Between tariffs and survival, American business owners are doing alarming math
S E E D E D C O N T E N T
Many American shop owners are feeling like collateral damage in the global trade war.
Sarah Wells ponders how her 13-year-old business, selling breast-pump backpacks and other items for new moms, will run under President Trump's new tariffs on all imports .
Just this year alone, her company Sarah Wells Bags has shouldered the cost of two rounds of tariffs, which took effect right as Wells' shipment from China was en route.
Her large order was loading at the port in February, when the White House raised tariffs on Chinese imports by 10% . By the time it docked stateside in March, tariffs had gone up again, by another 10% . Wells had to shell out an unexpected $15,000 to release her goods from customs.
Now, with the latest round sending total tariffs on Chinese imports to 54% — eating her profit margin — Wells is reeling. She may have to raise prices, but how much before shoppers rebel and stop buying? She plans to retrench: order less, pause hiring, stop developing new products.
"Even if we pass some (cost) to the consumer, we can't pass it all," says Wells, based in Virginia. "So I really think the honest answer is that businesses will close."
For some, it's survival mode, which means shrinking selections and freezing hiring
How much or how quickly shoppers might pull back is not clear. The National Retail Federation had forecast retail sales to grow this year — slower than in recent years, though more like they did before the pandemic: between 2.7% and 3.7% .
But the forecast was released before the magnitude of new tariffs became clear — spanning the globe, ranging from 10% to over 50% — and now the trade group says it's "impossible to predict … the magnitude of change on prices and on consumer spending."
Giants like Walmart, for example, are now pressuring their foreign suppliers for discounts to offset some of the tariffs. Smaller retailers don't have that kind of muscle. In surveys, retailers across the board warn they'll have to raise prices.
And then there's the scale-back. Like Wells, many business owners are thinking of pulling back: perhaps shrink the store's selection so there's less to ship, freeze hiring, pause advertising or developing new products — stop growing and go into survival mode.
"What is the need-to-have versus the nice-to-have … I think right off the bat, that's where it will start," says Jessica Bettencourt, who runs Klem's general store in Massachusetts. Founded by her grandfather 75 years ago, Klem's sells a wide range of products including hardware, pet food and clothes.
U.S.-made can mean 3 to 4 times the cost
One key argument President Trump makes in favor of tariffs is that they would jump-start American manufacturing, forcing more companies to source their products domestically.
Wells, Bettencourt and many others will say: They've tried.
U.S. manufacturers couldn't tackle the scale of Wells' orders, she says, when she looked into making or at least assembling her backpacks and purses here. Plus, those manufacturers told her, the raw material would have to come from China anyway.
South Carolina business owner Rozalynn Goodwin ran into a similar challenge.
"We have, for the last eight years, been trying to manufacture in the United States," says Goodwin. She and her daughter sell double-snap hair barrettes called GaBBY Bows.
"Every manufacturer in the United States we've spoken to has told us, 'You need to continue making this in China. It's going to cost you three to four times more to make it here,'" Goodwin says . "Our customers will not pay $8 or $10 more for this product."
The case of $400 work boots
For many common items — clothes, shoes, toys, electronics — the U.S. has not manufactured them at scale in ages , if ever. Smaller-scale operations are much costlier, often double or triple the price of overseas options, and typically require imported supplies anyway, as Wells had discovered.
Bettencourt says, consider work boots. Her store does carry American-made boots, and they're $400 a pair. Imported alternatives sell for half that amount.
"Not everyone can buy a $400 pair of work boots," she says. "So I do want to always look at that U.S.-made product first, but I also have to offer my customers what they can afford."
As another shopkeeper put it: Small-business owners like to make their own decisions and feel like they can live and die by them; the sweeping blanket tariffs are taking that ability out of their control.
Meh, who needs a small store just around the corner when an emporium of big boxes is 20 miles away and you forget where you parked ... oh the fun!
I'm all for made in America products and paying American workers a living wage, but there are many reasons these populist protectionist policies won't work.
Financial planners are already telling people not to stock up on stuff, but to put that money into savings. They may need it in the near future for rent or food when they lose their job.
So, what are immigrants doing entering the country illegally? Obviously they can't find productive jobs because the United States is incapable of producing anything. Obviously they're not entering the country because of the cheap lifestyle.
All these whines about the economy are beginning step all over themselves. So, provide a clear answer. Are illegal immigrants in the country because they can't get cheap Chinese junk at home?
Of late jumping from the fire into the frying pan; desperation is a cruel mistress.
I do not understand how cheap immigrant labor fits into the narrative that producing backpacks in the United States is too expensive. Those two stories step all over each other.
We've heard that cheap immigrant labor is needed to harvest our food crops. But now we're hearing that most of our food is imported from Mexico and tariffs will raise the cost of food. Those two stories in incongruous.
Are immigrants being thrown under the political bus to exploit the crisis du jour?
No idea who you are hearing this from.
Oh no worries. Trump supporters tell us that we need to just give this some time.
They tell us that this will all work out great. That Trump is actually a genius and in spite of all the damage he has done, he is smarter than all the global economists. It will be like magic. Just be patient, the stable genius will make it all good.
Casinos, steak, vodka, perfume, ...., nation.
Tell us why the United States can't use tariffs the same way China does. Explain why Canada's average tariff burden of 10 percent is fundamentally different that Trump's use of tariffs.
The United States has been forced to limit the role of government in the economy to promote the neoliberal goal of monetary efficiency and Free Trade. But China (and Canada, for that matter) have embraced a more protectionist economic philosophy of neo-mercantilism. China's economy depends upon exports and protecting ability to export. China's Free Trade is not the same as the United States' Free Trade. It's not a level playing field and it's not fair trade.
We can. Do so intelligently. Formulate a plan, engage in private negotiations, make threats (if necessary) in private negotiations.
Tariffs raise consumer prices regardless of intent so in that regard they are the same. In my view, the only justifiable use of tariffs is to protect domestic industries. And even so, the tariffs should abide by WTO guidelines.
Trump uses tariffs as a weapon and has triggered a trade war. Canada, in contrast, was simply protecting domestic industry. Big difference.
In short: I would prefer to see NO tariffs since tariffs artificially increase the prices paid by consumers. There are times when strategic, targeted tariffs are worthwhile, but Trump has blown so far past that point that we are in absurd territory.
If you assume that a trade imbalance with a particular nation is necessarily bad for the USA, then that assumption is causing you to totally misunderstand global trade.
That was Trump's first term. Trump has been there and done that. Biden continued Trump's first term policies but didn't move forward. Trump is continuing what he started during his first term.
Yeah, but how much do tariffs increase prices? Our economy is dominated by middleman activities that do not add value. And our economy has been dominated by neoliberal pursuit of monetary efficiency for the last 40 years.
What's the mark up between the border and the web page? Why should middleman operators be allowed to maximize their profits through price manipulation? The damned stock traders have high expectations for exploiting imports with passive investments. Don't claim that taxing business is the remedy because the tariff-as-tax argument has destroyed that claim.
China assumes trade imbalances with particular nations are bad for China. China has imposed tariffs and trade restrictions to protect its exporting industries. China has erected trade barriers to allow its industrial base to become more competitive in export markets. China is not an outlier, either. Most countries that have a positive trade balance (value of exports exceeds value of imports) have deployed protective measures to protect their positive trade balance.
The Trump administration has claimed tariffs will generate $600 billion in revenue which seems like an overly optimistic amount. But even with that we're talking about a $600 billion surcharge on a $110 trillion global economy. Even the optimistic claims by Trump amount to about a half percentage point; that's nothing compared to normal inflation. The global panic seems a bit overwrought.
Since the United States has a large negative trade balance, the reaction suggests that any interruption in the flow of money out of the United States will bankrupt the entire world. Why doesn't the global panic indicate the United States is being exploited and treated unfairly in global trade?
Right off the bat, a 10% tariff increases the price by at least 10%. But then we have domestic producers raising their prices because of the competitive gap provided by the tariffs.
And 10% is the lowest tariff Trump imposed.
Do not attempt to defend these tariffs. You will be on the wrong side of truth.
No, that's incorrect. A 10% tariff increases the wholesale price. The tariff won't be applied to domestic shipping from port to destination in the US, insurance on domestic shipping, domestic excise taxes (if any), warehousing and stocking costs, and a number of other miscellaneous costs. On top of all those additional costs after entering the country will be seller profit and stock holder. A lot of cost is added between the port of entry and the consumer that won't be subject to tariff. expectations.
A 10% tariff shouldn't increase the price for the consumer by 10%. If that happens then someone is profiteering.
A tariff-as-tax would be passed on to consumers like any other tax on business activities. Increasing taxes on gasoline and diesel would increase shelf price. We've already experienced these types of government induced inflation.
We're told that consumers should make some sacrifices and pay more so that taxes provide a benefit. Trump's tariffs are intended to provide a benefit, too.
Which will affect the retail price. The retail price will typically be increased by 10% of the wholesale price. You cannot get around the fact that tariffs directly affect the price of goods for the consumer. Suppliers may eat some of the tariff and do other things depending on the market. Reality is nuanced and complicated. But another factor is that higher prices for imported goods provide a market gap for domestic goods. That is, domestic suppliers can raise their prices and as long as they stay under the price of imported goods, they retain an advantage.
That's a nuance without a purpose. Domestic suppliers are subject to domestic taxes. Foreign suppliers are not. So, taxes regulate both sides of that hypothetical coin. And now we know that consumers pay both those taxes.
The relevant fact is that tariffs increase costs in the supply chain and result in higher consumer prices.
So Trump's tariffs are doing the opposite of what he was predominantly elected to do.
But the retaliatory tariffs will lower costs. The price of corn, soybeans, wheat, and rice should fall. That should lower the price of meat. Cotton should become cheaper.
Excess production provides an opportunity to increase production of biofuels for aviation use, transition to biodegradable plastics, and a return to other fiber based paper products.
The turmoil in the financial markets will pressure the Fed to lower interest rates which could potentially save thousands on mortages and loans.
Even the price of stocks is much lower today than seven days ago. Now is a good time for those wanting to invest for the long term.
Personally, I look forward to higher quality produce than the crappy Mexican stuff that's currently available.
Tariffs punish the consumer. Farmers lose markets. Prices go up. Supply chains break.
The economy was in good shape and a trade war hurt it, Hoping that chaos leads to opportunity is just bizarre.
We want innovation, not isolation.
Harming stock prices is only good if someone has a bunch of cash sitting around. Most people invest the majority of their wealth with a percentage in cash as part of a diversified portfolio. Losing value abruptly and artificially is simply bad.
Any taxes on businesses and farmers punish consumers. Consumers are where businesses get the money to pay any tax. Every tax on business acts as a consumption tax the same way tariffs do.
Was it really? Servicing the Federal debt is now half the Federal deficit. The country is spending more to service Federal debt than is being spent to alleviate poverty.
The Federal sovereign debt protects the rich. Federal treasuries provide a safe haven for assets, provide a guaranteed return, and can be used as the most desirable collateral for the lowest interest on borrowing. The sovereign debt stands at $36 trillion. The country is paying $1 trillion in deficit spending for the privilege of providing the rich a safe haven and hedge against inflation.
How can any economy be in good shape when sovereign debt is at 120 percent of GDP and private debt is 300 percent of GDP?
That's simply not true. The progressive left wants cheap stuff. The progressive left prefers shipping containers over union jobs. The progressive left wants guaranteed basic income rather than jobs. If the tariffs went away, before nightfall the progressive left would begin clamoring for taxes on business.
Then why invest in those who sell out the United States? Why invest in businesses that refuse to manufacture and produce in the United States? Why not invest in farmers? Why not invest in factories? Why not invest in your own community?
New York financiers have created a monopoly for investing. Regional and state markets were shut down and banned by Congress because New York financiers wanted to develop Manhattan. The New York stock exchange is the antithesis of the ideals espoused by the progressive left.
Yes, Nerm. So if Trump were to impose a 25% tax across the board on businesses that would be bad, right?
Yes. National debt and deficit spending are not normally attributes when we speak of the economy. They are attributes in a strict technical sense, but if you want to play that game then we have not had a good economy since the Bush days and thus the great 'Trump economy' never existed. So beware of the rules you wish to impose.
Yes it is. Innovation is what makes a nation strong. Isolation makes it weak.
Non sequitur. I stated: "Harming stock prices is only good if someone has a bunch of cash sitting around. Most people invest the majority of their wealth with a percentage in cash as part of a diversified portfolio. Losing value abruptly and artificially is simply bad." My statement is true.
Yes, a 15 percent minimum tax charged all businesses, everywhere would be bad. Consumers would have no way to avoid that tax. Fortunately Trump's tariffs do not apply to all businesses. Trump's tariffs target stuff produced by foreign businesses. Consumers can avoid those tariffs by buying domestically produced goods.
Why wouldn't increased demand for domestically produced goods create a market signal and incentive to invest in domestic production? Has Free Trade broken basic economics?
Didn't we learn anything from recent inflation spike? Government spending was a real, serious topic of discussion when inflation was double digits. Government spending was blamed for the Fed raising interest rates and making housing less affordable. It may be expedient to ignore the previous administration but the real world consequences haven't gone away.
How is it possible for innovation to provide strength when the borders are open and those innovations can just walk away? Isolation provides the security that protects innovation.
If the iPhone is a US innovation then why is China profiting from producing and delivering iPhones to the US market? Why does China get the tech jobs from US innovations and the US has settle for kiosk sales jobs?
Why does every innovator in the United States have to go to foreign manufacturers to succeed?
This is of course now ridiculous. You are dodging the point and I am done giving benefit of the doubt.
Trump's tariffs are bad for the USA consumer and bad for the nation. Demonstrably so.
How am I dodging the point by agreeing with you?
Yes, tariffs raise prices like any other tax on business raises prices. The difference between tariffs and a corporate tax is consumers can avoid paying for the tariff by buying domestically produced goods. Consumers cannot avoid paying for a corporate tax.
Trump is trying to revitalize the industrial base of the United States. Revitalizing manufacturing and industry will provide a long term benefit. The instant gratification of cheap imports won't contribute to the long term resiliency, stability, and sustainability of the United States economy.
And how long do you suppose it is going to take to produce places that produce products and how much more do you suppose it will cost the consumers, as getting it made elsewhere cheaper, is why our country couldn't keep her, or it, here, ya hear, or mare you deaf to the dumb ideas the speaker in tongues kisses of his asz requires, or your fired, out of the job or a cannon, we'll all have a ball as we dive off the cliff doing a cannonball run into the empty gene pool, where Trump pretends to be on duty guarder of our life, while spreading and shredding lies and laws, like a better butter and sharper cutter, and leaves US all in strife....
How long does China need to build a new factory and begin production? It certainly doesn't require years. The Chinese were building hospitals in a week during the pandemic. The US can develop; some new innovation and the Chinese can have it on the market in a matter of weeks.
How long did it take to create new domestic production and increase domestic production during the pandemic? How did the economy fare without jobs?
There can't be a worker uprising to overthrow capitalism without workers. The socialist proclivities of the progressive left demands productive work; not growing stock portfolios. The call has always been for workers to unite.
So, how does the progressive left achieve its goals without revitalizing manufacturing and heavy industry in the United States? Has Democratic Socialism transformed itself into exploiting cheap labor? Have socialists become the bourgeoisie? Has socialism for the rich really become the uniting influence for he progressive left?
wrote an extensive reply but somehow lost it, WTF !to be continued later
LOL. Been there, done that. C'est la vie. Maybe time for a Kronenbourg ?
Trump’s plan is to ratchet up unemployment to unheard of levels, then change the minimum wage by EO to mirror prison inmate salaries. Voila - cheap labor leads to cheap goods. Get your cardboard boxes ready to move your family into on the grounds of our future textile mills.
The unspoken part : American goods made by American labor are prohibitively expensive. There is no way to get around this unless you start having machines do more of the work, which means less work for people. Less work for people means less jobs. Less jobs means less money. Less money means less purchasing power.
"Please, Sir. May I have another?"
I am sure that this has been well thought out... /S
Then why have we allowed millions of immigrants to enter the country illegally? What happened to to the explanation that illegal immigrants provided a ready source of cheap labor?
Was the supposed remedy to high labor costs supposed to be a government provided basic income? The major retailers use welfare to subsidize their labor costs. Manufacturers can't do the same?
The argument that the US can't compete because of high wages relies on assumptions that have undermined by a cornucopia of other progressive economic arguments.
So Trump's grand plan is to make the people so desperate for work that they will take any job for any wage?
Now you’re getting it.
No, that's incorrect. The plan of the progressive left was to flood the market with cheap immigrant labor that had no bargaining power.
Offshoring jobs is what requires laid-off workers to take any job they can find. Those living in the Rust Belt didn't have a many options for high paying new jobs. Coal miners won't be making the same wages selling insurance. Coal miners won't get a high paying job installing solar panels because cheap immigrant labor will take those construction jobs.
NAFTA really did move a lot of high paying American jobs to Mexico and Canada. Jobs in rural areas and less populated midwest have been disappearing for three decades. Is that what you are supporting because it's not in your backyard?