BREMERTON — Hitting a pause on foreign assistance and increasing tariffs is likely to impact U.S. workers, including one of Kitsap's largest private manufacturers.

Bremerton-based boat manufacturer SAFE Boats International is for the time being part of the collateral damage from the Trump administration's series of new policies on stopping foreign assistance, cutting federal funding and implementing tariffs. The aluminum boat builder's operation has been significantly disrupted, SAFE Boats International CEO Richard Schwarz said in an interview, after the company was told to stop building ships for partnered countries and wait for a 90-day review before it can restore the manufacturing or before contracts are canceled.

What makes the future more unpredictable for SAFE Boats is potential cost increases after a 25% tariff on imported aluminum is added, among other possible tariffs on goods imported to the United States. And U.S. taxpayers may end up paying more at the cost of the new trade barriers, the CEO said.

Contracts pause disrupts boat production for Ukraine's navy

Founded in Port Orchard in 1997, SAFE Boats (SAFE stands for Secure Around Flotation Equipped) is headquartered at the Port of Bremerton and has a Tacoma facility for building large vessels like Mark VI patrol boats. It manufactures vessels for military, law enforcement, and first responders for clients in almost 70 countries.

Many of SAFE Boats' contracts are funded by federal agencies as a part of the nation's foreign military or security assistance programs. The boats are given to countries for defense purposes where there is a U.S. interest in regional security, for example, for security cooperation agreements throughout Central and South America, the Caribbean, and, the Middle East, Schwarz said.

Another type of assistance is for drug interdiction in Central and South America and the Caribbean.

However, since the beginning of Trump's second presidency, six SAFE Boats contracts have been placed on hold for a 90-day review. These contracts were awarded by the U.S. Navy, the Department of State and the U.S. Coast Guard. The agencies have issued contract modifications to SAFE Boats that told the company to stop work on those boats.

Schwarz said while he understood the purpose of policies, the way that the administration executed the policies have significantly disrupted the company's operation.

"Rather than reviewing all of the programs to determine whether or not assistance to any particular country or any program is consistent with the U.S. goals, they've just done this broad, sweeping, I guess, cessation of activities," Schwarz said.

That includes the U.S. Navy's deal with the company to build eight Mark VI patrol boats for Ukraine. The military aid to Ukraine cost $129 million, including building the eight patrol boats and providing training to the Ukrainian Navy.

Take Mark VI's manufacture as an example. Before the order to pause, SAFE Boats has finished building three Mark VI boats, has had three other boats in various stages of production, and two more that hasn't started production yet.

Since the company was told not to work on the contract, SAFE Boats had to take the three boats that were sitting in production out of its production floor, store the vessels somewhere, prepare them to sit for an unspecified amount of time before work could be restored. Then eventually the boats may be moved back into the production floor, Schwarz said.

"It's actually going to end up costing the taxpayers more money," Schwarz said, pointing out the extra storage and moving cost generated by the suspension.

In addition, some boats will end up being delayed to complete because the company has moved other boats in its order book into its Tacoma facility to keep the workers busy. The Mark VI boats are built in SAFE Boats' Tacoma facility which has roughly 60 workers. These changes have created a lot of uncertainty for the team members in Tacoma and inefficiency for the 100% employee-owned company, Schwarz said.

"Our real challenge is that, rather than doing this in a kind of orderly way where they evaluated each of the different countries and the different programs, made a decision about them and then issued directions to us, it's much, much more disruptive to stop everything and then say we'll probably restart some of these sometime within the next 90 days, based on a review process that we haven't really defined and don't know when that will take place," Schwarz said.

How tariffs impact international competition

The possible tariff implementation will also likely reduce SAFE Boats' advantages and its ability to compete with other international boat manufacturers. President Trump has announced that the tariff on aluminum imports will be elevated from 10% to 25%, effective March 12, according to his executive orders.

SAFE Boats buys aluminum from a local company and that aluminum is sourced from U.S. aluminum mills. But if foreign imported aluminum becomes more expensive after the tariff is elevated, more people will shift to buy domestic aluminum, which could cause the price of domestically produced aluminum to rise, Schwarz said.

Canada and Mexico are the two largest sources of imported aluminum and the tariffs that were announced but placed on hold temporarily imposed 25% tariffs on both Canadian and Mexican aluminum.

"We have already seen indications that our supplier is getting ready for price increases on the domestic aluminum that we purchase, but they don't know by how much," Schwarz said. "Maybe not 25% but somewhere between. We're kind of guessing 15% and 25%."

Besides, the cost of making boats will likely increase as SAFE Boats purchases different components of boats that are manufactured outside the U.S. And those manufacturers will pass along the tariffs in the form of higher prices to SAFE Boats, Schwarz said.

"In the short term, this means that where we have signed contracts for a boat, we're going to end up with higher costs on those, because we're going to end up having to pay higher prices for the components and we can't pass those along to customers," Schwarz said. "In the long term. What it means is that if we have higher prices for our components, we're going to have to increase prices for our products."

Since most of SAFE Boats' customers are government agencies, including local, state, and federal governments, taxpayers will end up paying higher prices for SAFE Boats' products, Schwarz said.

"Also for those contracts where we're selling to foreign countries, it means that we become less competitive," Schwarz said. "It makes our products, as an American product, more expensive and less competitive against products coming from other countries."

Schwarz is also concerned that other countries could impose retaliatory tariffs in response to the administration's recent tariff implementation and that would make SAFE Boats less competitive in their international markets.

"There is a retaliation that may occur as the United States imposes tariffs on foreign goods. So if we impose a tariff on things coming from Mexico, Mexico might impose a tariff on goods coming from the United States to Mexico. That could affect us," Schwarz said.

Most contracts could be restored, CEO predicts

As of Feb. 18, one of the six contracts that received the contract modifications has been restored, Schwarz said. That gave the company some confidence to believe that after the administration's review — as Schwarz expected — most of SAFE Boats' contracts that fit U.S. interests will be restarted. And the current situation will just be a temporary disruption. The experience of handling supply chain challenges during the COVID-19 pandemic also strengthened the company's ability to deal with such uncertainty, Schwarz said.

However, Schwarz urged elected officials to execute the administration's new policies more deliberately to minimize the collateral damage that U.S. companies, workers, and taxpayers will end up struggling with.

"It would be very helpful to to take a more deliberate approach to how some of these policies are going to be implemented, so that they don't create quite so much collateral damage," Schwarz said. "That's our request to Washington, D.C."

"While the goal may be a legitimate one, the way in which it's implemented has real effects on companies like us."

"The impact of the tariffs on both our costs and on our foreign sales and our competitive position in those markets, that's more of an uncertain, long-term outcome. So we're just kind of waiting to see what happens with that," Schwarz said.