Readers have been asking about what potential tariffs could mean for the price of tools.
Before we talk about that, I want to remind everyone that political rantings and combative arguments are not permitted in the comments section. The moment things become uncivil, the comments section to this post will be closed down and removed.
It’s hard to talk about tariffs without touching upon politics, but hopefully we can have a pragmatic discussion.
Advertisement
To start off, let’s talk about what a tariff actually is. In the most basic sense, it’s like a tax on products imported into the country.
You know how when you buy something at the store there’s sales tax added to the total? It’s kind of like that, but higher up the supply chain.
Here’s a made-up example to illustrate how tariffs work.
For the sake of the discussion, we will assume every party marks a product up with a profit margin of 100%. Meaning, if a product costs $10 to produce, it would be sold for double that, or $20.
Let’s say a tool company, we’ll call them Import Brand, buys a particular tool from an overseas supplier, and the cost to the brand is $16. They then sell it to a retailer for $32. The retailer sells it to their customers at $64.
Let’s say there’s another tool company, Domestic Brand, and they buy a similar type of tool from a USA-based supplier, with the cost to that brand being $25. They sell it to a retailer for $50. The retailer then sells it to their customers at $100.
Advertisement
For both brands, the profit margin is the same – 100%, and the same is true for the retailer. Again, this is all fictitious, just for example purposes.
What happens when the import product is priced at $64, and the domestic product at $100? Many customers will prefer the less expensive product.
Now, let’s say that the imported product is now subject to a 50% tariff. The cost to Import Brand would then increase from $16 to $24. $16 of that goes to the manufacturer, and $8 of that is the tariff – it gets paid to the government. If it helps, think of the tariff as a sort of conditional tax.
That hypothetical Import Brand would then mark up the product from $24 to $48 to sell to the retailer, which then marks it up to $96. Because of the 50% tariff, the consumer price increased 50%, from $64 to $96.
With the imported product now costing $96, compared to the domestically made product priced at $100, the domestic product is more competitively priced.
Tariffs can be levied for different reasons, but my understanding is that they are mainly used to help domestic manufacturers compete against less expensive imported products.
Tariffs mean higher prices, but they’re conditional. Even if a product is not directly impacted by a tariff, there could be materials or subcomponents used in its manufacture that are.
We don’t know whether new tariffs might arise in 2025 or over the next few years, or what types of products might be affected.
News reports and disclosures to investors reveal that companies are preparing for price increases.
In a recent earnings call prior to the presidential election, Stanley Black & Decker – owner of tool brands such as Craftsman, Dewalt, Proto, and Mac – addressed the potential for new tariffs under Trump, saying they might move parts of their supply chain out of China and to other countries in Asia, or to Mexico. They also raised the possibility of price increases.
In an SEC filing earlier this week, Stanley Black & Decker said:
the next administration may increase the existing Section 301 Tariffs set out in Lists 1-3 and 4a to 60% (the “Increased Tariffs”), very soon after the President-elect assumes office on January 20, 2025
The company also said:
To enhance preparation to mitigate the potential impact of the Increased Tariffs, the Company is preparing to discuss potential price increases with its customers, has begun assessing supply chain adjustments based on current U.S. trade related rules and regulations and intends to continue its direct engagement with policymakers.
None of this is very surprising. Many companies, whether privately owned or publicly traded, and are going to be assessing what tariffs promised along the campaign trail will mean for their businesses.
In Stanley Black & Decker’s case, they say that new tariffs implemented in 2017 and 2018 led to more than $300 million in costs per year, and that they minimized this to less than $100 million by “taking supply chain repositioning actions” and “price increases from customers.”
As a reminder, retailers such as Home Depot are SBD’s customer. Retailers usually pass price increases onto their customers, and that would be end users such as us.
SBD says that new tariffs are projected to have a negative impact of “roughly $200 million without accounting for any new mitigation actions.”
If SBD raises prices in response to tariffs – or maybe even in anticipation of them – the higher costs will be passed onto retailers and then end users.
The Company currently believes it could take approximately 12 to 24 months for supply chain adjustments to mitigate a significant portion of the potential Increased Tariffs.
My familiarity with “supply chain adjustments” is limited, but I imagine the costs to do this is not negligible. Such expenditures might also be passed along to customers and end users.
So far, SBD has only referenced potential tariffs that would increase the cost of goods imported from China.
In a comment, a reader brought up campaign promises of tariffs on goods from Mexico, starting at 25%.
Thus, there could be tariffs of up to 60% on goods produced in China, and tariffs of at least 25% on goods produced in Mexico.
Might tariffs increase the price of tools or supplies you were looking to buy?
SBD, a major toolmaker, at least seems convinced that they will have raise prices and consider further supply chain readjustments.
If there’s a 60% tariff on products made in China, companies with mixed sourcing might raise prices across the board, to help spread the cost.
Will the FEAR of tariffs increase the price of tools or supplies you were looking to buy?
Are there competitive products currently being produced in the USA? As mentioned, tariffs lead to higher prices, but most are conditional and won’t apply to everything.
I’ll say it again – we don’t know what will happen.
Let’s say a cordless power tool product that’s made in China goes from $25 to $40 – a 60% increase – when imported into the country. Using the same hypothetical or fictitious profit margin of 100%, the cost to the retailer – in these examples just for discussion purposes – would be $80, and then the products might be marked up to $160. The product that cost $100 is now $160.
What if there’s no comparable USA-made product?
Will buying something now cost less than waiting after the new year? After the inauguration? 6 months from now?
The problem is that no one can predict the future.
Perhaps the price of many tools and related products will increase. Perhaps this will be offset by tax cuts.
There are too many unknowns and uncertainties. We don’t know if there will definitely be tariffs, and what the impacts would be.
How likely is it that tool prices might decrease in the next 4 to 12 months? 1-2 years?
Really, there are just 3 possibilities:
- Prices will stay the same
- Prices will increase
- Prices will decrease
Personally, I don’t think prices will decrease. Thus, prices will either stay the same, or they’ll increase.
Tariffs will increase prices – that’s simply how they work.
However – and I cannot stress this enough – we don’t know what the exact impacts will be. As mentioned, there’s a chance of other tax moves to help offset the cost to consumers, although this is pure speculation since I haven’t seen anything mentioned in the news.
There are no new tariffs yet, and we don’t know if there will be, but planning could be prudent. However, there’s definitely the risk that anticipatory moves could be to your detriment.
I saw a post this week, in a construction-focused community, where someone advised their peers to buy all of the materials they might need for upcoming jobs now, lest they have to pay for any dramatic cost increases themselves.
The more you spend or plan to spend on imported tools, materials, and supplies, the more planning you should be doing.
Other than maybe moving up some big purchases, there’s really nothing else consumers can do but to wait and see.
As a reminder, please be civil in the comments section, and please refrain from divisive or combative political comments.
TimL
Not to get into politics too much, but the current administration did increase tariffs already this year so those are probably already in the pipeline too.
https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/
Richard Miller
When a trade deficit is weaponized against the United States, I start to become more open to the idea of tariffs.
I am under the impression that tariffs will be selectively deployed to address trade deficits that are hurting our country more than the low prices are helping. I hope I’m right in my analysis.
Stuart
Those are different kinds of tariffs.
https://14cyiuhvcgv.com/what-will-happen-to-pricing-of-tool-chests-cabinets-combos-and-mobile-workbenches/%3C/a%3E%3C/p%3E
The question as to benefit is whether there are or could be USA-made alternatives.
Bill
Exactly! Otherwise it is just an indirect tax on those that purchase the goods. Either way, goods will be more expensive for the consumer if made domestically or imported. This will, as you mentioned, cause manufacturers to switch production to areas without tariffs.
CMF
I am not all knowing when it comes to tariffs, but Stuart explanation is more or less how I understand it. Anything from overseas that currently sells for much less than a MITUSA product, will be hit with a tariff. The idea is to make the same price or very close to the MITUSA product.
But anything domestic, should not change price, at least not because of the tariff.
What can happen…example, Wright tools, their wrenches, (great wrenches) should sell more because a previously cheap import that would be 50%, or 25%, or even less of the Wright tools set of wrenches, would sell for the same price, or pretty close. In theory, no one will buy the inferior made import product, and will opt for the Wright, or other domestic brand.
So the MITUSA brands should get more sales and possibly result in lowering of prices. They could also try to take advantage of the situation and raise prices, not a lot but just enough to make more money, but still close enough to the cheap import, so people won’t buy the import. Of course the latter would not be in their best interest as they still need to compete with other MITUSA products.
Overall, all this benefits domestic MFR’s of tools or anything else. We the consumer lose the option of a cheap alternative.
Anyone employed by domestic MFR’s should have a secure job, and other possible benefits. Anyone working in the transportation or distribution of the cheap imports could get laid off or fired.
There are pros and cons on either side.
If you are a fan of MITUSA products and tired of seeing these MFR’s close their doors, this is a good thing.
If you like buying no name or even brand name that have gone to offshore production (example…Irwin), to keep prices low and compete with the cheaper stuff…you won’t like the tariffs.
For sure there will be complexities, like what constitutes MITUSA, among many other clauses, but short of it, this is what I understand and believe how it will work.
Domestic products should not cost more due to the tariffs as there is zero tariff for them.
Wojtek
Exception may be that their prices rise due to scarcity. Domestic producers may see higher demand and use that as a reason to raise prices. They may also be harder to buy since the domestic producers sell lover volumes.
James Madara
I tend to agree with you. They will encourage some of these manufacturers to bring some manufacturing home. Trump used Apple as an example. Apple was facing Chinese tariffs, but Samsung wouldn’t have to since they make their phones in Taiwan. Apple agreed to do some manufacturing in the US. I assume a lot of companies would do the same. Toolmakers would commit to manufacturing some products in the US to avoid tariffs. The media needs to do a better job of explaining this. There won’t suddenly be a 60% tariff on all goods from China. There are deals to be made.
CMF
I am not sure, but Trump often said China, but I believe tariffs would apply to ANY country heavily undercutting MITUSA products, regardless of the country.
Rcward
You’re not
JP454
Tariffs in today’s world are just almost impossible to enact in a way they result in the intended way.
In the end, prices will probably go up. Under Harris it would be call inflation, Trump because of tariffs, if they couldn’t find a political reason it would be a rebrand with some miniscule new ‘feature’ that raises the price.
Costs of everything inevitably go up, but when everyone (government and personal) is funding record purchases on record levels of credit it just grows that much faster. Balancing a budget or even getting close to it is a lost idea so it’s probably best if everyone just plans for increasing costs and we can hold the hope they get back to a budget some day.
Robert
Another impact of tariffs is upon the price of domestic manufactured products.
If the domestic manufactured product is competitively priced with imported equivalents, a tariff gives “cover” to the domestic manufacture to raise their price up to the new higher tariffed price of the import product.
Granted, this will be a much less common case because there are fewer instances of domestic products being competitively priced.
This happened with the so-called “Chicken Tax” of 1963 on light trucks. It was a tariff on foreign light trucks in retaliation for German tariff on US chicken sales to them.
MM
Tariffs can sometimes have unexpected side effects as well. For example, in the late 1970’s US sugar farmers lobbied the government to institute tariffs to protect themselves from cheap foreign sugar imports. This happened, which raised the price of sugar. Theoretically this would have been good for US sugar producers, except the big industrial buyers of sugar like soft-drink and processed food companies decided to switch to even cheaper high-fructose corn syrup instead. The intent may have been wholesome–help the American sugar farmer–but the consequences were horrible. HFCS everywhere, and the American sugar farmer lost some of their biggest customers.
Wayne R.
It also crushed Haiti’s only chances to get into the global economy.
Steve Taylor
I think the other thing people forget is that just because you are purchasing a good that is not tariffed doesn’t mean the raw materials, equipment, or packaging are free from tariffs.
I’m a picture framer, and our metal moldings are produced here in the US, but the materials to make them had tariffs on them. So the last time tariffs were implemented, they raised our metal moldings by 9% three times within one year. Typically, we see an increase every 15 months, and it’s normally 4%.
Wayne R.
Already heard of (anecdotal) instances where Christmas bonuses have been eliminated at US factories so they can invest in pre-tariff supplies, in the hopes they can maintain business long enough for things to stabilize again.
Stuart
I heard that too, but there’s no known source; it hasn’t been verified.
Jeffrey
The story came out more than a week ago, and had still not been attributed to any particular company.
Having said that, it would be very smart to be stockpiling as much imported finished products and components as can be justified. Most manufacturers do not warehouse anywhere near as much as they used to. The lower overhead of on-demand manufacturing changed whole sectors of manufacturing.
Stuart
The story is plausible, but could also have been fabricated. I’ve been seeing a lot of spam like that on the past 2 years, and have a hard time trusting unverified stories.
Aram
With the rise of so-called AI spam, it’s reached the point that any story that doesn’t directly reference verifiable people who can attest to the truth of that story must be discarded as spam or propaganda.
(also, people, stop calling it AI. ChatGPT and the like are just stochastic parrots telling you what they think you expect to hear.)
Terry S
Unfortunately, our consumer appetite for universally cheap goods has not helped American manufacturing employees, though it has almost certainly benefited the corporate owners. (See: SBD, Milwaukee, Apex, etc.)
Broad-based punitive tariffs, for all their good intentions, will not help the end consumer. There is almost no scenario where the proposed punitive import taxes will not ultimately result in higher prices across the board for American consumers.
As a consumer, I want quality, affordability and to be able to buy something made by my fellow Americans. Alas, I don’t believe we get to have all three at the same time. I have almost always been willing to pay a fair price for a well-built, American-made tool, but I am in the minority there.
Frank D
Did tariffs actually help with anything in practice the last go around? Whether keeping prices low on domestic products, seriously increase national manufacturing / production, etc … All I seem to recall is it being a tit for tat, product availability getting worse, prices rising … and at the same hearing that US exporters subject to tariffs overseas were taking massive hits.
Dave H
Your explanation of the tariffs is correct as it directly impacts a product however it gets potentially more complicated with indirect impacts on other products.
Let’s look at Washington State for example. Washington relies heavily on the export of agricultural products and of course Boeing. Let’s say a country imports $1 billion in agricultural products from Washington annually. Said country exports 1 billion of their product to the US annually. The US imposes a 25% tariff on the countries exports so the country retaliates by only buying $750 million of Washington agriculture. That impacts Washington’s agricultural exports.
There are further implications when US manufacturers need to import materials to build their products. The added tariffs on these materials increase the cost of the US product.
Like Stuarts example above this is a simple example. We would have to get into world trade and the importance of a balanced trade where our exports equal our imports, and the economics of all that. But the big takeaway is that unfortunately we import more than we export. Which is why some think the tariffs are a good idea.
Alex
Lots of uncertainty, but (from an non-US perspective) forcing the price of imported goods up to support domestic manufacturing has a couple of potential flaws:
1. Where the import is sufficiently low priced, even aggressive tariffs may not create price parity
2. In a world of direct shipping, overseas manufacturers can pay the tariff and cut out the retailer and stay cheaper
3. Lots of components and raw materials are made overseas, so domestic manufacturers will feel the pinch for some products
4. What happens if a Chinese manufacturer switches production to Vietnam (or similar)?
5, If you want to increase domestic manufacturing that is not quick – so there will be a lag even if someone wants to make that investment
Tariffs make a nice campaign statement – but the devil is in the details and needs some skillful and nuanced implementation
James
I work in product development and point-4 has been in the works for a number of years.
Due to existing tariffs and US based customers being concerned about the future relationship/potential conflict with China they have required their suppliers to diversify their supply chain and set up factories in other countries, which are generally staffed by Chinese workers due to their expertise.
The cost to manufacture in other countries is roughly 20% more expensive than the equivalent goods in China (including current tariffs from China) which has had a big impact on inflation in the past few years.
Ultimately the money is still flowing back into China, so I would expect significant tariffs to also be placed on other countries
Ben
I am in the same boat as James. We are no longer looking at developing new products with any supplier who does not have facilities outside of China, or who is not in the process of actively diversifying their manufacturing base. This process started in 2018 with the first imposition of Trump’s tariffs, and is only accelerating now.
We are dipping our feet into US-based manufacturing, but given the complete lack of any sort of consumer-product supply chain here, it is going to take a long time – at least a decade – to get things up and running more robustly.
Daniel Wu
Harbor Freight, is that you brah?
Stuart
Definitely not.
Champs
Taken as a whole, the incoming administration also seems interested in other inflationary policies that probably won’t entirely play out, perhaps by design, until after the midterm elections.
As a personal, not just hypothetical example like reducing the Federal Reserve’s independence, I expect it not to object to the proposed Safeway/Kroger merger. This is after its executives admitted to using the fog of inflation to set higher prices on staples than we pay at the local, natural grocery. They are the the two largest grocers in my region.
Just my read but we are at the leading edge of one uptick that will flatten out ahead of The Big One in 2026/2027.
Mark
The idea that the companies will just move their factories en masse to the US is nonsense.
First, you’d have to duplicate them so we are talking massive capex. Some companies may be willing to pay, many won’t.
Second, in the US, who is going to work there? Everyone talks about wanting manufacturing jobs to come back (they left to improve profitability of those stocks in your 401k), but who will we physically find to fill the positions? We are at full employment. Even if you persuade people to come back, there aren’t enough people. I’m in manufacturing and it is a nightmare finding people. That’s for direct labor, how about the indirect labor, the experts? Again, we don’t have enough and in many areas, we’ve lost our expertise. TSMC said they are having problems filling their US fabs due to lack of competency.
Third, we’d need to move the component factories, too. That’s one of the great things about being located in a China or Malaysia hub. Tool makers, automation experts, every component you can imagine, is right down the road. Need something made in a hurry, they will go find a few hundred people on their campus to come in and work and get it done. That automation supplier you worked with to develop the latest machine? In the US, what’s the likelihood that the supplier was local? Instead, they’re going to have to fly over. In China, they are probably local and instead of a bunch of Zoom calls and exchanging of spec documents, they probably came on site and looked at your product many times, because they are local and can.
Fourth, even if you did, net to the consumer is still a price increase. So many people say they are fine with this but are they? As a nation, we freaked out when confronted with the COVID inflation price increases. We’d have another double digit percentage on top of that.
As a wealthy nation, we’ve chosen to outsource the low skill, menial jobs to countries who have an abundance of labor. We can’t just go make a much more people so given the people we have, we have to consider what they are going to do. Even if we could make jeans cheaper than China, comparative advantage says that we should not because we should focus on the tasks we are best at.
Tariffs are well studied and we have many natural experiments to look at. It makes sense to protect a fledgling economy (which we are not) or as a measure to negotiate. Both should be temporary. I’m certainly not an economist but all reputable ones, going back to Adam Smith seem to believe in free trade.
https://taxfoundation.org/blog/adam-smith-trump-tariffs/
S
Some really good points. One you touched on briefly that could use some expansion is the national birth rate of each country.
Globally, all nations are seeing a reduction of the birth rate per woman, which will have even more long lasting effects to what we’re already seeing in American society as the ‘baby boom’ era people are retiring, and companies are finding that there’s just no one to replace them.
I’ve been following China specifically for the last few years on this, as they’ve tried to entirely reverse course on their ‘one child’ policy for quite some time now, with zero effect on a drastically plummeting birth rate.
They’re also significantly impacted by inflation, and a far richer up-and-coming middle class. They’re roughly where America was in the 80-90’s in terms of lead/lag to other countries on middle class standard of living and costs. China also pushed very hard into white collar college education, as America did in the 80-90’s, leaving far fewer persons to deal with the remnant blue collar jobs that are still very much needed for any modern society.
It’s been a scary new world for a while now, even before this election cycle.
Ben
You and Mark both hit the respective nails on the head.
Michael F
“We are at full employment.” If you really believe that then I’m not sure what to tell you. You need to question everything you believe and your sources at this point. I can assure you that we are not, in fact, anywhere close to “full employment.” If you knew anyone who wasn’t a baby boomer (or maybe even gen X) you would know that. We have millions upon millions of millennials and gen Z who have given up hope of even ever entering the workforce. They are living in vehicles or are close to homeless while doing gig economy “jobs.” This is what your increased profits in your 401(k) have bought you: generations of American citizens who have been completely sold out.
PTBRULES
Yes. Actual unemployment is estimated to be at 25% because do many people are unnecessary on disability or other government welfare programs.
Aram
The US workforce participation rate (that is, the percentage of people of working age who are either working or actively seeking to work) is presently 62.6%.
…the long-term average is 62.84%.
0.24% difference, or a little over 800,000 people.
Which is a lot, but hardly millions upon millions, unless we’re talking about the 37.16% nonparticipation rate overall (rather than the recent increase), but in that case you’d be advocating for things like all parents working regardless of children/old folks, nobody pursuing postgraduate education, and so on.
Gordon
You have touched on a few points that supports something I heard elsewhere in regards to the current US economy. Business is so focused on growth that it has become unsustainable. Small businesses are trying so hard to mimic large businesses that their goals are also growth. With that mindset, has come the mindset that employees are temporary and expendable.
Very few businesses are interested in providing a quality product, and a high quality life for their employees. We are very far removed from the mom & pop shop that was a staple in a community as most have closed or been bough out.
You also didn’t touch on it, but I think the pro and anti union sentiment is going to clash hard if the idea really is to bring back US jobs.
mikedt
“Tariffs can be levied for different reasons, but my understanding is that they are mainly used to help domestic manufacturers compete against less expensive imported products.”
Unfortunately most USA based companies would seize upon this opportunity to raise their prices to meet or just meet these new tariff based prices. Everybody in the C suite gets rated on quarterly results, not what’s going to happen 5 years down the road – like what gaining market share would help with. So we end up paying higher prices and overall USA industry isn’t helped much. But hey, The CEO gets a new jet.
Jp
What domestic production???? We ain’t got much. Ever see shark tank. Even advised China mfg. They admitted many times financial success is predicted on cheap production. Anyone here that ain’t rich is in trouble. All this stuff has me nervous. Agree with the new jets. Don’t forget the eye watering severance packages for CEO failure.
BigTimeTommy
And any production in America is performed by whoever accepts the absolute lowest wages. Usually low quality labor from desperate easily exploitable immigrants. So we’ll see lower quality products at outrageously inflated prices. All the while psychopath execs are counting their money and laughing at the wage slaves.
Christophe
I have an open into my local government procurement processes, my roommate worls for City Hall. It amazes me that the City complains about horrible work from their sub contract bid rewards. They do the typical send out for three quotes and consistently pick the lowest bid, 100% of the time. There’s zero research on the contractors. Then to add insult to injury they’re compliance department is the exact opposite. The individual who runs that department just throws a 40 page document out, sighting local, state and federal law or guidelines….with zero explanation. It’s painful to watch public meetings and the whole room sits there wondering why they keep getting subpar work. It’s like wake the F up people. That individual granting contracts based on cost alone needs to be fired…that doesn’t work….ever!
Goodie
I am not a fan of new tariffs. I am involved in agriculture and have seen tariffs impact our ability to export US grown fruit. As a producer, I want to be able to sell my product in markets that support the best prices. For fruit, that’s Asia. We do good business with Korea and Japan. China is also a good market, but has sufficient domestic capacity that they applied counter-tariffs to our fruit in the 2018-2019 period.
Consumer prices have gone higher (substantially) as a result of tariffs on a broad categories of products (tools included). Appliances and tools in particular have seen pretty sharp increases since 2018.
Tariffs also have unintended national security impacts, as China seeks to become more self sufficient in aviation, computing, and other traditionally US dominated industries.
Al
I can’t believe we paid $100 million to farmers who couldn’t sell apples last year. USDA alresdy bought $20 million in apples for delivery and consumption. The $100MM goes into storage.
Would an apple tariff have saved all the US-grown apples that were rotting on the tree? Or avoided taxpayer subsidy to warehouse the excess?
Maybe temporarily. But as soon as the tariff is lifted, producers and distributors will go back to the cheapest supplier.
Even collecting $100MM in apple tariffs would not give local farmers opportunity to become competitive on price. It merely subsidises their higher selling prive, or defrays USDA sympathy purchasing.
When you have $12 Big Mac meals and rising costs everywhere else, how does a farm or factory retain labor at low wages? It certainly can’t pay lower wages. It can’t borrow for CapEx to retool or automate when there is demonstrated risk of cheaper imports.
What does an actual tariff documemt state as the goals and implementation plan? Is it ourely punitive, or does it have the goal of decreasing local production costs?
Farmerguy
The US Farm Policy historically operated not at saving the farm level but saving the lending apparatus (Farm Credit, banks, other). The selling points is helping family farmers to keep the banks solvent by firming up farmer balance sheets.
Farmers and ag industry has been the bulk of low cost labor however sourced. Robotics and autonomous equipment will reset the market quickly if labor is deported and price stabilizing farm bills continue.
Steve
Thanks for this. Very interesting, similar to 2008 bailout.
James+C
My FIL grows apples. Automation is a hot topic. He said there’s no chance it would work with his orchards – too hilly. Also much of the automation equipment has been developing in other countries. Tariffs on the equipment?
There are so many different thumbs on the scales… It’s sad to see family farms go away but can you really blame people for not wanting to play the game?
Goodie
I don’t grow apples, so I don’t have the details on that. As a taxpayer, I won’t disagree that $100M is a lot of money…. I want as much efficiency in government spending as we can get. But, as a retired Soldier working budgets in the Pentagon, I can tell you that $100M is a small amount (less than 1/100,000) of the FY24 federal budget and is about the price of a single F-35.
I grow citrus and we were impacted by counter-tariffs from China that affected our pricing in 2019 and beyond. We still sold our production, but it led to lower revenue. There’s lots of ripple effects from that, such as lower federal tax revenue from our industry and less profit sharing for citrus workers in areas in the packing industry that are (typically) fairly low income.
Agricultural subsidies apply to many crops in the country. We tend to have less of them in citrus than other crops, but the government occasionally does buy some citrus fruit (or apples, or grain) when necessary for price support. Those aren’t going to turn a year with bad market conditions into a good year for farmers or lender, but they will provide enough influx of cash to keep responsible folks in business. There’s plenty of bad farmers that go out of business when conditions are good…
Our biggest interaction with federal programs are primarily in the financial sector. We primarily bank with agricultural cooperatives.
The government does administer and backstop some agricultural loan programs. It’s really difficult for us to work with traditional (non-agriculturally focused) commercial banks because they’re no longer very good at assessing our risk or cash-flow. Think of this as a federal program (like the FDIC deposit insurance) that helps to keep the financial wheels turning for the agricultural system.
We also gain access to purchase insurance through federally backstopped crop insurance programs. The insurers themselves are co-ops or commercial companies. Those won’t allow us to profit if our crop fails, but they will keep us in business long enough to “try again next year.” We pay premiums on them, and we personally haven’t needed to file a claim. The systems are set up to largely self-fund based on our premiums. But the backing of the federal government makes the system dependable.
Farming is a tough business with high cashflow requirements. Almost all of us small farmers have other jobs or income sources to pay the living expenses.
I’m not a huge fan of subsidies. “Government cheese” subsidized overproduction of dairy in this country for a long time. It does bother me that a lot of the big grain subsidies go to large, multinational agricultural corporations.
—
That said, my heart does go out to the hard-working folks who were (and are) trying to make a living in dairy; almost no-one works harder than dairy farmers.
—
Nonetheless, smart public policy is necessary to make sure we have a sustainable agricultural apparatus in this country. Grain subsidies help famers hedge bets that they are planting the right crops each year. Some farmers are paid not to grow crops each year, allowing soil to rejuvenate and avoid a 1930s style dust-bowl. In fruit, we make long term bets on planting trees, hoping that decisions we made 5-10 years ago are the right ones for the market when the trees mature enough to produce a crop. We keep those trees, on average, for 30+ years at a time. Tax policy, good lending programs, and some attention from the government on price support ensures that people are willing to risk a lot (their livelihoods and huge investments) to keep farming.
We are lucky in this country that we have VERY productive land that makes us a net exporter of food.
John
All this can be debated to the end of days, but the people voted and they will get exactly what they voted for, higher prices under some fake explanation, but inflation is inflation. What political team you are on makes no difference. Just be honest with yourself and every one else. More tariffs will not be good for any of us regular citizens, they will work out just fine for the 1 percenters only. Enjoy higher prices because those in charge and about to be in charge do not care about you! Corporations do not care about you! Good luck.
AP
Why do people purchase cheaper products? Everyone wants to buy quality, no? The people that are going to buy higher quality products are more than likely the ones that can already afford it. Who benefits from that?
S
I think your assumption that everyone wants quality is misguided.
As evidenced by the prevalence of dollar stores, few people demand and pay for quality. They first demand functionality for the cheapest price possible. Longevity is not always a factor.
If that functionality is available in a better form, then it comes down to availability. If I need to drive out of my way to get get it, it won’t happen.
But also important is the long term stagnation of wages while also dealing with ever-increasing inflation. The millennial generation is now being called one of the most frugal of all the generations so far because of it. It means that while it might only be a $5-10 change in the price, that same item has already been historically effected by other forces , and it makes it worth what would’ve been $20-40 ten years earlier, with wages that have really only averaged a couple dollars more in the same time period. Meaning we’re buying items twice as much wile making about half as much.
Something always needs to give. I personally find myself going out less, which impacts local businesses, and am shopping more frugally, which impacts how much any business makes, which effects how much quality they’ll instill into amy specific product.
JohnBCS
That’s exactly where I’m at. I pay for quality when warranted, but by and large, I’ve seriously pumped the brakes on most spending, and when I do shop, if there’s an overseas brand that offers “good enough” quality, then that’s what I’m going for, and you nailed the reason why: wage stagnation.
Jim Felt
But never once on Wall Street itself. Never. Hmmm funny that. Maybe a pattern?
OldDominionDIYer
I believe the tariff talk is hugely over blown, our president elect is posturing and letting companies know he won’t ignore unfair practices. (read Art of the Deal) Also, he has an excellent history where I believe nearly all his tariffs were sustained in the following administration, unlike nearly everything else he enacted via executive order.
Jim Felt
I’ve read “Art of the Deal” long ago and it was entirely ghost written. We should all draw our own conclusions from that well documented fact.
ross
During the last round of big tariffs at our paint manufacturing company raw materials were available from domestic and Chinese sources. After that tariffs hit it domestic producers increased their prices to match the tariffs on the Chinese products.
It makes sense, why invest in that much to expand when you could just profit now?
Andy
I was recently reading about the Chicken Tax (which started about chickens but ended up a 25% tarriff on imported pickup trucks and work vans), and the Wikipedia page has an entire section on the lengths major manufacturers went to to exploit technicalities in the regulations in order to not pay the tax on vehicles they imported. Yes, the tax code has always been very creatively interpreted, but it seems there is an incentive to get truly ambitious when interpreting tarriff regulations in particular. It will be interesting to see if higher rates or new categories of tarriffs lead to increased creativity, and if so how those situations are handled by US Customs/DHS (for imports on their way in) and/or IRS/SEC/Treasury (for finished goods that are accounted for in corporate tax and regulatory filings) and/or DOJ (for situations where tax law is being flouted altogether). As with all taxes, announcing a tarriff is one thing–collecting it is another.
PB
I don’t see anyone mentioning these two things:
1) Supply & Demand. People expecting only price increases due to tariffs are ignoring this rule.
2) Unfair competition. These more recent proposed and enacted U.S. tariffs have mainly been focused on certain countries that do not follow the U.S.’s goal of individual freedom as stated by the Constitution.
The U.S. is in a global economy. Tariffs can always be negotiated. But doing business with a country such as China, one that manipulates their labor force via lower standards of environmental protection, health, and occupational safety, and let through companies that are state owned has allowed for undercutting of U.S. industry. China’s goal is directed at weakening the U.S. from a defense perspective.
NAFTA similarly has affected much industry in the U.S. From a consumer aspect, this has been great, but from a defense perspective this is dangerous. Additionally, Canada and Mexico are not communist countries seeking to militarily weaken the U.S..
Nathan
As long as it’s tit for tat. Country j has a 10%tarriff on us goods we do the same. Convinces them to remove theirs so we remove ours
Then it’s win win
Jim Felt
That’s not the incoming administration’s proposed game plan at all.
Stuart
That’s a trade war. There are examples of escalating retaliatory tariffs leading to worsening problems, such as Smoot-Hawley tariffs, which are considered to have worsened the Great Depression.
Can you provide any historical examples of trade wars or disputes being win-win?
James
An interesting video by the WSJ explains the potential situation, as well as some of the impacts of the past:
https://www.youtube.com/watch?v=_-eHOSq3oqI
What history tells us is that if imported goods increase in price due to tariffs, the locally manufactured items increase as well.
Products in adjacent categories have also increased even if unaffected by tariffs simply because they can.
Also bear in mind that the US doesn’t have the supply chain for a lot of the subcomponents of complex products, which is why there are so many ‘Made in the USA with global materials’ products out there. These subcomponents are likely to be affected by tariffs (Eg. Dewalt power tools with motors, controllers, switches etc. being made in China)
T
I think the reason why the market reacted so favorably was because of the pre-emptive price increases from a tariff scare. I’m already seeing this in my industry with price notice increases from many suppliers that will come into affect in Jan 2025…. I think Companies are just trying to capitalize on something that has not happened yet. Increase prices w/ tariffs in the horizon? Cool, it was a good decision that managed your risk. Increase prices w/ no tariffs in the horizon? Congratulations you just made extra free margin from the tariff scare., not like large companies will pass these onto the consumers after the fact.
Dave
Great point. My window supplier told me they’re expecting a 25% price increase in early 2025 so I should order now. That’s before any announced changes coming into affect.
JoeM
If it helps, at all, Canadian Trades can write off large portions of the costs of their tools on their taxes every year. Tariffs or not, price increases or not, what you spend on getting your job done is a matter of consulting whoever does your taxes in your province/territory to get the specifics of what is covered on both the Provincial/Territorial portions, as well as the Federal portion of your Taxes.
If you are in a Union, this write-off is a requirement, as some unions get extra qualified equipment covered under their collective negotiations with Government projects.
Example: Electrician or Automotive Union: Need a new Heated Jacket for work this year? Unless it’s bought by your Union or Employer directly, not a write off because it needs to be approved by the Union or Employer to verify it was necessary for the job. Public Transit Workers under various Auto Workers’ Unions: Personal purchase is all the proof needed for the exact same write-off on your taxes.
I admit I’m not sure if the 2024 tax filing will have the same amounts or requirements, but this was an example I knew about in 2022. For Canadians, it’s very important for Trades Workers to consult 1: Their Union Rep for a list that applies. 2: Their Employer for a list that applies to their portion. 3: Whoever is filing the taxes that year for how much is allowed to be credit, and how much is available for tax rebate. Some major trades are able to write off up to half their new tool spending for their jobs, other trades are able to conditionally write off something closer to $10,000 CAD as a maximum. It’s worth looking into the details, but not on the CRA, they don’t speak Human, they speak Accountant. Better to talk to the Humans responsible for taking care of you with receipts and such. Yes, large tool companies like Atlas are happy to provide full invoice receipts where necessary, to have unions and tradespeople get their money back. (I’ve asked. They do it because making sure their customers get the most out of their taxes, usually results in them spending what they get back in the store.)
So I think, putting all that first to ensure the Canadian tool folks know this is available to them, that the prices of pretty much everything are going to go up. It’s up to us to be aware of every possible way to relieve the strain on our wallets due to this impact. It’s not about Country of Origin, it’s going to be about Cost of Materials as well. Certain countries have the raw materials needed to make the tools we use, whether we like it or not. New border tariffs are going to make raw materials much more expensive, thus starting the chain of added expenses as tools get moved to various plants all over the globe for production. Same with vehicles and transport. So we genuinely have to look at caring for our tools to extend their lives, and investing well in quality tools where needed. And for the Love of Ice Cream, check to see if you can get rebates or tax write-offs for your purchases!
Stuart
Let’s run through a hypothetical.
Business revenue for the year: $2000
Hypothetical tax rate: 30%
Pre-tariff tool/machine price: $1000
Post-tariff tool/machine price: $1500.
Profit without buying machine: $2000
Tax: 2000 x 30% = $600
Profit after tax on income: $1400
Profit after buying machine at pre-tariff price: $2000 – $1000 = $1000
Tax on remaining income: $1000 x 30% = $300
Profit after tax on remaining income: $700
Profit after buying machine at post-tariff price: $2000 – $1500 = $500
Tax on remaining income: $500 x 30% = $150
Profit after tax on remaining income: $350
Even if equipment classifies as an eligible business or work expense, you’re still spending more.
If the tools or equipment is for non-deductible personal use (with the same 30% tax rate just to avoid confusion):
Wages: $2000
Take-home income after 30% taxes: $1400
Income after pre-tariff purchase: $400
Income after post-tariff purchase: -$100
Whether you’re spending pre-tax dollars on business or work-related expenses, or post-tax dollars on personal purchases, price increases – for whatever reasons – are still going to hurt. Being able to “write it off” doesn’t change this.
satman
Good post – I’ll post my comments as an industry insider (power tools). There are two major drivers of supply chain decisions that I think many people don’t consider when they think tarriffs will automatically push production to the US for power tool manufacturers
1). US is not the only market for power tools. Sure its the largest, but there are no major players in the industry who aren’t driving growth globally. It is easy to look at this industry through a US lens, but the reality is that the power tool market outside of the US is significant and this drives a lot of location decisions. Over hte past years, most manufacturers have been consolidating demand into a few facilities for greater unit economics based on their demand base. It is a complex web, and quite likely that US production to offset tariffs is not a simple decision.
2) Component base of supply is largely not in the US or even in North America. Most of the components used in many of the power tools today are found in Asia, where there are deep economies of scale, quality benefits, automation and competency. Most of value of a power tool is materials, and not labor – depending on how country of origin is decided (sometimes in court), there may not even be a benefit to bringing “production” to the US as it usually just assembly of components sourced abroad. Good luck trying to find a high quality, low cost, high volume brushless motor supplier in the US.
One more – the industry is in a tough place right now – there is very little appetite to invest in new capital, especially with so much uncertainty. Tariffs may come this term, but they might not stick. Getting power tool companies to manufacturer in the US will take much more than tariffs.
DC
Understand tariffs and I always looked to buy USA, Canadian, Japan, EU before China-tools and household goods. Being a ham operator, I’ve always bought Icom branded radios because they are all made in Japan. Others buy cheap chinese Xiegu, Baofengs, etc. Tha same way with tools. Luckily my tool box is built up from nothing and don’t need anything for a long time.
DC
Just be aware of repercussions from China.
eddiesky
Look. You want to beat China at its game? The Fed has to tariff imports AND subsidize the manufacturing here. The PRC funds and backs all the factories and manufacturing, and allows all “theft” of IP. The only real way to stop it is make it prohibitive to receive items from China, as well as play the same game: manufacture elsewhere and undercut them, as they are with solar panels, EVs, electronics, and Dollar-store junk. Yes, that means fans of Harbor Freight might hurt until HF finds new manufacturing…and it won’t happen overnight.
[redacted]
Stuart
Too political and antagonizing. Please stay on topic.