Trade, Tariffs and Transparency

By Robert Heiblim
Published on: November 9, 2018

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This is not a political rant. However, trade is usually not a partisan issue. Rather, trade is a local and personal issue. I understand that when rules (and tariffs) help or hurt we will usually see people (and their politicians) lean the way that conforms with local views. That is why it is so hard to get to trade deals, and why they often contain odd protections and rules (think how hard it was for Canada to get Quebec, the eternal French state they must contend with, to agree to NAFTA) and so we have things like carve outs for Canadian dairy. It is also why we still do not know if the newly revised (and modestly changed) agreement with Mexico and Canada will become law. Fortunately, NAFTA remains while we wait and see.

I like free trade. I think we win economically most of the time. It is not enough to look at the trade deficit numbers without looking at the other benefits elsewhere. Apple imports close to $80BN of goods from China, which make under $10BN of profit on these transactions, while Apple and its shareholders and employees enjoy hundreds of billions of profits. So while this represents some 17 percent of the China trade deficit, it is unclear where the benefits really lie.

Perhaps that is why a whole new trade class code was made for items such as AirPods (BT speakers and headphones), smartwatches and other items . . . . but I digress. I agree that trade agreements need modernization. I also agree that China (and a whole lot of other countries, including some folks right here in the U.S.) cheat or use unfair rules.

I like free trade, but it is true that not everyone likes the outcomes, so it is a fair debate. Then there are tariffs. Some feel that tariffs are a fine tool to gain leverage over trading partners to lower barriers or end rules. However, these tariffs are paid by us, by Americans. Tariffs are a tax on American consumers to try to lower their consumption of the tariffed items as leverage to revise trade rules. I do not like tariffs. I think they are a crude tool, as currently being exercised. The hammer should always be the fallback position rather than the opening gambit. Why?

Well, one of my endeavors is already being tariffed at 25 percent. I had to raise prices as I could not absorb this cost increase. Yes, I looked to my supply chain for relief, but 25 percent was not available. Yes, I looked for alternative supply elsewhere, but a) it was not available, and b) even if it were at this point it would cost more than 25 percent more, and c) if tariffs are the tool, then how do I know they will not fall on other countries that I might move to? Whack-a-mole with tariffs and countries is no way to run a business and things like factories and supply chains need some assurance and runway in order to plan. So, I pay my tariffs and hope that this is settled soon.

Considering that the tariff threat has been raised around the world to include Mexico and Canada, to the EU and elsewhere, I hope I can rest easy if this is resolved. But I am unsure. I do not like tariffs as they tax us all and leave us uncertain. Still, we have to run our businesses in the here and now. The reality now is the tariffs are here. Many of them in the latest $200BN list at 10 percent will increase to 25 percent in January. The increase is baked into the tariff schedule, so unless countered, it will definitely increase. We must all plan on this.

Simple economics says this will be an impediment to our top lines. The higher the price, the less available consumers. This is the difference between value and price, and so while I completely expect consumers to still value our goods and services even after whatever prices adjustments we must make, there will be less of them due to price. I do not think anyone can absorb 25 percent, so consider the long list of tariffed items (and another $273BN being prepared) and their effect. I do not like tariffs.

How do we handle this? I for one have called my representatives. I have spoken now to several Senators and many Congressmen in both parties. In general, they do not agree with the administration, so I have pushed them. I know they have written and spoken to the President, so we will see. Over time, our actions as citizens and business owners, operators and employees WILL have effect, so I say get involved and keep involved if you do not like tariffs.

On the other hand is the reality of the cost. Here I think it is important to be clear, to be transparent. In my business I wrote to all our partners of the effect of these tariffs and as I had to raise prices, I reflected it clearly as the cost of the tariff. By clearly and transparently showing that in fact this was not a price increase (which is a different matter, you can set your prices as you see fit) but a reflection of this TAX. we were able to get our partners to see that WE were not raising their price at all. I was therefore successful in getting all my partners to accept the new costs with only the typical courtesies we offer to our trade partners, such as honoring past commitments. I like transparency.

I think being transparent here is key. These tariffs may end and if what you did was really a price increase covered by the tariffs, what will you do for your partners if the tariffs come off? What will you do if the tariffs increase? In all cases, we recommend being clear and transparent. If your supply costs are increasing, or you’ve put more into your product or offer, then you have every right and reason to consider a price increase (or in some cases a decrease), but this is not that. These are taxes and so it is a clear explanation to show them as such, and commit to lowering these costs when and if they are ended.

Regardless of your view of trade, we think the best way to handle tariffs is to be transparent. It’s a pretty good policy in general.

Robert Heiblim

Robert Heiblim

Robert is co-founder and principal of BlueSalve Professional Consulting and Interim Management providing strategy and execution counsel, service and expertise in consumer technology. He is the Vice Chairman of the Audio Division, and also Vice Chair of the Business Council of the Consumer Technology Association and a board member. He is also a Trustee of the CTA Foundation.

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