Good morning. President Donald Trump placed his planned 25% levy on imports from Mexico and Canada on hold for 30 days, following negotiations on Monday. A 10% tariff on goods from China did, however, go into effect at midnight. In response, China’s finance ministry said it will impose a 15% tariff on imports of U.S. coal and liquefied natural gas, and a 10% tariff on crude oil, agricultural machinery, large engine cars, and pick-up trucks. All of this has already led many U.S. small businesses to brace for higher costs.
Tariffs will not impact all businesses equally, Mark T. Williams, a master lecturer at Boston University’s Questrom School of Business, told me.
“Large businesses have greater latitude and leverage than small businesses in finding alternative sourcing of products and raw materials,” said Williams, a former bank examiner for the Federal Reserve. Consumers, on the other hand, have few alternatives and so many will simply buy fewer goods and services as tariffs push prices up, he said. “Tariffs tend to trigger retaliation from taxed countries, increasing the cost of goods, making consumers poorer,” he added.
Mitigating risk
Matt Totsch, CFO at Trim-Tex, a family-run manufacturing business based in Illinois, around since 1969, with about 250 employees, is highly concerned about tariffs.
“We are extremely disappointed by these broad-based tariffs placed on our neighbors to the north and south,” Totsch wrote in a LinkedIn post on Sunday.
I had a conversation with Totsch on Monday. In 2020, he was hired by Trim-Tex, which processes annually just over 20 million pounds of PVC (a synthetic plastic) for its drywall corner beads used to finish the outside corner of a wall where two pieces of drywall meet. The products are used in home construction.
Although 100% of Trim-Tex products are made in the U.S., and it sources raw materials from domestic suppliers, Totsch recognizes the broader impact these tariffs could have on American businesses, which will eventually affect the company, he said. For instance, Canada supplies about 30% of softwood lumber consumed in the U.S. each year.
“If the cost of lumber goes up as an input to a house being built, it's going to drive demand down because it's just going to be more expensive.” And if fewer homes are built, that means less drywall is needed. This would “potentially slow down the 80% of our business that serves the domestic market,” he said.
Totsch has already come up with some tariff mitigation strategies for Trim-Tex:
—As international sales make up 20% of their business, with key markets including Canada, the EU, Australia, Central America, and South America, the company has increased communication with clients. “Frequent dialogue will be key,” he said.
—Trim-Tex has strengthened its balance sheet and expanded its line of credit, for greater flexibility to support its international customers.
—The company is taking proactive steps with its trade partner in Canada to front-load inventory and shipments ahead of the tariffs.
—Currency risk is another major consideration. “We have worked with our bank to offer foreign customers strategies to mitigate this risk, including opportunities for currency hedging,” Totsch said.
—Trim-Tex is also working with an outside firm, which uses the company’s data to formulate forecasts and provide advice on decisions around staffing and inventory.
“There's just no way to predict what these tariffs will do,” Totsch said. “But sometimes chaos can be a good opportunity. If you can find a way to leverage it, you can come out stronger.”
Sheryl Estrada
sheryl.estrada@fortune.com
