Nov. 12, 2024
VENICE BEACH, CA – Google searches for the word “tariff” spiked after the reelection of Donald Trump, with Americans wondering; Are tariffs beneficial? Trump has repeatedly threatened to levy high tariffs on goods imported from China, but what would it mean for online sellers?
Prosper Show sat down with Dakota Morse, founder of the California-based ALT Group to learn more about tariffs. Will sellers simply source products from other countries? It’s not quite that simple.
Prosper Show: How would brands respond to tariffs?
Morse: A lot of people hear about China tariffs but they don’t actually understand the implications of what brands do when tariffs increase. Most brands have very robust supply chains built out in China. Big brands like Clorox or other mega brands have been operating in China for the last 40 to 50 years minimum. It’s not easy for them to switch.
Prosper Show: What’s been your experience with China?
Morse: Even Amazon sellers like me—we’ve been working in China for my brand for about five years. But to go to me and say, ‘Hey, you need to basically move everything out of China’ is extremely difficult. Where are you going to start to make an air purifier? Where are you going to start to make pots and pans or whatever?
Prosper Show: What other countries are viable options?
Morse: You have Mexico, Vietnam, maybe Cambodia, but the supply chains are just not built out in those countries. There’s still a lot of difficulty in developing products there. There’s a lack of resources. You basically get to build a factory if you want to try to get it done, which a lot of brands are not big enough to be able to do.
Prosper Show: What’s the goal of tariffs?
Morse: The goal is to try to move production outside of China, to essentially punish China which is the goal from the top. The only people who really get punished are here in the U.S., because you can’t move production outside China. It’s almost impossible. There’s just no place that you can make your products for the right price that will be the same quality.
Prosper Show: How should tariffs be viewed?
Morse: These tariffs are what we call the Trump tax. When you import the product to the United States—let’s say you make air purifiers—there’s a duty.
Prosper Show: How high/low will these tariffs be if they come to pass?
Morse: It depends on the class of the goods, but it varies. It can go all the way from say five percent up to 30 percent which is crazy, and that’s on the cost of the goods coming in from China. It is very arbitrary how these costs are set up across various types of products.
Prosper Show: What are some specific examples?
Morse: I think that air purifiers are at nine percent duty rate. If the air purifier costs $20 out of China, then you’re basically paying nine percent additional on that. Let’s say you’re going to import a product like a bucket. One of my brands makes buckets that are sold on Amazon. Buckets may get taxed from the Trump tax/tariff at 30 percent. The buckets from China are really over engineered and very durable. Sellers may pay $10 for a bucket in China, which is a lot, but it is a super engineered bucket. Sellers must pay three additional dollars on the cost of that bucket to import it from China to the United States.
Prosper Show: If sellers do not want to pay that extra $3, what happens if they try to work with a manufacturer in the U.S.?
Morse: I know sellers who tried to do this. They started getting quotes back from manufacturers in the U.S. to make the same bucket. One manufacturer wanted $200,000 dollars just to make a mold so they could produce this bucket. And then to make each bucket was going to cost $25. It’s impossible to do it in the U.S. Instead of shutting down their company, the seller basically just kept sourcing from China and passed on the costs of those tariffs to end consumers.
Say the bucket originally on Amazon was $50. Now that same bucket is $65. Sellers are not making more margin. It’s just because the cost in China has increased due to these tariffs. Who gets hurt here? The end consumer gets hurt, because prices are increasing—which further increases inflation. Inflation is just a metric of price going up over time for the same good. You used to be able to buy a candy bar for 25 cents, now it’s $2.50. The same thing is happening here where the cost of production is going up. No one is making more money. Consumers are getting hurt because of these tariffs and it’s not an effective taxation strategy.
Prosper Show: What other impacts might tariffs have?
Morse: The final impact here is that Chinese sellers do not face these tariffs for some odd reason. So basically they are importing goods, so they are selling an air purifier—they’re not paying. They’re finding ways and loopholes to avoid these taxes. No one is going to be able to sue them—they’re in China, and they’re importing these goods. They’re able to compete at lower and lower prices. U.S. brands are having to increase their prices and it’s making it more and more difficult to compete on Amazon because you’re having to raise the price of your air purifier, while they are able to keep lowering the price of theirs. All of it will impact end consumers and put a strain on the US economy. At the end of the day, no one is moving production outside of China. They’re just increasing the prices of their products.
Dakota Morse is the CEO and founder of ALT Group, an Amazon ad agency based in Venice Beach, Calif. Morse worked at Amazon for five years before starting Alt group and has launched several seven-figure brands and one eight-figure brand. Morse helps brands accelerate growth while maximizing profitability—providing comprehensive guidance, management, and creative services.
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