Dashboard: Mitigating the Impact of the Tariffs

[Music] Welcome to another 21 Hats dashboard. I'm Lauren Feldman and I'm here with Jean Marks. Hello, Jean. We're back. Hello, Lauren. How are you? It's been a long time. It's been about a month. I'm doing great. How are you doing? Has it been a month already? Jeez. I think it has. You've been hiding on me. I'm so sorry. I don't think it's been that long. I'll have to go back and check, but okay. We're here. And that's what's most important. Jean, there's been a lot going on lately. Um, there has. I think you're aware of it. Um you in fact I know you are because you've been writing a lot about the tariffs in a number of places in a number of ways. Uh in particular you've been trying to offer suggestions for what businesses that are affected by the tariffs can do to mitigate them at least to some extent. Can you tell us about that a little bit? Yeah. So, uh, first of all, like, um, I did like the AICPA's, uh, you know, monthly town hall last week where I talked about who's town hall? The American Institute of No, the, uh, International CPA, Association of Intern, it used to be the American Institute of CPAs and now uh, they they're now international. So, it's the uh, International Association of International Certified Public Accountants. Okay. There'll be a quiz after the show. Yeah. Right. And and you know they do this monthly town hall which gets I don't want to I don't want to make you throw up here Lauren. They get like 30,000 views on their town halls. Wow. So I know that can't compare you know to the you know 21 hats. That's almost as much as I'm getting. G. Yeah. But it's just like wow. But anyway they do it really professional. That's neither here nor there. We we talked tariffs there and then I did the New Jersey CPAs and doing some other you know media about it. people want to know and and like you and I talked about even before we went on started recording this like you know you and I could debate forever the good the bad and the ugly of tariffs and there's more ugly than good but um the bottom line is is that we need to you know we're running people are running businesses and they need they need to navigate their way around so I wrote a a lengthy piece for the inquire the Philly inquire last week uh called the small business owners guide to uh navigating tariffs you know and and I I had nine things in that article We don't have to go through all nine of them, but we can talk about a few of the ones that I like. So, um, and jump in, please, if there's, you know, you know, um, you know, you want to jump in. You know, I will, G, you know. Yeah. Why am I even saying that? Um, first is free trade zones and bonded warehouses. You know, um, I, um, found out this through doing some other research. I wrote a whole article about it a month or so ago and I revisited it again. So, you know, all around the country there are a number of what's called free trade zones or bonded warehouses. And sometimes they're one and the same. The bonded warehouses are inside of free trade zones. These are designated by the government. They've been around for decades. And um they're tariffree zones, which basically means that if you if you rent out space in a warehouse, a bonded warehouse or a warehouse in a free trade zone, and there's a cost for doing that, of course, but if you do that, um whenever you receive uh you inventory in from anywhere around the world, and yes, even China, um it comes into the bonded warehouse or the free trade zone warehouse, and you don't pay any tariffs on it at all. uh what you do, you do pay tariffs when you take it out of the warehouse. So, I've run into um companies, clients of mine in fact, that have made use of these warehouses. They're they're buying in bulk or they've been buying in bulk. They keep it in that warehouse and then uh they're hedging against negotiations, you know, like in other words, um they, you know, they feel that a lot of these tariffs, there's a lot of threats going back and forth, but in the end, it's just a negotiating thing and they're going to be negotiated down. So their theory is why would I pay a higher tariff now on goods that I buy when I can bring it into the tra free trade zone you know if I don't need it right away keep the inventory there and then for all I know the tariffs get negotiated down and when I pull it out of the free trade zone it's you know I'm paying a much lower tariff rate so I have clients doing that I have let me ask you about that gene sure do you have a sense for what the the warehousing expense is it commenurate with typical warehousing fees Or is it more because it's a free trade zone? No, no, it's commensurate with typical warehousing fees. Uh the fees are more um tenuable the more that you're is that a word tenable? They're more acceptable the longer you can keep uh the uh you know the the inventory in the warehouse or and the amount of the inventory that you have in the warehouse as well. So you know they kind of varies but they are definitely less uh than what you'd be paying on you know tariffs depending on the value. Well the you do have to pay the tariff eventually obviously. Do you have any a sense of h how much you have to be warehousing or how long you have to keep it there for the economics to work? Uh really depends really depends but it would be no long no less than a month you'd be keeping it at a free trade zone warehouse. That would be like your starting point and then um they calculate it based on different factors. I mean some of it's based on the value of the inventory, some of it's based on uh how much space you the inventory is taking out. So, it really is a matter of um doing the numbers and talking to the free trade zone uh warehouses or the bonded warehouse operators, getting the cost from them and then and figuring it out. Now, do you think there's one of these in every state, every city or Oh, yeah. There's multiple ones like Philly, for example, where I live. Uh there there's a dozen of them in the area. Um and that, you know, there's also some, you know, throughout New Jersey as well. So, they're all around the country. There's there there's various zones for doing this. It's definitely worth a call and pricing it out. The other thing to keep in mind, Lauren, is if you bring um you know, any items in and you do, you know, international sales. So, say you bring in stuff, you're housing it, and then you turn around and sell it out of the country. Um you could avoid tariffs altogether if you do that into a bonded warehouse or or free trade zone warehouse. So, because it's just coming in and going out, that's what the rules say. So, that's another way that you can get out of the whole tariff mess as well is doing it through that way. And then the other thing that I've had some clients do is you can even reduce your tariffs if you're bringing in parts from different places, but then you actually have space in those warehouses where you can do some assembly and manufacturing if you're able to do that. And some warehouses allow their customers to bring in equipment and do that work. And in that way, um, you know, you can reduce, uh, the tariff rate that you pay because you're assembling it, manufacturing it here in the US. And when you pull it out of that warehouse, you would be paying it at a lesser rate. So like everything else in this world, it like it depends, you know, it, you know, it's up to the business, it's up to the inventory, it's up to the the economics of it. But if you're looking at you're buying materials, you know, overseas and you're getting, you know, hit by tariffs, particularly if you're buying from China, um, I think it's really worth making a call, googling free trade zone warehouse or bonded warehouse in your area. You should be making a call or two and pricing it out because it might save you some money. Got it. All right, that's one. Uh, I love the World Trade Centers Association. We probably talked about them before, but I'll give them another shout out. Um, they are the world, yes, the World Trade Center is like the Twin Towers, but they're actually an international uh membership organization. Companies can join. Uh, you can get knowledge from them as a member or as a guest. Uh, but you know what they do is um I have I've written about them in the Inquire and I wrote about them for the Chicago Daily Herald. um they are a um an organization that will match you with suppliers in more tariff friendly areas of the world. So, you know, argument sake, you're buying a lot of materials, say from China or from maybe one of those countries that potentially could have a high, you know, reciprocal tariff if those happen. Um, you know, they will they will you look at the supplies that you have, the products that you're buying, and they have the resource to say, hey, you could buy those same products from, uh, you know, another company in South America, for example, where tariff rates are lower. They will make introductions for you. They will even accompany you on a trip if you want to go there and meet these people face to face. So, they're like a pretty amazing organization. And the the the government also provides similar help. There's the uh International Association of Trade and uh the Department of Commerce has a few areas that also provide similar services, but I'm not sure there's anybody working in the government anymore. Uh I was going to ask, Jean, are you did you check to see if these I'm pretty sure they've all been laid off. So, Right. And so, uh, you probably want to lean more towards a nonprofit like, uh, or a membership organization like the World Trade Center Association. They they will probably provide a higher level and better level of service. I know they're hiring people from the Department of Commerce, too, to take care of the demand. Um, but it's a good way to um to navigate your way around tariffs. You can find alternative suppliers that way and customers, too. So, wtca.org, very, very good organization. Got it. Want any more? Sure. All right. Hey, why not? Um, pricing is important now, obviously. Um, and there's there's let's not forget and and um, you know, this what I wrote about. Um, yeah, I'm an accountant. Uh, you know, we look at financial statements and cost analysis and job costing reports and all that. I just want to, you know, make sure that we're all in agreement or just know that tariffs will, if you get hit by a tariff, there's regardless of what's being said by the government, it is absolutely going to increase costs. I mean, come on. So, that's going to have an impact on your margin. Um, but there are other ways that you can make up for a lower margin. Um, two other ways. One is you lower other costs maybe in your SGNA, selling general administrative expenses. uh you know maybe it's if you haven't in a while taking another very very hard look um at the money that you're spending elsewhere the efficiencies that you have maybe now is the time to invest in some type type of technology that um can eliminate a person or at least get more done with your existing people. So there is a you know there there are ways to make up for an in you know a decrease in your margins there. The second way of course is increasing prices and you know there there there's two ways to go about that. There's the right way and the wrong way. The wrong way to increasing price is just to have this blanket price increase, you know, across the board. And and I, you know, I, you suffer when you do it that way. I I look at these tariffs as an opportunity to really take care of your best customers. I mean, we we're keeping data. We've got accounting history. Um, a lot of my clients know what they're pricing to their customers. They know their best customers, their most profitable customers. So, they're targeting price increases. I mean, they're increasing prices on those customers that aren't as profitable or aren't, you know, kind of a pain in the neck. And, you know, for other customers that they're already very profitable with, um, or have good relationships with, I see them holding back on considering price increases to those customers because they're, you know, their profits on them are fine and they can make it up somewhere else. So in the end my my advice and what we've been doing with our clients is saying you know you got to look at your you know your sales by customer and your profitability by customer. If you need to start raising prices the tariffs are impacting you that much. Um you know you pick and choose which customers you want to do and for how much. And the other thing is you can also consider you know if if specific products are affected and other products are not you can you can ease the pain a little bit by spreading those tariff increase those price increases across all products so that you're increasing prices on all products but a smaller amount than if you were hiking prices on another product. So you know there are those strategies of pricing that I think you know people need to be looking at to mitigate these um you know these tariff increases. And obviously that depends as well. I mean, not everybody can charge different customers different prices depending on what the business is, what the product is. You're right. But, you know, assuming you're a B2B company, assuming that you're selling, you know, stuff, you know, off the shelf. I mean, you're right. If you're a retail shop, that's a different story, uh, or a restaurant, you know, but there are a lot of companies out there that do have more flexibility with pricing. And, uh, if they can take advantage of it, I think they should. What do you think of uh listing the the price increase not as a general price increase but as some kind of tariff search charcharge? I think it's not a bad idea. Um the I am really against listing um uh you know people like like particularly restaurants Lauren you know they get like uh the the credit card financing fee and then they have a separate financing charge on that. Yeah. And that like irritates me to no end. Um because there's so many ways around that and there's that's a another conversation we can have. But tariffs are definitely um a special thing and we also we hope not a long-term thing. So um I I I think in this case with tariffs, I don't have a real problem um seeing that there's there's a price increase for tariffs. just be really careful if you're going to do those, you know, have that line item that it's it's a reasonably calculated increase, you know, because people aren't stupid. So, you know, if you have a 30% increase in your a price, you have a line item with that, people can do the math, um, and people can also see what, you know, overall tariffs are going up. And, yeah, you don't want to raise any eyebrows by doing it. But I don't think in the case of tariffs is such a bad idea. Got it. So, you know, the last time you were here, we did have a conversation that touched on some of this, and at that point, at least, you were pretty confident that the long-term gain would be worth the short-term pain. Are you still feeling that way? I am. Yeah, I really am. Um, and again, you and I can debate this, you know, for a while, but, um, I have a piece this week in the Hill that, um, that that goes that sort of talks about that, and I also have a a piece in the Guardian that addresses that as well. Um, but you know, I my you know, my strong my strong opinion and again hopefully you and I can talk about this over the next six months is that over the next three to six months um a lot of these tariff issues are going to be resolved. I think um you know Trump will walk away uh with better trade deals with a lot of countries that we didn't have before. And that's all well and good. I think that the real action, the real war, it's all going to be about China. I really do. And I don't I am not uh bullish on that. I think that this is um you know, China is going to be the main focus once all the other tariff, you know, stuff is out of the way. Mexico, Canada will get resolved. China's not going to be resolved for a while. Um and and the backstory on China, you know, Lauren, is that we, you know, this brought me back. I was thinking about this like back in 2018 when I was running around the country talking to trade associations like I am now. I was talking about tariffs and I went back and looked at some of the powerpoints and I was like, geez, I had like five slides on China because it was all about that. I mean, Trump was coming after China back then and then he was making all sorts of demands. Uh, you know, and then like as they were trying to follow through with it, COVID happened. He had lost a lot of political capital at that point. He had lost Congress by that point. It just kind of fell away. And my take is that he's, you know, we're only three less than, you know, 100 days into his term. He's going after China hard uh because I don't think he wants to make that same mistake anymore. And that's going to be rough uh for for companies that are dependent on Chinese goods because it's not just about tariff rates with China. If you look back what he wanted back in 2018, it goes well beyond that. I mean China right now if any company American company wants to open up there, they're required to make a Chinese company or the government a 20% equity partner, you know. Um and there are ownorous technology transfer rules which gives you the government of China access to American technology. There's stealing of technology as well that we all know goes on as you know there's dumping of products. He had a whole list of demands um that he was making on China back in 2018 that were well and above just reducing their their tariff rates. And you watch over the next couple weeks those list that list will reappear and this will be you know it's going to be a full-blown trade war. I I just, you know, this is it. Um and and I think that's what we're looking at. And I think that, you know, again, companies that are relying on Chinese goods, uh are going to be in trouble over the next couple of years while this war, like any war, is going to play itself out. Do you agree? I mean, does that does that make sense to you? Um to an extent, you know, I would say this. I I I think there definitely is a case to be made for tariffs against China. I mean, when he did it during his first term, my initial reaction was to be dubious about it, and I read a lot of economists who I think were dubious about it, but a lot of those econ economists came around and um and Joe Biden kept those tariffs when he became president. He increased them actually. Uh and and looking at it today, you know, we can't allow China to make everything. So, uh there there's certainly a case there. the the way it's being done, the uncertainty that's being generated. I think as we talk here, the the tariffs 145% 185% I was reading in some cases. Oh my gosh. So, you know, I know some people who are manufacturing there who are, you know, I could see just getting crushed. And I guess it feeds into my, you know, kind of my overall question and why I'm a little bit surprised that you still think the uh the long-term gain will be worth it. I I think that the the president has sold this in a number of ways. You know, we've talked about it. He's talked about it increasing revenue that will pay for tax cuts. He's talked about it creating a level playing field that will open up other countries to our exports uh more than they are today. And he's talked about it uh reshoring manufacturing here. And and to some extent, I'm sure uh and I'm talking about the tariffs all around the world, not just China. I'm sure some of that will happen, but but it can't all happen. Do you know what I mean? some of those are contradictory. You're not going to both get revenue and get a playing a level playing field uh and reshort manufacturing. And you know, on top of that, you have the way he calculated his quote unquote reciprocal uh tariffs. Crazy as well. I know it doesn't give you a lot of confidence that this is being done in a smart methodical way that is designed to produce the results we want. Yeah, I I couldn't agree with you more. Um, and you the uh methodology by the way he goes o after things. I mean Elon Musk is the same way. I mean it's just it's anything but you know seemingly thought out and methodical and all that kind of stuff. Um so I I can't argue with you there. Um but you know his that's always been his style. He throws a lot of [ __ ] at the wall and sees what's going to stick. Um and then you know negotiate things down. The the the issue is that it's different. It's one thing if he's doing it for his own company. It's a different thing when he's doing it as president of the United States where there's a lot of collateral damage. a lot of people suffer, you know, because of this, you know, kind of kind of um, you know, process that he has or lack of process. So, I'm definitely not arguing with you there. Um, but I do also agree with you that there's, you know, something does need to be done about uh, China. It's it's really um, tilting in a direction that we don't want it to be. Um, you know, we are very very reliant on China. We are just a straight out consumer society now. A lot of our infrastructure has gone away. That's just not going to change overnight. So, um, you know, he's trying to do something about it. Um, there's going to be pain. People are going to suffer. For one thing, I can I just I can tell you, and I know I'm sure you talked to a lot of business owners that are that are upset about this stuff and whatever, but I I I can think of one client that I have um that used to buy 60% of their materials from China. And this was back in like, you know, in the late teens to 201 uh 2000, early 2020. And um they changed it. They found alternate suppliers, you know, they see the writing on the wall, you know what I mean? They, you know, they they took action. Um, and they did. The other thing, the same client did, I'm not saying these guys are like geniuses, but they're certainly not idiots. I mean, when Trump got elected, um, they, you know, they did move. They carved out space in their warehouse um, and brought in two pieces of equipment that could be doing certain like cutting and slitting and and processing. That's the kind of company they are. to deal with paper and film products because they used to have people doing that for them in India. Um, and after Trump got elected, they were like, well, we really can't do that. We we'll buy the product where we can, but we got to do more of that stuff here. So, they saw it. Um, so it's I don't know. It's kind of like, yeah, good for them. And there's a lot of business owners that either didn't see it or they just didn't do it and they're suffering for it right now. And and that's that's also a fact. You know, that was the one thing that made me cringe. I forget which piece you wrote it in, but you did write that if you're still manufacturing in China, it's kind of your fault. You should have known this was coming. And sorry, I have a hard time with that. I um I think you know, every situation is different. Um you are certainly right that there are people who saw the writing on the wall and they adjusted and I know some of the people who did that and good for them. Uh but two things I guess. one, you know, China is just a different animal. And there's a reason why people went there. They found people who were u factories that were more willing to give them what they needed. There was more capacity there. They were just able to do something that if they hadn't gone there, they might not have had a business. And I have a certain amount of empathy uh for them. Fair enough. They took the shots. And like any business, that's, you know, there's risks for doing anything. And um I'm assuming I don't think anybody anticipated that it would go this far this fast that you know the the numbers would be the kinds of numbers we've seen. The other thing is I know some people who did adjust and they've paid a price for that too because they went to Vietnam and the numbers there are you know not as bad as in China but but also bad. So uh there there are people who who tried to be proactive and got burned because they were Yeah. I mean, there's obviously there's a lot of different case studies of people that won and people that lost during all of this. Um, but in the end, uh, you know, getting back to the beginning of our conversation, I really I do expect, uh, all the tariffs with the EU, with Mexico, with Canada, um, I think that stuff's going to be negoti negotiated out over the next few months, um, and resolved. And I do think actually it's going to wind up being resolved favorably to the US. Uh, so fair enough. You know, good for him if he's able to do that. China is just going to be a different animal. Um, and as you can see now, they're not certainly not backing down. As a culture, China can't be seen as backing down. I mean, it would be like, you know, President Z would be would would lose, you know, all of his political support if he showed weakness versus America. So, there's, you know, there's that. Uh, but then again, here politically, um, you know, Trump's choosing the enemy that, you know, bipartisan people can agree on. I mean, you know, I mean, we love the Chinese people, don't get me wrong, but you know, there is not a lot of love for the government of China and uh so, you know, whereas Trump might upset Americans because we're fighting with our friends in Canada and Mexico and Europe, um he's not going to upset as many if he does, you know, fight China. My only issue with that, my my biggest fear is not even economically, but you know, if the screws are turned too hard on China, this gets prolonged. Does this ever turn military? You know, I mean, do they do they use Taiwan as a reason to get negotiating, you know, uh, you know, I don't even want to go there, G, but I I you know, my concern at this stage is the collateral damage, the people that get hurt uh along I think it's a bigger I think there's bigger issues as well. So, we'll have to see. But meanwhile, we have businesses to run. We got to navigate our way around them. So that's uh you know, this is the reality of what it is. And I'm speaking, you know, um like I said, like next week I'm in I'm in Portland speaking to electrical contracting and distributors and they buy parts from all over the world and they're trying to figure out what to do about tariffs. I mean, these are the headaches that we have. Uh do you know what you're going to tell them? Yeah, very similar to what I told you. you know, I mean, first of all, I'm going to go through different tactics for, you know, trying to keep this down, you know, keep the cost impact as low as possible. And then I'm going to tell them as well, uh, be if you're doing business in China, you better get the [ __ ] out because it's going to last for a while. Uh, and this this is something that you're going to have to adjust your business to. So, that we'll see. And I'll take a poll of the room to see how exposed uh the members are. There'll probably be two 300 people there to see how exposed they are to uh uh, you know, Chinese tariffs. their businesses meanwhile how exposed they are. I will be eager to hear what you learn. Yeah, it'll be it'll be exciting to hear as well. Um these are definitely interesting times. No, no doubt about it. Gene Marks is a CPA who writes weekly on small business for the Guardian, The Hill, the Philadelphia Enquire, The Washington Times, the Chicago Daily Herald, Forbes, and Entrepreneur. You can also hear him on ABC radio's Eye on the World with John Bachelor. Gan hosts two small business podcasts with Paychecks Corporation and the Hartford. Thank you, Jean. Thank you, Lauren. We'll see you soon. Have a great week, everybody. [Music]