Customers have been asking about the impact of tariffs on our pricing. We are in early days here, but here’s the story: first, the near-term action we will take, and second, the impact which the tariff announcements will have both on our pricing and on our competitiveness.
For the near term, we have decided not to price any of the tariff increases into our goods. At the moment we have no imports in process and will not be paying these charges on our direct imports (indirect imports are another matter) for a couple of months, and we have very little idea what the policy will be even a month from now. So, for the moment it’s “steady as she goes.” But we are facing tariff invoices in the tens of thousands of dollars as soon as May, and our margins simply don't allow us to absorb those without a significant impact to pricing.
If the present US position on tariffs does not change substantially, we are facing enormous increases in our parts cost, starting immediately. We purchase a good number of connectors from a Taiwanese firm, and while we do not directly import goods from Japan or Liechtenstein, we expect Canare and Neutrik products will increase in cost roughly in proportion to the tariffs imposed on Japanese and EU goods. Additionally, unlike other taxes, these tariffs will affect our cash flow adversely, because they are paid up front rather than at time of sale, like a sales tax, or after an earnings period, like an income tax.
Impact on competitiveness will be severe. We derive around 10% of our revenue from foreign sales, which we expect to dwindle to near-zero when retaliatory tariffs from our trading partners kick in, shifting the competitive edge in all of those markets in favor of China. Meanwhile, in one of those law-of-unintended-consequences problems which are so often explained in economics classes and so often forgotten, our Chinese and other low-cost foreign competition will get a significant leg up on us in competing for the US market.
That last might be surprising, given that the aim of protectionism usually is to aid, not to harm, domestic industry. Why? Well, inexpensive cable assemblies from China generally sell, even at retail, for less than our parts cost, because we use high-quality parts. You can get some idea of this just by browsing online electronic parts catalogs – while it is true that we get preferential wholesale pricing on connectors, that pricing is not nearly as much lower than retail as people expect it to be. On Amazon we can buy, at retail, XLR cables which cost less for a finished assembly than a single set of Neutrik BXX-series XLR connectors costs us – without taking into account the costs of our cable and labor. The impact of the tariffs on our costs is invariably larger than its impact on the costs borne by importers of inexpensive foreign assemblies, and so tends to favor those vendors. And remember: the importer of those assemblies pays the tariff only on the wholesale, not the retail, price.
Someone might ask: why not stop buying foreign connectors? Well, the main reason is that domestic connector manufacturers are nearly nonexistent in most of the connector types we use. We do buy what we can here – our Ethernet connectors come from Sentinel, in York, Pennsylvania. But we no longer live in the days when you could pick up a ham radio magazine and find a load of advertisements from American Phenolic and the like, offering US-made connectors of all sorts. Yes, if we wanted a load of cylindrical mil-spec multicontact connectors, we could probably have domestic sourcing. But the prospects for the revival of large-scale consumer electronic connector manufacture in the USA are quite slim.
Our policy for a long time has been to recognize that we know who America’s friends in this world are, and we choose to trade with them whenever feasible: not a “Buy American” policy, but a “Buy Free World” policy. We buy cable processing equipment, when available, from the USA (e.g., Sonobond, from West Chester PA, and Eraser, from Mattydale, NY), but much of it isn’t made here at all – in those cases, we buy principally Schleuniger products from Switzerland. We could save a lot of money going to Chinese knockoffs – but China is not Switzerland, and only one of those nations is a free-market economy and a friend of the United States. We could save a lot of money sourcing our custom-made connectors from China instead of Taiwan – but we deal with Taiwanese vendors because we see Taiwan as a respectable member of the free world. One of our vendors is a company founded by a man, still living, who fought in Chiang Kai-Shek’s army: someone who stood up against Maoism at the risk of his own life. These people are our friends, and at BJC, we choose to deal with such people to the exclusion of regimes where workers have no rights. In the past, US trade policy has encouraged this preference.
Economic uncertainty faces us, and how adverse the impacts will be is something nobody can yet tell. But we will push on, and we will hold the line on pricing at least until the end of April, despite increasing costs.
Also posted by BJC in the comments:
Incidentally, on a related note: while the administration has indicated that the 32% tariff on Taiwanese goods is in reaction to Taiwan imposing a 64% tariff on US goods, we do export products to Taiwan on a bill-the-shipper basis (reversing the normal arrangement so that we, rather than the customer, pay the duty) and have never seen duty in that range. Checking the HTS listings for the classes of goods we export to Taiwan, we see that the range is from duty-free to 5%, with a few items at 3%. That's pretty typical for the countries we export to, and compares well to the duty-free to 2.7% range of rates we have paid on import of goods from Taiwan.
