Trump Tariffs and the effect on Inflation, the American Economy, and Manufacturing

Are Trump’s Tariffs overall bad or good? Will they cause Inflation or Economic Problems?

Like them, Love them, or Hate them…Trump’s tariffs are here (for now, pending various negotiations and legal challenges). What will tariffs mean in real terms? Here’s my take as a Manufacturer. My company and its partners we invest heavily in manufacture 100’s of products in the United States and abroad, source parts from the United States and abroad, sell products in the United States and abroad, and I myself live in the United States and abroad.

I’ll skip to the punchline for those that don’t like to read long posts: The ramifications of these tariffs aren’t bad overall and certainly have the potential to create opportunity in America. I’ve been vocally critical of the implementation of the tariffs and it is my position that the consequences of a sloppy rollout are real for people and should have been avoided, but this post is focused solely on the direct consequences of tariffs themselves.

For context, we (The Thornberry Group and Affiliated Entities) have designed, engineered, patented, formulated, and marketed several products in the environmental testing space, products for the home, personal products, THC products, vitamins, sleep aids, a variety of tools, print goods, and historically even produced candles. Each and every week, we produce 500,000 to 1,000,000 individual items out of our 100’s of SKU’s for both direct and wholesale sales in addition to all of the products we sell through our industrial products rep business that sells products exclusively in many states for 25 third party manufacturers and well over 1000 SKU’s. We deal with these issues from all sides, every single day.

For most of this analysis, I will be using the pictured product (The Breeze Radon Monitor – more info at www.DiscoverBreeze.com ) as the focal point as it hits on all of the important points in regards to manufacturing process, sourcing of products, shipping and customs, and a competitive landscape including companies that outsource their entire products to countries like China where the cost to produce is substantially lower than here in America, at least at high volume.

The Breeze Radon Monitor is a $995.00 product that requires ongoing subscriptions (approximately $40.00 per month) to utilize…sort of like an iPhone. It has a handful of large competitors, mostly manufactured by contract in Asia, most of which are in a similar price range ($900.00 - $1200.00). The parts and components (around 300 parts) come from around 30 different countries, almost all of which have had tariffs added in the last week and half of which had tariffs added during the last Trump Administration.

The last price change (increase) was… NEVER. Just like the iPhone , but that’s because we come out with new models from time to time just as Apple does, but the latest model has been with us for over 2 years without any price increases. From the time of the first production run, until this week, the total parts cost (in the $500.00 range, which in addition to labor puts our margin on original purchase price the lowest in our industry) increased around 10% including all costs – tariffs, taxes, price increases from suppliers, and shipping cost increases.

It’s important to note that the price increases over a period of two plus years being at only 10% is well below the actual cost increases from these suppliers, shipping costs, and tariffs combined. With around half of our parts seeing a 10% tariff (they were parts largely existent in prior models), one would think that we would easily have seen a 20-30%+ increase in parts costs especially with inflation added in, but that’s not the case, because manufacturers make purchases differently than consumers. We contract, long in advance, with limited (scheduled) or even non-existent escalations in prices. Manufacturers buy large quantities of parts that are custom machined often, which means we have to commit to purchasing lots of products over a long period of time from a manufacturer that probably has to invest in training, machinery, molds, and raw materials just for our parts. They can’t do that unless we commit to large orders over a long period of time, and we aren’t willing to commit to that unless the price is predictable.

Further, when there’s a price increase somewhere in the supply chain, like import tariffs, the first thing we do is go back to all of our partners with a “force majeure” issue. In other words, there was a market force that changed the situation outside of all of our control, so we negotiate ways to solve for that. In many cases, we will work together to find a way to reduce costs enough to offset the new issue and commit once again to continuing on with the contract. Sometimes there’s a shipping company willing to participate for less, sometimes we make adjustments to packaging, sometimes we can even get the manufacturer to reduce the cost if we commit to extending the contract. It’s all on the table.

We’re not alone. Everyone of decent scale does it this way, and it takes an army. Manufacturers, retailers, importers, distributors and everyone else in the market does it.

After all of that work is done, we’re left with how we handle the remaining increase. Let’s say with all of the new tariffs from this past week that we can limit the impact to around another 12% on foreign parts, which equates to around 4.5% additional cost on the product itself.

What do we do? There are a few paths to consider;

1. Raise prices, at least enough to cover the differential and re-establish expected margins.
2. Take a haircut on profits.
3. Find other ways to offset the cost.

We always prefer the third option and avoid raising prices on our customers whenever practical, but depending on the product sometimes taking a haircut, raising prices, or a combination of both is unavoidable.

In the case of the Breeze Radon Monitor, we will not be raising prices, as we’re exactly who benefits the most from protectionist policies like these tariffs represent. I am not really a fan of protectionist policies, I’d rather win on merit alone for ego purposes, but I suppose I should thank our Commander-in-Chief for the gift (outside of the market turmoil that in our estimation was avoidable). Our competition, at least all of our largest competitors, are at an incredible disadvantage since they outsource their entire supply chain and assembly overseas in many cases. We might see a 4.5% net increase in cost of product, but they will see a 15%-25% increase even after they negotiate everything they can. Their entire process is now subject to tariffs, and many of them took the haircut last time around since they were already losing marketshare to Breeze. This time, they’re very likely unable to absorb as they will be at a loss.

As it turns out, we might make up for taking a haircut on profits on this product through volume when we move from being the absolutely most advanced product in the marketplace ( https://discoverbreeze.com/SaveMoneyWithBreeze ) toward the middle-high range of market prices to inevitably a low-middle range of market prices as our Asia-Dependent competition is forced to raise prices due to lack of American production. We’ll still have the best product, we already have 20,000+ square feet available to produce this product, we have the processes and automation, and most importantly we have a well-trained staff supervised by an engineering department. It took us 4 years to develop the facility to the level it is and an additional 2 years to get the automation and engineering assets to the point they are.

Granted, we could have moved a little faster especially if we already had an established product and weren’t in R&D always improving for our clients and ensuring it was the best in the market, but it would still be a process that takes years as it would for our competition to onshore this production.

The end result, for this product category (Radon Monitors) specifically:

The net number of Radon Monitors built in America will undoubtedly go UP.
The net number of employees building American made monitors will undoubtedly go UP.

These are both good things, but there is a downside in terms of inflation which is effected by every product and service in the market (even if on a small level), as the lowest end of the market will see an increase in prices. As much as we like further dominating the industry, the cheap Radon monitors have a place. This inflationary effect may be offset by the fact that our product has some features that save the user time/money over the competitive products, but that’s something that gets absorbed overtime and doesn’t fully offset the upfront expense. Which is the case with many products – oftentimes American made products are higher quality, longer lasting, and better in ways that have a positive ROI.

The net number of parts/components going into our Radon Monitors being produced in America? Probably not going to change much anytime soon and will likely remain around 50%. So that’s a neutral. Many of these products CAN be made in America, like resistors, wire harnesses, wire connectors, cables, tiny screws, etc., but even a double digit tariff wouldn’t make them cost half as much as the cost of buying these types of products in America. Most of our old machine shops (my great grandfather’s business) were active circa WWII and many have closed long ago (take a tour of Rockford, IL if you want to see many still standing – stay at the Embassy Suites which used to be one). It’s just not reasonable to think we could get there anytime soon unless there is a major push to automation (including robots instead of humans so they can work 24/7 without a paycheck to make up for the difference). I suppose if that ever happens, it may become a savings (including the cost of shipping) to make small parts and things like socks and t-shirts in America.

The net taxes paid into our Federal Taxes from Breeze Radon Monitors? Goes up by $30 a unit, roughly. We will probably have a lower profit margin but higher profits overall, so we can live with it I suppose. We like paying taxes. We all enjoy living in the greatest country in the world. At least half the time .

I could go into other products and I am happy to in response to any questions or input any of you have, but for the sake of brevity let’s keep it to this one, which you can apply much of the same idea to similar products, and conclude the following;

There will be more jobs, a relatively small amount of one-time (aka “transitory”) inflation, more taxes to pay down the debt, and a lot of turmoil for smart business owners to navigate to their advantage. Speaking of, you must be one hell of a fan and a thoughtful individual. Thanks for reading this far. Share this post and I will see the share and will message you a very special offer so keep an eye out on your messenger. It might involve Blue Moon Hemp products (and who doesn’t like those products! www.BlueMoonHemp.com ), might involve a discounted vacation to the Dominican Republic from El Grupo Thornberry ( www.GrupoThornberry.com ), you never know! It costs you nothing and helps the world get a little bit more educated and maybe realize that everything they buy isn’t going to be 25%+ more expensive next week. Consider it your good deed for the day . If you’re reading this on our Forum ( www.the-forum.net ), go to Facebook and find me. My profile is public. My name is P. Nathan Thornberry and even if you don’t like me…you can debate me there publicly.

Now let’s look at the reverse – China puts a “retaliatory tariff” on the United States for the fraction of goods they buy from us vs. what we import from them. It may have some effect, but not on any of our businesses. We don’t have customers in China. Most companies here don’t. For those that do, I would think their Chinese counterparts have much the same issue. If it were something that was reasonably available in China, they’d be buying it from there already. Just like we do for around half of our components in the Breeze Radon Monitor, including the custom plastic injection molded case – made in Michigan, in the shadows of what used to be the center of our Automotive Manufacturing Industry. In a building that used to make Auto Parts.

Looking forward to your take, and thanks for reading.

P.S. I like the Auto Tariffs, but we should eliminate all the other tariffs on Canada. They’re our buddies. Their people make normal wages. They don’t have to be our “51st State”. They’re basically like California, but a little colder.