E182: When the Little Guys Get Caught in the Tariff WarSeptember 24, 2018 in Ecom-Crew-Podcast
By the time this podcast airs, part 1 of the latest round of tariff increases would have taken effect. Approved by President Trump on September 17th, it effectively slaps a 10% tariff on $200 billion in Chinese goods. Part 2 will be another 25% increase expected to take effect on New Year’s Day 2019.
In just the same year, the Trump Administration has announced three tariff increases. Here are the details on the first two.
- Round 1 – July 6, 2018 – 25% on 16 billion worth of goods (basically everything but non-consumer products)
- Round 2 – August 23 – 25% on 23 billion worth of goods (targets industrial, electronics and tech products)
In response to this attack, the Chinese government provided a counterpunch by adding a 5% to 10% tax on $60 billion of US goods including meat, chemicals, clothes and auto parts.
The move only served to escalate tension between these two economic giants. Unfortunately, since round 3 covers just about everything imported from China that’s being processed and sold on US shores, it’s the little guys who are caught in the middle.
In this episode, Dave and I discuss the implications of these new tariffs on our respective businesses, what our preparations are for its coming, and what our predictions are for these new regulations in light of the November 6 midterm elections.
Here’s a rundown of some of the things that we discussed.
- These new tariffs won’t just mean paying higher duties, it will also result in an increase of shipping fees as ecommerce sellers clamor to get their stock sorted and shipped before the 25% increase on January 1st next year.
- The upcoming midterm elections could potentially have an effect on the full implementation of tariff increase at the beginning of 2019.
- China won’t be backing down any time soon.
- Round 4, should we come around to that, will slap tariff increases on all other goods that haven’t been affected yet
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If you have any questions or comments, feel free to leave them below. Happy selling!
Full Audio Transcript
Intro: Hey guys, the next EcomCrew free webinar is coming up on September the 25th at 2pm Eastern 11am Pacific. This month we’re going to be going over Facebook Messenger for e-commerce, packing it full of lots of tips and tricks on how to utilize Facebook Messenger in e-commerce. We’re going to be going over things for beginners, intermediaries, and advanced users, a little bit of something for everybody, showing people how to get started with Facebook Messenger.
And again, if you’ve already done it, we’re going to be showing you examples of how we’ve grown our lists to over 50,000 people on Facebook Messenger in under one year. So go to EcomCrew.com/webinar to sign up today. We’ll see you there again, September the 25th 2pm Eastern Time 11am Pacific and it’s 100% free of charge, EcomCrew.com/webinar, and now on with the show.
This is Mike and welcome to episode number 182 of the EcomCrew Podcast. As always, you can go to EcomCrew.com/182 to get to the show notes for this episode. And for this episode I have my buddy partner in crime Dave Bryant on the show with me talking about the tariffs that are going into effect this week. There’s another huge round of tariffs. We don’t know exactly what’s to come in the future. So we’ll be talking about how to plan for that, just to make you guys aware of what’s kind of going on.
There’s some personal interjection here and just kind of our own thoughts on all this, but an important topical topic as these tariffs are going into effect this week on a couple of hundred billion dollars worth of import. So, right on the other side of this break, we’re going to tackle the China US trade war in tariffs.
Mike: This is Mike.
Dave: This is Dave.
Mike: And welcome to this edition of the EcomCrew Podcast. It’s been a little while since we’ve had you on Dave.
Dave: I know, I’m figuring out my internet connection. The internet connection plagues me in China, plagues me in Canada. I can’t escape it.
Mike: I did an episode, I think it’s by the time this one comes out it’s already going to be coming out. I did an episode I recorded with someone from China and it was like all these bad memories of when you were there, and we were trying to communicate.
Dave: One day you’re going to buy me a 56k modem for my birthday.
Mike: It would be an upgrade to what you had.
Dave: I know.
Mike: Oh man but yeah, it was painful and I apologize to Abby again for having to deal with editing that episode. But we try not to do too many recordings from China, but it was a really good — I think it was a good episode. So we’ll do it for ones that make sense.
Dave: That must have been with our buddy Zack Franklin?
Mike: It was yeah, it was a good episode, but just in the middle of it a couple times it just mysteriously stopped working.
Dave: No, it’s terrible.
Mike: He was routing through like six firewalls and he made the mistake of gloating about how well the internet had been working for him. And I was like, that’s just the kiss of death, and then sure enough, like about seven minutes later.
Dave: That’s the thing with people in China. They always like swear, no, my internet is fine. It’s fine. It’s you. My internet here in China is perfect.
Mike: Yeah. So speaking of China, this is an interesting segue into what we’re talking about today, which is the tariffs that the United States is starting to impose on Chinese products. This is something that at least when it first started getting discussed kind of came out of left field for me. It wasn’t something that was on my radar at all, like two years ago; let’s just say a year and a half ago. But and trying to keep the politics out of this because I think that that’s a dangerous thing to do, it just it does seem arbitrary, not planned and thought out. And it’s come up to kind of bite us in the rear end with this latest round of tariffs.
So, before we get too far into that let’s talk about chronologically here like what’s happened, and not necessarily why the United States is doing it, or if I personally think it’s good or bad for the country or for our citizens or anything like that, because again, I think that that’s just a dangerous slippery slope. But let’s talk about again, just to kind of the timing, the chronological timing. So there’s what, three rounds now, is it we are on round three right?
Mike: And there’s a fourth proposed. So let’s talk about round one real quick.
Dave: Yeah, so round one happened on July 6 and the US basically imposed 25% tariffs on $16 billion worth of goods. So, it might sound like a lot of money, but the US imports about $500 billion worth of goods a year. So really, it was a really small amount and that was basically machinery and industrial products, basically everything but non consumer products.
Mike: And I think there was steel in that first round, or was at the second round.
Dave: Steel, I don’t know if that’s included in list one, or that it’s kind of like a whole separate thing. Because what a lot of people don’t realize about these steel tariffs, the US has kind of been going around in the circle of steel tariffs for 10, 20 years. Obama did it, George Bush did it. Trump did it, obviously. So this has been kind of a continuous thing with the US. So I’m not sure if this — if you in “list one” that’s included. But yeah, that’s another point worth mentioning is that at some point, the US did impose a bunch of tariffs on steel and aluminum, including from Canada.
Mike: Interesting. Okay. Yeah, I mean, I know actually — but they made an exemption for Canada, I think.
Dave: No, I think that’s still…
Mike: Or is it being negotiated again.
Dave: Yeah, that’s part of NAFTA now.
Mike: This is the thing that’s like actually kind of funny about it because it’s so fluid that it’s hard to know exactly where some of this stuff stands. Okay, so but I do agree and concur, because I looked at this and was pretty up on it. Our importer is good about our forwarder emailing us every time this is happening and letting us know, here’s all the harmonization codes that are being affected. Here is the duty rate. Here is the day it’s going to take effect and if you have any products that are going to be caught up in this. So, round one we skated by no problem.
Dave: Yeah. And unless you’re importing like aircraft wings and raw steel, you probably weren’t affected with list one.
Mike: Yeah. Okay, so that was July 6 of this year 2018. So then what was round two?
Dave: Round two was August 23, and that was another $23 billion worth of goods and again at 25%. And that 25%, a couple of people have now commented on EcomCrew about is that 25%, is that in addition to the tariff or is it 25% extra? So, imagine if you have an item that has a 10% duty, does that additional 25% mean that it’s 25% more of 10%, so 12.5%, or does it mean that it’s 35%, and it means 35%. It’s a big hit.
Mike: So if you’re importing $100 worth of the product and you were paying $10 in duty, you’ll now pay $35 in duty.
Mike: Yeah okay. And that $23 billion of goods was that — there was some electronics I think that got wrapped up in that.
Dave: I think there might have been a few electronics in it. Again though with specifically targeting for the most part industrial products, technology products which is where the electronic components may have been wrapped in, and again a lot of just heavy machinery and that type of thing.
Mike: Okay and then round three.
Dave: Round three and this is where it’s going to start to hit people and this is I think the big topic of today is round three. We’re recording this podcast on September 19. Two days ago, Trump…
Mike: It’ll go out the week of the 24th. So you guys will be hearing this just very shortly after the recording at this time.
Dave: But in any case, on September 17, Trump basically approved the next $200 billion worth of tariffs. And this is where this list of tariffs are starting to get some real teeth, because this is almost half of all the imports coming to America are now being charged with a 10% tariff starting on September 24. So, basically the day that you guys get this podcast, your products are now potentially 10% more in terms of duties. And then come January 1st, it’s increasing to 25% on that same list.
Mike: Yeah, so I mean in my venting of frustration part of this is just like the quickness of how this has been thrown at us, because anybody that’s listening to this podcast and imports from China knows that you don’t get to get stuff in like this quickly. So I mean, it was announced on what September, he approved them on September 17th, it goes into effect, what date was he going to be affecting it?
Dave: September 24, so a week later.
Mike: Okay so a week later. So and the deal is that if it hasn’t cleared customs by the 24th, you get charged the 10%. So if you got stuff that’s already on the water, you’ve already placed orders, you’re screwed. I mean like and we do, we have a bunch of stuff because we’re planning for the holidays. Everything is like, we have an army of ships with our stuff on the one the way over here that are going to get hit with 10% that we weren’t planning on. The 25% part, we can plan for a little bit more because that takes effect January 1, but even still you can’t be like okay, well, I just found out about this today. I’m going to order stuff and have a here by January 1st because probably there still wasn’t enough time to get that done.
I mean maybe you can just like squeak it under the wire but if anything happens you’re screwed. And I can see a whole bunch of people trying to get stuck in under the wire and therefore your shipping lanes being clogged or just having no space left on boats. And then your stuff shows up January 15. Now you’re hit with an extra 15% on top of the other 10%.
Dave: Yeah. That was an interesting point that you brought up about the shipping lanes being clogged. There’s actually a report that came out last week about that exact same thing happening is that now shipping rates are going way up because everybody is trying to get their stuff into America as quickly as they can. So routes to America have gone through the roof right now. So, the next time you get your shipping bill, it’s probably going to be more than it was say a month or two ago. So that’s again one of these kind of collateral damage of these tariffs is now not only are you paying for more duty, you’re also paying for more shipping fees.
Mike: Yeah, it’s definitely brutal. So we got a an email from our freight forwarder and basically almost everything that we bring in, there’s a few exceptions, but almost everything that we sell is going to be hit with a 25% duty. Do you know your list yet how much of your stuff is going to be affected?
Dave: That’s the strange thing. So I’ve talked to a couple of people about this, and myself included, I’ve looked at our products, we don’t have a single product that’s being affected by this list. Now, we’re lucky that we’re importing only under maybe three or four different HS codes. So, it’s a pretty small number, but none of them are hit right now.
Mike: Oh lucky you, you won the importing lottery.
Dave: Well, I did. But like I said, I’ve talked to a couple of people on wide ranging product categories and they haven’t been hit under this list three as well. And I think it’s been kind of a concerted effort by the Trump administration to avoid hitting too many things which consumers are going to feel. Now, for some reason I guess coloring books have been wrapped up in that.
Mike: It’s not coloring books because we make those in the United States, but like our cases and gel pens and just color like supplies like that they’re consumer goods so they’re being affected.
Dave: Yeah. So you obviously yeah, you got the unlucky lottery number there.
Mike: Yeah, I mean it’s happened before. I mean and then the way to deal with that is I don’t know like, I mean, I think that I haven’t fully wrapped my head around exactly what’s going to happen from a business standpoint yet, because we can’t just charge 25% more for these products. I mean we’ll have to raise the price somewhat but I mean, I think that there’s going to be like one of these things where the price goes up so the consumer feels it and we end up having to absorb some of the margin hit and we end up feeling it.
Dave: Yeah, I mean, I guess we can kind of pivot into that discussion now. Like, what can you do about this? And so in my eyes 10% yeah, that sucks and that’s going to be a direct hit on your bottom line. 10% of a cost, it’s a fairly minimal impact at 10%. 25%, now you’re getting into where that’s really taken a bite out of your business. But 10% I think in the short term is fairly manageable. Yeah, your profit margins are going to go down, but most people probably their cost of goods are about 25 to 35% of their product, yeah all their costs. So it’s not a huge hit is what I’m saying. It sucks but you can probably weather that in the short term.
Mike: Yeah, I mean I don’t know. I mean we run a pretty low margin business to begin with. I mean a lot of the stuff we do is high volume lower margin where you’re doing like the opposite. I mean most of your stuff is higher priced higher margin lower volume. We’ve I guess from a bad luck perspective — I mean it’s worked just fine to this point. I don’t regret to this point having those types of products because they’ve done very well for us. We sell millions upon millions of dollars with this stuff a year, and it’s again it’s just, we’re bringing in container loads of individual skews or like our containers are 40 foot container for us. The ones that are on the water, I think the one with the most number of skews is six, so again it’s higher volume stuff that we’re making it up on the volume.
So, if our profit margin goes down, well, it wouldn’t be our profit margin going down by 25% but our cogs go up by 25%. Like do the math on that real quick. So if we buy something for 100 and sell it for 300, let’s say because it’s again, the word volume, typically it’s 100 of its fees and 100 of its profit, right. So like so it’s like a third, a third a third. So if it goes up by 25%, we would make $100 so like our profit would actually go down by 25%, our number would go down by 25%, our gross profit would go down by 25%, our net profit would go down by even more.
Dave: So not to kind of confuse everybody with the math, but I’m taking an example. Let’s pretend you sell a product for $30. What’s typically your cost on that, around 10 bucks?
Mike: 10 bucks yes. Like I said, a third, a third, a third, so it’s typically, it’s $10 cogs, 10 dollars profit, 10 hours fees.
Dave: Yeah. So on that $10 product that you’re selling for $30, a 10% increase in duties is going to be $1 of profit margin.
Dave: 30 bucks, you can probably increase the price by a buck, and it’s not going to really impact your sales all that much. That’s pretty manageable. At 25%, now your costs are going up 2.50. And again, you can probably increase your prices by 2.50 out of $30 product and it’s not going to have a monumental shift on your sales. Yeah, it’s not great, but at the end of the day, it’s not the end of the world either. That’s kind of my perspective. Of all the costs that you have, the product costs, you can for the most part weather a 10 to 25% increase.
Mike: Where I see the struggle, and we’re probably going to end up having to eat most of that is because we like as I mentioned, we do these high volume products, but we don’t play in the bottom poll, like with all the cheap commodity goods. We’re taking those goods and improving them significantly, which has an additional cost for someone under the premium. And we’ve done a lot of price testing. I like my margin to be higher, but the market doesn’t support it. When we’ve tried to raise the price even by $1, we’ve seen a massive drop off in sales which I know doesn’t seem possible, right. Like if you raise a $30 product by a dollar, like it shouldn’t make that much difference. But the problem is it goes from 29.99 to 30.99.
Mike: And I think that that’s the issue. We’ve had other products where we’ve gone from 12.99 to 13.99 and seen very little effect. Actually, it’s quite interesting. We’ve done that and seen nothing but good things come out of it. Like we’ve actually raised the price in a lot of stuff and increased our margin on some of our products that fall on that. But a lot of the really high volume stuff we do is priced right at that like that 19.99 or 29.99 price point, like specifically and going up a $1 because we’ve tried is going to — has had adverse effects and I think would have the same problem moving forward.
And it’s because we’re continuing to drift apart from the cheaper option, like the commoditized option. So if the consumer is like, why would I pay you $29 for a set of gel pens when I can buy a set for $10? We can only make that argument so much. If it goes the 13.99 and it’s like it just becomes a much more difficult conversation.
Dave: Yeah, and I think this is one of those things that I guess if we’re talking about what types of things that you can do to kind of make up for these big tariff increases, looking at your prices and your margins and really deciding, hey, can I increase my prices, not only the cost of the duties, but now is this the time to consider actually pumping out my prices maybe 30% like going from a $29.99 product to $40. Because then what can happen is that you can potentially double your profit, because all that additional revenue from $30 to $40 is essentially pure profit. So if you double your profit and your sales drop off, 50%, hey, you’re still ahead. Your overall profit is better.
And I think if there’s anything to take away from these tariff increases is I think every business from every now and then you kind of have to look at your prices and do kind of across the board price increase and matter. Maybe this is just an excuse to do it at this point in time. Take a look and say, hey, can we increase our prices? I don’t know if it affects you Mike or not. But I think everybody, I don’t know, that’s one takeaway. Look at your prices and see if you can jack up your prices a little bit. Maybe your prices have been stagnant for too long.
Mike: And we’ve actually done that like I was mentioning just a second ago, with some of our products. We ran — Jacqueline helped with this. We ran some price comparison table. So basically, if you’re selling your product at 12.99, and making X dollars profit, let’s say raise it to 13.99, your profit per unit, obviously goes up. It doesn’t go by exactly $1 because Amazon takes a 15% fees. It goes up by basically 85 cents more or less. And if you’re making 85 cents more per sale, you need dramatically fewer sales, like your volume can go way down. It’s actually really interesting, the number, the headwind that you face at a certain point. It’s a sliding scale.
But when you get to the point where you’re operating on very thin margin, the amount of additional units you need to sell just to make up for that that decrease of $1 is incredible.
Dave: It’s amazing.
Mike: It’s actually incredible yeah.
Dave: I mean, the guy who bought my business, the former CEO of a public company, the first thing they did when they bought my business was they basically increased all the prices anywhere from 30 to 50%. First thing they did. And to this day, those prices are still 30 to 50% higher. And again, they’re working off that same logic. Okay, well, yeah, our overall volume is probably going to decrease a little bit, but we’re going to make up for it heads and tails with profit.
Mike: Mm-hmm. Yeah all right, so you’re lucky you’re not affected. So there’s no planning on your part. So, I’ll talk about planning.
Dave: Well, list four is going to — at some point unless China and America get this resolved. Eventually, all products are going to be tariffed. So I mean, right now, yeah, we’re fortunate but I think probably in the next two or three months, this is going to hit every single product. So yeah, you’re unlucky for a couple of months here, but eventually it’s going to hit everybody. That’s kind of my forecast at least and Trump’s kind of hinted at that too that eventually everything is going to be hit if they can’t resolve it with China.
Mike: So just to explain to people exactly like what the tariff is, I mean it’s a tax. It’s a tax, so China is not paying for it. I mean, that’s the thing that frustrates me, and again not getting into the political side of it. But what it is it’s a tax that goes to the United States Treasury the same way that if you have income tax, your federal income tax goes to the United States Treasury, it goes to the same the same department. So I mean, it’s a tax on goods. It’s a tax on consumer goods that eventually will have to trickle through somehow. We are talking about like in our business, how we’re going to deal with it. Someone in this country is paying for it one way or the other.
Either as a business owner your margin goes down so your take home pay as a business owner goes down, or you pass it on to the consumer and they feel it in the terms of inflation or just their buying power goes down. So, that’s where the tariff goes. It doesn’t directly punish China. The thought processes though, I mean trying to be objective about, the case that they make is that by doing this it will create more American jobs. So the idea is that it would help make a decision of let’s just manufacturer in the United States. But the problem is it like the 25% isn’t going to cover it, that isn’t going to — on the types of goods that we’re making, it isn’t going to get anywhere near close to making that decision like, oh, we’ll just make it in the United States, we can make it cheaper here now.
A set of gel pens that you can bring in for – if it’s just the pens for like three bucks from China, those are easily going to be like a $10 product here, because I mean the cost of labor over there is so cheap and the labor structure here is so expensive. So I think, I hope that this shakes out and whatever they’re trying to accomplish with — the root cause of it is electronic IP I think is where it’s starting. But it’s affecting everybody and everything unfortunately. The collateral damage is getting wider and wider. And who knows where the top is going to stop spinning?
Dave: Yeah. So assuming that the top doesn’t stop spinning at some point, do you have any other strategies that you’re taking? So I mean, obviously try to get your stuff in as quick as possible before it gets hit by list four. Anything else that you’re trying to do Mike to kind of avoid the damage? Are you actually looking at manufacturing in America or anything at this point?
Mike: I mean, I’ve thought about it just as much as I just kind of talked about. I mean, we do some manufacturing, we make our books here. So I know the cost of getting some stuff done here. But we’ve looked at making — we had a situation where with our colored pencil, I think I talked about this once before, where we couldn’t bring in pencils from China, we had to bring them in from another country. And we were looking at well, okay, like if we’re going to bring pencils in from another country, we might as well, let’s look at making the cases here for that.
This is a case that we buy for about $3 in China we were literally getting quotes of $10 to make that here. So again, like I’m saying, that’s the same example I was using on the gel pens. I don’t know specifically if it really is $3 to $10 on that but like on the case where it’s a very manual — the fabric is the cost of the fabric. I think that that’s probably pretty normalized around the world. You’re going to buy a yard of this canvas fabric whether it’s in Asia or in United States, it’s probably — who knows where it’s being made, but that’s being probably imported from some other country either in China to make it or I don’t know exactly where that originates from. But the labor part is the expensive part.
So it’s all getting sewn and so we buy it for $3 from China, and we were getting quotes at volume, like at a big volume, the same volume that we were buying it from China at 10 bucks to make the same thing, so $7 more to the same exact products. So I don’t see these tariffs accomplishing that goal of let’s bring manufacturing back to the US. I think the types of manufacturing again, without trying to get political I mean, this is a personal viewpoint I guess.
But the types of manufacturing that we would want in this country, from my point of view would be the technical, like the high tech type manufacturing, something like big wind turbines or solar panels or electronics or like Intel type micro processors or just highly sophisticated medical equipment, the things that require a higher education level. Even though it’s still manufacturing, it’s a different type of manufacturing. And I don’t see shoes being made in the United States. Again, it doesn’t make sense to me. So yeah, it’s just a personal — that’s more of a personal viewpoint.
Dave: Part of what I believe, again, not to make this political. But I believe part of the goal of the Trump administration is to not necessarily have shoes being made in America. It’s that China has quite a few trade barriers to basically preventing a lot of imports coming into their country. And I think that’s kind of the root cause of all this is that China is making it hard and expensive to import into China from America or other countries.
So America wants these trade barriers to be decreased. And therefore hopefully that means more electronics are going into China. More of these high tech products are actually going into China, not necessarily shoes and pants and those types of high labor commodity items. They’re actually just trying to get everything across the board being more easy to be imported into China. So I don’t know if it’s going to work or not. That remains to be seen. But from what I’ve heard, China does make it pretty unfriendly to import into their country.
Mike: Yeah, I mean, but a trade deficit is not — it isn’t like we’re paying like $375 billion trade deficit is not like we’re not writing China a check. We’re just buying more and it’s also because America is a very consumeristic country, consumerism is kind of off the charts in western countries, United States is probably the biggest culprit. And being able to buy those cheap goods has been a big part of the massive economic prosperity that we’ve had in this country over the last 100 years. It allows you to buy stuff and fuel that appetite of buying things at a much deeper level.
Dave: So what they really should do is get rid of all credit cards in America. And that way nobody can buy these products and that will really hit China on the pocketbook.
Mike: I mean I know you’re being facetious, but I think that credit card debt is a big profit to the United States and that would be — there would be a lot of short term pain for people like you and me because obviously people wouldn’t be able to afford to buy a lot of things. But I think in the long run, people’s amount of credit they had available slowly decreased to zero over time would be good.
Dave: We would kill every one of our listeners e-commerce business overnight if we lobbied for that.
Mike: Like I said, I know it wouldn’t be good for us, I mean being objective to the consumerism problem in the United States and Canada from where you’re from, and a lot of Europe. I mean, it’s just — and I’ve been reading a lot about this stuff lately. And it’s actually kind of frightening how much stuff we buy and how many things that the average home has and most of which we never use.
Dave: I know, well, I just bought a brand new car with a bunch of financing, so I’m in that boat.
Mike: All right, so as far as other planning as you’re mentioning, I find it hard to plan. I mean you can only plan for what is actually the law that’s been written or the action that’s been taken. So now that this action has been taken, I know unless something changes on January 1st that the duty is going up, so we did place some orders because of that to try to get some extra inventory in on the products that are going to be affected the most. But that’s just a short term fix. That’s like basically hoping that this gets resolved before the next round.
I am going to be extremely bitter if there’s going to be goods that we pay the duty on to get them here and then the duties go away and then we’re stuck with [inaudible 00:29:46] that has duty on them. It’s just frustrating as a business owner all the ramifications of this. We’re now buying extra inventory of things that would have gone to new items in our business. We’ve basically put a halt on all new products. It’s we’ve been actually planning this now for a while.
And so we haven’t been developing new skews because we want existing capital for existing skews, and so we’re buying more which is just an inefficient use of cash in our business. It’s going to stunt our growth. We’ll pay less taxes next year because of it, which I think is another collateral damage piece for the government overall. And it is what it is. I’m trying to make the best decision for our business with the information that I have, and that’s the best I can do.
Dave: Yeah, and I think if you average it over a few shipments, there’s probably going to be a shipment or two that you’re going to get hit with where you’re going to pay a bunch of duties. And then at some point these duties are going to go away. And yeah, you’ll kind of be on the short end of the stick and you’ve paid a bunch of duties which went away a couple of weeks later. Hopefully, I guess if you normalize it over a few shipments that you win some and you lose some. And there’s any saving grace.
Dave: I’m just curious as a prediction, when do you think this goes away?
Dave: Well, what are the midterm elections, November 14th?
Mike: I think it’s the 6th.
Dave: The 6th. So probably what two weeks before that? That’s my forecast. If it’s going to, if they’re going to go away, I would personally think that they’re going to happen before then because then Trump can say hey, look, I beat China. And if they don’t go away by them then who knows? I mean, basically I guess there’s two years that the conservatives have to play with where keeping those tariffs in effect isn’t going to have any political ramifications.
Mike: So you think that they’re going to go away like in October, so like this is like the people that have stuff coming in the border like — do you think the 25% tariff is never going to materialize basically?
Dave: I think that that would be a really hard hit for the Republicans to take putting a 25% tariff to basically half of all products. That’s substantial, that’s going to hit consumers in the pocketbook, and nobody wants that. China definitely doesn’t want that, and the republicans probably don’t want it just as much. Putting a 25% duty on some aircraft wings and wheels, well, nobody really cares, consumers don’t care about that. Then when people are paying 25% more for coloring books — sorry not coloring books, gel pens, that’s when they’re going to be up in arms.
Mike: So again I always try to stay away from the political stuff on here, but I’m going to tippy toe into this a little bit. I think in this, just using averages of the average American voter and consumer I don’t think that they understand this anywhere near enough to make a decision by the time the election comes around. The prices of these tariffs are not going to trickle down to the retail store level for months, for many months; I mean even possibly a year. I just don’t see that being a crucial thing as a part of the selection.
Dave: Maybe not but still if the conservatives can say, hey, we just beat China and renegotiated this great deal, we beat Mexico and Canada and renegotiated NAFTA, it helps on their platform, but that’s my two cents.
Mike: I do agree with that. If he could come out and they’re probably going to come out and say that, that would definitely be a good talking point for sure without question. I just I don’t know, I don’t see it happening before the election, I really don’t. I think that this is — I think that we’re in for — my prediction is that we’re in for a longer haul here. I think we have two very stubborn bodies at work here.
Dave: I agree with you on that.
Mike: I mean the Chinese are not going to just be pushed over, and I think that they can afford to take the long curve. I mean it’s basically communist country so I mean they can afford to like dig in and longer. I think we’re negotiating against a pretty tough opponent on this case. I hope I’m wrong. But I think that we’re going to be digging in. I mean, there’s some historical trade wars that have happened like this to where this just continues to — every time that we announce higher tariffs on Chinese goods, the immediate response from China is like, okay, well, we’re going to do it to an equal amount of your stuff and it’s not like oh my God, please don’t do that. We’re going to back down or how can we come to the table? It’s like, well, we’re just going to reciprocate.
And I don’t know, I think they look at the long term global economy and their stance in the world and I mean they’re the biggest emerging economic power in the world. And I think that they’re going to be thinking about the long picture here and aren’t going to just cave because it’s painful to them today because I think they can absorb the cost to their citizens in a different way because it’s a communist country. So they can deal with that. They’ll just — you go over there, you see the infrastructure projects and the things they put the money into right now, they can just divert that money to something else and sustain it for a pretty long period of time.
So I don’t know. I think we’re in for a longer road. I think that I don’t know how long but I think that’s certainly — I predict the 25% tariffs going to go into effect. Trying to figure anything out past that is tough. But looking three and a half months out, I think that January 1st date is going to come and go and anything that comes in is going to be at 25%. I hope I’m wrong, I really do. Like trust me, I am rooting for this to go away like in a major way.
Dave: Yeah, I mean I think it’s 50/50 whether they go away by the midterm elections. But again, hopefully, I think I have more people rooting for me in this case than you. So, hopefully…
Mike: I’m rooting for — this is one of these times where would be more than happy to be wrong. You know that I will admit when I’m wrong. I hate being wrong but I always admit when I’m wrong. And this is one of these times where I would be more than happy to be to be wrong.
Dave: Yeah. And I think at the end of the day, hopefully it doesn’t drag on because like we alluded to, list four which is going to be every other product, that’s when Dave’s offloading products are going to be [overlapping 00:36:21].
Mike: Let’s get real. Let’s be talking about like why you really want it to not happen.
Dave: Well, it’s true. I mean, there’ll be no escaping.
Mike: All right, my friend. Well, we’ll do a follow up. You know either way, neither one of us are going to let this go so one of us is going to be wrong. So I know the other one will remind the other one live on a podcast about that. So we’ll do a follow up.
Dave: Let’s schedule it after the midterm elections. So November 6th, we’ll do a follow up on November 8th.
Mike: Here we go.
Dave: Sounds good?
Mike: All right. We’ll do a follow up then.
Dave: All right.
Mike: Sounds good sir. I appreciate you coming and doing this today.
Dave: Okay and yeah we’ll see what happens, but hopefully everybody is able to weather the storm somewhat satisfactorily.
Mike: Yeah I mean leave us a comment on the post here, on the podcast. I mean, I’m curious what everyone else is doing. Shoot us an email. If you have any personal stories or things you think would make a good follow up podcast, feel free to shoot those in and we might be able to interview you either on the podcast or anonymously or whatever. I’m definitely curious what the ramifications are for the individual business owners out there that are importing from China. So please, let us know that and that’s about it for today. So, until the next episode everyone happy selling, and we will talk to you soon.
And that’s a wrap folks. I hope you guys enjoyed the 182nd installment of the EcomCrew Podcast. Again, you can go to EcomCrew.com/182 to get to the show notes for this episode. I want to thank you guys as always for supporting the EcomCrew Podcast. It means a lot to us. And until the next episode, happy selling and we’ll talk to you then.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.