and aluminum and resulted in the loss of 4,500 to 5,000 jobs, Maskus said. "The tradeoff is a bad one."

'We're here to stay'

Whatever turmoil tariffs cause in the short or long term, Hercules Industries is making commitments to being around for the long haul. The company recently held a grand opening for a new 100,175-square-foot plant to house its commercial manufacturing of heating, ventilation and air conditioning, or HVAC products, for hotels, recreation centers, hospitals and other buildings.

The new commercial building allowed the company to expand its processing operations in another building down the block in northeast Denver.

“When you look at a new building like this, and the investment that we put into it, it obviously says a huge amount about our confidence in the future … we’re here to stay and this is a huge investment in what we see in the future in Colorado," Andy Newland, Hercules Industries president, said in a statement.

Hercules has factories and centers in six Western states: Colorado, Wyoming, Utah, New Mexico, Arizona and Texas. The company has about 280 employees in Colorado and a total of 685.

In 2019, what was a family-owned business became an employee-owned business. The three Newland brothers who took charge of the company from their father and uncles created an Employee Stock Ownership Plan.

John Newland is the district manager in the company's northern region.

In the commercial fabrication building, Hercules employees take the sheets of various types of steel and fashion them into ducts, pipes, "elbow" fixtures that fit into corners of buildings and other parts. The largest pipe is 82 inches in diameter. A big laser machine that's programmed by people in another part of the building is used to cut various shapes.

"We like to say, 'Draw it. We’ll make it,' " said Aga Waronska, the commercial branch manager. "We can cut big and thick and we can also cut very small."

To make her point, Waronska pulled out of a drawer two steel bicycles so tiny that it was hard at first to tell what they were.

Down the street, Mike DeRammelaere, the manager at the processing center, walked past big loops of steel that arrive via rail that leads right up to the building. One wrapped coil weighs 40,000 pounds. Depending on the steel's thickness, a loop can stretch up to tens of thousands of feet, Modesitt said.

The coils are fed into machines that flatten and cut the steel into sheets, which are taken to the commercial division for fabrication. Other steel is slit into various sizes and shipped to another facility in Denver to make products geared toward the residential market.

Hercules also sells smaller coils to other companies that make products but don't have the kind of machinery needed to handle larger sheets of metal.

DeRammelaere, who's been with Hercules for 17 years, said the company averages four deliveries a week from the steel mills. "We're able to process two full rail cars a day, which is about 400,000 pounds of material," he said.

Steel prices have leveled off, DeRammelaere said. "Stainless steel and aluminum really shot up during the onset of tariffs."

But aluminum has become increasingly difficult to procure within the U.S., DeRammelaere said. "A lot of U.S. companies shut down smelters 20 to 30 years ago. The majority of it comes out of Canada."

Hercules Industries anticipates a busy two years ahead. The company projects 15% increases in steel used each of the next two years.

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