TLDR: Tariffs are not great for small businesses or consumers that are not multi-millionaires.
I built this small business and also am not a millionaire so I have many thoughts on what is
currently going on. I wanted to put down a basic outline of what tariffs are and how they affect this
business and typical supply chains and what to generally expect as a consumer of goods. Attached is a higher
scope infographic that I think is a fairly good representation of how things are interconnected and also a
basic supply/price/demand graph:
I think what's important to note is when the cost of imports go up, this causes demand increase in
domestic product, which is what people in media keep repeating as the foundational shift for a successful
transition. However when demand suddenly goes up, production capacity remains the same, available supply
goes down, and prices will ramp up to reach an equilibrium price to meet demand, this is an extremely basic
standard economic response which many people seem to be deflecting from.
If I want to order 100 t-shirts from a usa t-shirt company that only has capacity to make 200
shirts per month in their facility and another company with unlimited money says hey we actually need to buy
180 tshirts/mo right now so let’s make a contract and lock this in, now that entire supplier is effectively
out of the market, their remaining stock either sells out or adjusts in price (to meet whatever the market
demand is), and in the worst case there are no more suppliers and I have to build a tshirt factory myself
for $100m. This is what is happening quickly in the fastener industry and others. There are
very few usa fastener manufacturers, and most are already locked into supply agreements. I purchase the tiny
little bit of leftover supply at whatever the house price is like it’s the fish of the day. I am not a
billion dollar company on a prime gov contract. This means when other industries are seeing a tariff to
import their fasteners for whatever product they are contracted to make, they will reach out to domestic mfg
and quickly lock in whatever production capacity they can agree to, likely multiple smaller shops will be
doing partial orders to fill 1 contract need (some will also agree to contracts and then try to subcontract
out to the same places that already maxed their production and magically discover they can’t deliver) and
there will not be anywhere near enough production capacity to meet every contract demand. Someone must
create capacity by growing these existing manufacturers or creating new entities. The costs and capabilities
and time needed to expand are incredible. Government contracts also have extremely strict
definitions of small businesses. Some companies will violate their small business set asides if they become
a larger entity, there are employee count and revenue limits that must be adhered to or the business will
lose its classification. Adding a new building with 200 employees to meet demand can remove you from small
business classification and then you are only able to bid against Lockheed and Honeywell for contracts. Some
subcontracted companies also cannot expand if they are working for a prime contractor because it will
violate the entire contract if specific clauses are included. Most contracts prevent over 50% of work being
subcontracted, any new capacity would only benefit future contracts. These very important specific issues
are unaddressed and gov contracting is a trillion dollar industry. Domestic fastener prices are
going to increase dramatically, and any product that uses fasteners will increase (how many things do you
own with screws in them). This snowballs inflation, this does not benefit employee wages and likely will
reduce abilities of manufacturers to fulfill important contracts. I still do not see any information where
tariff taxes are going either, this touted great increase in revenue while cutting government spending and
not implementing new programs makes no sense. We are in very turbulent economic times, I wanted to
acknowledge what I expect to happen based on my experience in this industry, good luck to all
