Small businesses lack the wiggle room to absorb cost increases or shift production, and many are reevaluating plans and strategies: ‘We Are at the Limit’ say business owners.
M2S Bikes, an electric-bike startup, planned to build itself a 100-strong dealer network. Then came the Trump administration’s proposed tariffs on China. The firm, which employs five people in Asheville, N.C., imports the bikes it designs from a factory in Jinhua City, China, and says it can’t find comparable motors in the U.S. The tariffs, if they go into effect, would add $425 to the cost of its bikes. The dealership idea is now on hold while the company tries to figure out a new wholesale price that dealers will accept and that won’t kill its profit.
The U.S. has imposed 25% tariffs on $34 billion of Chinese imports, plans soon to levy similar tariffs on an additional $16 billion of goods and has announced it is considering duties on $200 billion more. China has started to respond in kind and is threatening to impose tariffs on up to $110 billion of U.S. goods if Washington moves ahead.
The impact is now rippling through the U.S. economy, and it is being felt particularly acutely by small businesses and startups. Compared with larger companies, they have less ability to deflect higher materials prices or pass along new costs to customers. Tariffs throw a wrench into pricing calculations and eat into profit margins. Smaller firms also are less able to shift production to other locations and have smaller reserves to draw on when times get tough.
Brilliant Home Technology Inc., a three-year-old Silicon Valley startup, had planned to launch its Wi-Fi-connected “smart” light switches in September at a price of $249. The threat of 10% tariffs on Chinese-made electronics forced the 30-person company, which is backed by $21 million in venture capital, to boost the price to $299.
Company co-founder Aaron Emigh said the latest proposed increase in tariffs to 25% put him in an even tougher spot and could force him to seek another round of funding. “We are at the limit of what we believe we can charge,” he said. Moving manufacturing out of China isn’t practical, he said.
Aluminum tariffs are causing Nebia Inc., a San Francisco startup with 11 employees, to consider shifting manufacturing of its $399 spalike shower heads to Mexico from Minnesota, said Philip Winter, the company’s CEO. “It puts us in a really tough place,” Mr. Winter said. The four-year-old company had already been trying to lower its costs and prices to boost sales. Now, he said the company is also looking into shifting parts away from aluminum, which accounts for 40% of its costs.
Losing Faith
The article cited many more examples of small businesses getting clobbered by Trump’s inane tariffs. As I have commented before, if Trump continues, his tactics are likely to cost Republicans the House and possibly even the Senate in November.
Musical Tribute
https://www.youtube.com/watch?v=gO0ybsMUNrc
Related Articles
- Two Views of Trump’s Trade War: Mish vs Karl Denninger on Max Keiser
- Foolishness of Trump’s Steel Tariffs in One Image
- Counteracting Tariffs via Sinking Yuan: What Would It Take?
- US Trade Policy: Not Only are We Stupid, We are Hypocrites
- Republican “Nightmare”: Midterm Risk Rising
Mike “Mish” Shedlock
When Trump puts tariffs on steel and aluminum he should also at the same time raise tariffs on PRODUCTS made from steel and aluminum so production is not offshored and foreign competitors do not take market share from US manufacturers.
I’m not sure you understand…if Trump would double-down and place tariffs on final goods, making it EVEN HARDER for small businesses to turn a profit, why would someone even bother starting a company and creating jobs, and how would that benefit the U.S.? Please think this through man. You clearly have never been in a entrepreneurial position. Why not just outlaw all foreign trade and hold companies captive? I’m honestly surprised someone who reads an economics blog has no grasp on economics, unless you’re just trolling.
M2S Bikes is a company of 5 guys who planned to slap their logo on Chinese made electronic bikes and make a fortune.
Europe has many of these companies importing Chinese made electronic bikes and putting their own logo on them either at the Chinese factory when buying as private label or afterwards.
Brilliant Home Technology used a “threat” of 10% tariffs as a reason to raise prices by 20%…
The company leadership is either totally incompetent or is trying to use Trump as a reason to raise more money after they frittered away the earlier money without much of anything to show for it.
Maybe Elon Musk will be the next one to complain and tell people Tesla needs more funding because of Trump like Brilliant Home Technology is doing.
Any company that tries to manufacture in the US, and which uses steel, aluminum, or chips as a part of their product is going to be hurt, and likely put out of business, by the tariff, unless they move their production overseas. That’s a given. Nothing here is surprising.
Trump’s problem is that he puts in TOO FEW tariffs.
When he puts tariffs on Steel and Aluminum he should also increase tariffs on PRODUCTS made from steel and aluminum the same amount so further offshoring of production to get around tariffs is not an option and foreign competitors can not take market share like happened to the US nail manufacturer after steel prices rose so their customers started ordering imported nails instead of accepting price hikes the US manufacturer tried to pass on because of higher steel prices.
Interesting blog post about how tariffs aren’t just the added fee, but all the screwy accounting and billing needed just to keep track of them.
Another example of excessive presidential power. Congress should be the power that sets tariffs, not the president. Trump is showing us that the president of the USA should be similar to the King/Queen of England, nothing more than a figurehead. Then Trump can busy himself giving rah-rah speeches, watch TV and twitter all day.
Congress is totally owned by lobbyists and special interests.
Trump, flawed as he is, is the only hope for some reasonable policies.
The problems were created by Bill Clinton accepting a crappy NAFTA to please donors and multinational companies and George W. Bush accepting China in to WTO to please donors and multinational companies.
Mish needs to be careful with these pieces that are critical of Trump’s agenda. Most Republicans believe that Trump should have the power to close media outlets that are critical of him or his policies. Only positive articles praising the Great Leader will be permitted.
The purpose of the tariffs is to make US manufacturing more competitive. And, in theory, it would if every country imposed the same tariffs against each other. The problems occur when country A imports iron ore at say $100/ton while those in country B have to pay $120/ton for the same thing. Everything made in Country A that uses iron would have a cost advantage over country B
I think in the end there will be a compromise between the US and China and the trade deficit will shrink a little. Both sides will claim victory. But, there will be some short term pain.
this is about the dumbest thing I’ve ever read re: imports/tariffs in my life. Ever heard of comparative advantage? You’re saying you and Trump have this idea nailed down while 99.99% of economists are wrong. And have been wrong since Ricardo.
Uh huh, sure.
Well, sort of. We started with steel and aluminum and chips costing the same in all countries. By putting a tariff on, Trump has created a situation where steel, aluminum, and chips cost more in the US than elsewhere, so it now makes sense to stop manufacturing in the US, and move production elsewhere.
Anyone who would pay $249 for a “wi-fi light switch” is the same fool who will pay $275. Your problem is limiting yourself to one supplier thousands of miles away in a country that will steal your intellectual property (if there is such in a light switch) and then compete with you using a cheaper knock-off.
How damn hard is it to make a light switch?
Another one bites the dust. The only television and monitor manufacturer in the US is shutting down, blaming tariffs.
small businesses bummed cuss the can’t import that low quality junk ,slap your label on it,mark it up 1200%
Like that time back in the 70’s and 80’s when those low quality junk Japanese cars were imported and people stopped buying the high quality Chevys, Fords, and Chryslers.
$249 for a light switch that is supposedly smart. How to turn something cheap, into something expensive, without even a tariff involved.
Yep, a wall device with a camera, microphone, Alexia and 3rd party accessibility I want one of those in my bedroom.
The math is off on these price increases. The light switch tariff of 10% would be 275 not 299. This is only on the wholesale price and maybe even just a portion of the components. Same with the bikes. It sounds like these guys are using this an an excuse to raise prices disporportionately. The good news is that maybe we will get the much needed inflation that the govt wants to bad. Sounds like a win again.
Who knows, maybe an entrepreneur can now start manufacturing the components competitively in the US. Also, why is govt keeping the tariff/tax, instead of refunding it to effected businesses (any company that made political donations would be excluded)?
$249 for a light switch? (plus tax). I would not invest in that.
But you can turn the light on/off using your cellphone!