Sherrill Mosee hoped 2019 would be the year her handbag startup became profitable. Instead, it may be the year her one-person operation succumbs to President Donald Trump’s trade war.
Mosee started MinkeeBlue in Philadelphia in 2014 with a practical mission: Simplify the commute for women schlepping two or three different bags to accommodate the normal contents of a purse along with shoes, lunch and a laptop. An electrical engineer who once worked for Lockheed Martin, Mosee designed a compartmented bag with a patented folding panel inside that can hold a whole armful of gear. She wanted to make the bag in America, but couldn’t afford the high manufacturing costs. So she found a factory in China that could make the bag to her specifications and let her sell it for under $200.
She pays a tariff of 17% for the imported product, which she incorporated into her costs from the outset. But with Trump imposing new tariffs of 10% on a wide variety of Chinese imports, Mosee will soon pay a 27% tariff on her product. And with Trump’s new tariffs set to rise to 25% on January 1, 2019, the overall tariff on Mosee’s bags would jump to 42%.
“I’d have to raise my prices on the bag,” Mosee tells Yahoo Finance, “and that’s pretty difficult when the customer is used to buying at a certain price. It’s a scary situation and it may just put me out of business.”
Tariffs are disruptive
Trump insists the U.S. economy will end up better off on account of his trade policies, because they’ll lead to more domestic production and more American jobs. But his tariffs are disrupting American businesses in ways Trump hasn’t acknowledged.
A Yahoo Finance survey of business operators conducted September 18-19 shows the Trump tariffs, which apply to about $307 billion worth of imports so far, are having widely divergent effects. Of 1,270 respondents involved in running a business, 48% said the Trump tariffs are likely to have a positive effect on their business, while 36% said they’d have a negative impact. Many economists argue, however, that the economy becomes less efficient and grows more slowly when government policy begins to determine which businesses prosper, and which suffer.
Trump’s Commerce Secretary, Wilbur Ross, downplays the negative effects of the tariffs, telling CNBC recently that they were designed to cause “the least disruption in the U.S.” The total economic burden, he said, is a “tiny, tiny, tiny fraction of 1% of total inflation. Because it’s spread over thousands and thousands of products, nobody’s going to actually notice it at the end of the day.”
Yet, the tariffs — along with unintended consequences of the tariffs — are already hurting U.S. businesses that rely on trade with China and other trade partners. More than 6,000 businesses filed comments with the government agency responsible for administering the latest round of tariffs, most of them warning of damage Trump’s protectionism will cause. Retaliation by China and other trading partners has hurt the sale of U.S. agricultural products and other exports. And Trump has threatened to impose even more tariffs if the ones he has rolled out so far don’t bring the reforms he wants.
Trump seems to think businesses facing higher costs on account of the new taxes will either manage to absorb them, or pass them on to consumers with no ill effect. Some businesses will probably be able to do that. But others won’t, because profit margins are low to start with, or the competition is too tough, or consumers are too fickle.
Mosee, who markets her bags using online ads, personal networking and word-of-mouth, doesn’t think she can get away with a price hike. “I’m not changing the materials or adding anything to the bag,” she says. “People are really savvy about what they’re spending their money on.”
She also can’t absorb the added cost, because it would threaten the viability of her company. Mosee was hoping to start branching out to retailers soon, but now she hopes to partner with a larger brand that has deeper resources, or just sell the business. Her patent might help.
It’s also possible there’s a breakthrough with China that would lead Trump to rescind his tariffs. But there’s no obvious progress in negotiations, and many trade experts expect China to sit tight as the tariffs raise costs for many U.S. businesses, and prices for American consumers. The tariffs will hurt China, as Trump intends. But some Americans will be collateral damage.
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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman