I filmed this video for the forum because I wanted to show an example of where value goes to die. What starts as a pretty lucrative deal becomes....
This is close in numbers to a deal was recently considering. The one thing I have made in China. The tariffs would have popped up during the production process. It would have already been in motion. I would have also had to carry nearly 50 grand of this gross deal for 120 days if everything went smoothly. For 6 grand that I would get to keep. This deal died on timing, the client drug feet on a down payment to the point where I wasn't comfortable with their delivery schedule... I am sure glad that happened.
That 25% doesn't sound like much, but it is HUGE when it is slapped right in the middle of a supply chain. My effective tax rate on this deal would have been 70%.
You get 6 thousand dollars for your hard work and risk.
The government gets 14 thousand because you'll go to jail if you don't.
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Most liked posts in thread: If you import from China, this may be relevant.
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If I may be permitted to boast a little, I have been several years ahead of the game. My sourcing and importing book editions 2017, 2018 and 2019 have all promoted the desirability of sourcing from countries other than China, and provided genuine B2B links to many exporting countries.
Unfortunately, complacency and laziness have kept thousands wedded to China suppliers, and they are now paying the price.
I posted this in Oct. 22, 2014 in my AMA thread:
I have directed many people to other countries where they have been able to obtain better quality at the same price as in China, or sometimes they have bought similar quality but at a lower price. In some cases they have found unique products not produced in China.
Sourcing from China is easy, although many people get burnt for that very reason. They think it is so easy that they can be careless about sourcing. They treat it as casually as buying from their local store and they blindly accept everything they read on B2B sourcing sites.
Sourcing from other countries will require greater expertise, but I have taught many people how to do it. Those who do begin sourcing in other countries may well be one step ahead of the competition in a few years’ time.
In my business, the Trump tariffs are going to add around $100,000 in tariffs to machinery we want to import, and affect 15% of the products we're selling.
For the other 85%, we're going to kill it. Why? Because we built a business that's not reliant on China - especially when the president has week after week said that he's going to put tariffs on China. There's individuals that source solely from China... and now they're F*cked. Meanwhile we're going to bite away at their market share bit by bit until Trump takes away the tariffs.
Note: My take is that this is a phantom trade war. The 25% tariffs won't go into effect for long.
For your business: Ask yourself where everyone is buying from. If it's China, then your innovations will allow for a 25% revenue increase. If it's not China, then you better start searching for another supplier - and quick.
This is raising taxes. Pure and simple.
Not sure why Republicans cheer him on and Democrats get mad. I am never in favor of the government seizing money out of the economy.
And for what? What is that money going to go to? Not American manufacturing jobs. Just the black hole.
The problem is, he hasn't explicitly said it because it would ruin his negotiating leverage.
Call me old fashioned, but I tend to believe the words that come flying out of a POTUS mouth with no teleprompter against his advisors' strong suggestions to tamp it down...
Trump shooting from the hip "I am a tariff man." Me listening "I guess he likes tariffs." Getting this elaborate negotiation narrative out of what he has said is putting words in his mouth.
Now there is a fork in the road here.
You either trust the government knows what is best for us.
Question it because they have given us every reason to.
I do know there is nothing as permanent as a temporary government program.
What do tariffs really do? They intentionally add 1:1 inneficencies to the supply chain of importers in order to "make domestic companies more competitive."
What is the ripple effect? They put US companies on the government tit. They aren't built to withstand global competition and they aren't forced to innovate or improve processes. Why? Because they don't have to. It stagnates growth of the very industries it is designed to help letting the rest of the world pull further and further ahead. Isolating us totally backfires.
If it is all a negotiating scheme... I will be happy to see all of this roll back to some very favorable terms of international trade.
In the interim. Tariffs are taxes and I am never going to believe direct government created inefficiencies are pro-business policy. It makes government richer at the direct expense of business.
By the way... For those of you wondering, yes I am a Trump supporter. My wife and I go to an event at his home once a year... This isn't coming from a "Never Trumper" or a Democrat.
I totally agree with @Walter Hay about how China is maturing and there is opportunity elsewhere. When I was primarily importing, it was out of Mexico.Last edited: May 8, 2019
China wants to wait off closer to the election to figure out whether or not Trump is getting re-elected. Meanwhile Trump is forcing them to make a decision now. Either they take the deal that he's offering, or they risk being screwed for 5 more years assuming he wins in 2020.
Personally, I'm 100% behind the tariffs. China will cave before the U.S. (Trump) does.
An individual whose opinion I admire on the topic is Marty Davis from Cambria. Essentially, his main point is like all economists, that economics supports free trade. However, you cannot have free trade without fair trade (lack of subsidies, excess of government loans, free electricity, currency manipulation, etc.).
What Trump is doing is enforcing fair trade in order to allow for free trade. Tariffs are an enforcement tool, and Trump is using it as such.
These tariffs are really low risk, really high reward in terms of getting China to do what the U.S. wants.Last edited: May 8, 2019
I don't think China will cave.
The beauty of communism is all they have to do is be patient and wait for a new president, either D or R. That will be in 20 months or in 4 years. If they watch American news, they probably think the chances of DJT being reelected is slim and none. So why bother when they can just delay, delay, delay...
It really just shows how ugly tariffs are relative to other taxes. They are arbitrarily slapped on a number in the middle of a supply chain.
Had the landed cost been 50k and expected profits had been 10k... Our effective tax rate would have been 125%... What does that mean for the bigger picture? A voluntary, capitalistic, exchange of value couldn't take place... Only because of the government.
I can show this on video too if it will help understanding.
Last edited: May 12, 2019
From a managerial side... Yes, this is a massive opportunity. Yes, our response to tariffs needs to be quick and unfettered. Yes, that is what can shift things up and put different firms in different places.
The smart entrepreneur needs to navigate shit like this, and often times this can be very good for the people that do.
Now, stand over here by me. I have been looking at the policy perspective.
I am NOT a big importer, but I do import from time to time and it sits as a tool in my tool box. I can easily look in other countries. Not a big deal for me, but I would have been pretty pissed off to be caught in a deal like the one in my video, and it could have been worse.
My issue is that not all bigger stable companies have the option to switch crap around. They might have a really great supply chain, a value forward business and are now bending over for this. It may take months for a medium sized company to heal or learn to like the way it feels. That may be fun for the little guy to watch, but we all hope to be the big guy some day. Government punishing business makes me ill.
What is this from my policy sided view? A destruction of value, a very high tax, and a strongly anti-business policy.
We are both right. You are glass half full and I am glass half empty. The opportunity this brings is subsidy so I’m not going to cheer it on.Last edited: May 12, 2019
Tariffs hurt businesses by raising costs, plain and simple. The proper response by US businesses is to find another place to source from, and the proper response by Chinese businesses is to find ways around the tariffs. They will, and they will.
Not saying that paying the 25% tariff is bad if you're unable to source from elsewhere and you can still make it work. If you can't, though, you're going to either find another sourcing country or you're going to have a bad time.
This is another policy that makes my blood boil! I know that there are more important issues, however, this one is painful for my business. A friend and I did a lot of research on a niche and found ten products that we took risks on and made a lot of innovations on. We ordered many samples and it took us a lot of time and energy to innovate the products. Now we have to import from other countries because the labor costs are too expensive in North America.
What your video is missing is the opportunity that was created by these tariffs. Companies that have been better prepared will gain more market share and knockout the competition. This is every entrepreneur's wet dream. The entrepreneurs that know how to source, and are willing to put the work in to create a new supply, are the ones that are going to dominate the market.
The ones that are going to lose are the ones that are scared of change, ignorant, lazy or busy, and stuck in their ways.
On top of that, this tariff is something that everyone could've prepared for. It wasn't out of the blue. Trump has been saying that he'll put taxes on China for at least 8 years now. Here's a video of him from 2011:
These tariffs are a matter of perspective. The perspective I choose is that they're an opportunity. Whether you consider this an opportunity or "extra tax" is up to you.
At the end of the day; no matter what party or perspective.. this hurts everybody.
But most importantly, the brunt of it WILL fall on consumers,.. which is just another small invisible dot that lines up to a bigger picture... a reset.. aka a global recession. Things way out of balance, innovation stalled from reaching the ceiling of current tech infrastructure, etc etc.
And I'm just sitting here patiently waiting licking my chops!Last edited: May 13, 2019
We can all play the manufacture in a different country game. What if instead of the tariff of being a country specific tariff it becomes a product specific tariff. So you’re specific widget is taxed at 25% no matter what country it is made. Then Kak’s video applies and the product price goes up.
Personally I’m staying with China. I’ve got a good setup there and can wait this out.
For those of us with decent sized portfolios moving everything fast enough not the get rammed in the a$$ is unrealistic...
But the lite investor will say things like "just buy the dip." Or "trade the vix."
If I could physically buy the dip strong enough to replace the money I lost this morning, I'd have too much cash that isn't working for me.
Taiwan for example is known for superior quality, but a little bit more expensive... now if you switch your production to Taiwan, suddenly you're as price competitive as your competition but with a far superior product.
By switching, in most scenarios suddenly you have the same price, but no tax, therefore making the product cheaper and giving you a huge competitive advantage.
The majority of people that import don't know how to import. They use Alibaba, talk to a few suppliers, maybe do Canton Fair, and that's it. They've been doing it that way for 10+ years, and have always done it that way.
The China-wide tariff allows motivated entrepreneurs an opportunity to outcompete their competition.
China isn't the end-all-be-all. Far from it. It's just the easiest.
You can get the same quality at a better price for most products outside of China. For some, you can't, but that's the exception. @Walter Hay can likely shed some more light on that.
And you know what the industry-wide result has been?
Same demand, higher prices, and better margins because when the industry as a whole increases their prices, everyone in the industry starts making more money.
That's probably not true for all industries (quartz is a recent example of one that's completely F*cked ... 300% tariffs), but it is true for a good number of them.
If you're selling something that people NEED, you're good. If you're selling something that people WANT, you're probably going to take a hit. It's all industry specific.
I think these tariffs are going away soon, so I'm with you there, but there's still risk associated with your play. If Trump wins, and the China mess continues, then you're gambling that in 6 years no one's going to find a better supply and outcompete you. That's a long time to gamble.
@AgainstAllOdds, thanks for explaining the reality of sourcing in the world that exists outside of China, and even outside of Alibaba!
When operating my importing business, I started off before Alibaba existed, and before the internet existed. It is still possible to source products without Alibaba.
I registered as a vendor years ago in order to have access to all the insiders information that their vendors get. I have never sold anything on Alibaba, and I have never sourced a product on Alibaba.
People have come to expect everything to be dished up on a plate, and for some reason they have been fooled into believing that Alibaba is the only service that can dish up all those goodies for the least effort on the part of the buyer.
You are quite right when you say: "You can get the same quality at a better price for most products outside of China.", but you can also get equal quality at a better price for many products if you are willing to untie mummy Alibaba's apron strings.
I also agree that the tariffs will probably not be with us for too long, but meanwhile astute buyers can outsmart and out compete their competitors by taking the initiative NOW.
If the country specific tariffs become product specific tariffs, the astute importer can still win, by buying those products for less outside of China. He/she will be ahead of the others when tariffs change.
Many of the low labor cost countries have very high tariffs, so once again @AgainstAllOdds has hit the nail on the head.
It is worth noting that a lot of production in CVhina is automated, using robots, or at least using fast moving production lines.
Both of those reduce the amount of labor required. In fact a Chinese friend who employs 6,000 people is trying desperately to reduce that number. This has resulted in him installing new technology that substantially cuts the labor cost.
Chinese low prices are not always due to low labor cost.
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