It’s nothing new for businesses to agonize over cash flow, credit lines, inventory, expenses and hiring.
But pencil in the heightened economic uncertainty created by the on-again, off-again tariff negotiations by the Trump administration, and some businesses are seeing red.
A panel of tariff experts tried to calm the nerves of nearly 100 people who attended a business forum held May 28 at the Richard Nixon Presidential Library and Museum. The event came just ahead of a judicial order on Wednesday blocking Trump’s tariffs before another court ruling on Thursday let them stand, at least for now.
Attendees either wanted to know ways to skirt the tariffs or grumble about when they might end.
Here’s what the experts had to say about Trump’s tariffs and how they might affect Southern California. Their answers have been edited for clarity and length:
When you’re forecasting, how should we be factoring in tariffs?
Kevin Depew, deputy chief economist from RSM US LLP in San Diego.
The reality around tariffs, and you see this as a carry over from the initial Trump tariffs in his first term, is that many were retained throughout the Biden administration. I think it is no secret that when you offer politicians a revenue stream, they’re very reluctant to give that up. What we’re seeing now with the federal budget, there is this 10% threshold for tariffs — which is extraordinarily high — that is providing some offset for the administration to push forward with potential tax cuts at the same time. The other aspect to this is inflation.
All of this is kind of coalescing into a perfect storm, combining to create some significant headwinds in the economy.
For consumer goods, the profit margins can be very thin, and any kind of tariffs immediately affects their cash flow. It affects their ability to expand. These are the kinds of effects that we won’t feel until the second or third quarters.
We’ve kind of arrived at a moment of a weird paralysis in some industries, where they can’t make a decision about where to locate a supply chain because they don’t know what the underlying justification for the tariffs are. It’s a function of how long are we willing to live with this. Maybe there are other paths to achieve these objectives that don’t put our economy in a state of uncertainty and chaos.
What impact are tariffs having on small businesses in Southern California?
T.J. McCree, senior vice president in charge of commercial banking in Orange County for Cathay General Bancorp.
There are two camps. The proactive camp is looking to reshore, or onshore, their suppliers to limit the amount of exposure that they have to the tariffs.
Then we have the reactive group. They want to wait and see. They are delaying some major repurchases. But they aren’t kicking them down the road for years. They’re just trying to see if there’s material change in the cost of the goods from, let’s say, March to May, and asking whether there really is going to be a big delay or a big concern about the tariffs in the long term.
There is a lot of volatility going on, and everybody would like to see it stabilized.
It’s a complicated time for small businesses.
Several months ago, under Cathay CEO and President Chang Liu, the bank began looking at the bank’s risk models and how they were being impacted by tariffs. We wanted to know what’s the impact of tariffs on our clients? What do tariffs mean to their financial strength and underwriting to the risk, so that it provides a clear view of the business to the regulatory world?
We’re looking at opportunities for clients to look at really what their business needs are.
On a typical day, a client might have one or two containers that are coming into the port, and it may cost $1 million in tariffs. Well, you have to pay the tariff on those containers. If that’s a 25% tariff, you need to pay $250,000 on that $1 million. A lot of times, a business’ cash flow is not consistent with what the new tariff costs. You want to make sure that the clients are aware that once the product has landed, the tariffs are due.
Are tariffs an effective tool to level the playing field, and are there other domestic sourcing for markets that we should be thinking about?
Christopher Schwarz, professor of finance with the Paul Merage School of Business at UC Irvine.
Tariffs are here in the short term. You have one individual (Trump) who has sole control over the tariffs and, of course, it’s going to be very volatile. Last week (May 23), 50% tariffs were imposed on the EU. That lasted for 43 hours, and it went back down, to whatever it’s going to be. I think questions about fair trade are very valid. There have always been concerns about China. That is something we should worry about it. But I’m not necessarily sure the tariff idea is the best way to go about it.
There’s one thing the markets hate, and that’s uncertainty. We just add more uncertainty every day. We have inflation. There’s no output, and valuations are very high. So the best opportunity to bring manufacturing back to the U.S. is probably through automated manufacturing, or places for whatever reason, the supply chain is already in the U.S. I don’t think labor is ever coming back.
I don’t think the tariffs will do anything. Apple is better off paying a tariff of 25% for iPhones made outside the U.S. than trying to make them here. We’re very expensive. Do we want people here to make $10 T-shirts? That’s a fundamental question.
If we had people make their T-shirts for $100, how many people would buy them? We have this conundrum where I don’t think you’re going to see a lot of movement of manufacturing back onshore. We don’t have that many people who can do the job right now, honestly — or want to do the job. I don’t think all of this talk of tariffs is going to move the needle that much.
Ultimately, it’s really hard to fix the trade deficit. If you want no trade deficit with every country, then basically we’re only going to trade with countries that enrich us. One of the biggest risks of tariffs is the erosion of the brand of the U.S.
Are you seeing businesses trying to shift their inventory suppliers because of the tariffs, and how long is this going to take?
Charron Ricks, director of brokerage product development with UPS Supply Chain Solutions in Los Angeles, overseeing California and Nevada.
Shifting supply chains is not easy. It takes time. Really, companies build supply chains around relationships. So, many businesses have to find a new sourcing country and build that relationship, and make sure that the new country has the quality that they expect. There are a lot of risks to consider before sourcing from a country.
What we are seeing our customers trying to do, is move finished goods from China to another country, and do some light touching, or whatever, and say, ‘OK, now it’s made in Vietnam.’ That’s a no-no. You can’t do that.
My big advice to everyone is to make sure that you have trade compliance with professionals evaluating your mitigation strategies. If you don’t have those policies well vetted out, you’re going to have issues with [U.S. Customs and Border Protection], who may question the true country of origin.
Remember, they have your history of buying a widget over the past 10 years from China. If, all of a sudden, it’s coming from Pakistan, or wherever, they have the resources to verify that.
There was some confusion created on Liberation Day, when tariffs for China went up 125%. You had shippers with products already in the supply chain. If you had bought at the point of origin, and it hadn’t shipped, you could have put a hold on that. But for a product that was moving, the customers had to decide what to do. You can’t afford to pay more duty than the value of the product.
So, we had customers deciding, ‘Do we move that product into bonded warehouses somewhere else, so that they’ll make it here?’ Or, they looked at exporting back to China, or buy more bonded warehouse capacity here in the U.S.? There’s a huge increase in interest in bonded warehouses. These are structures where you store your products and let it sit, and hopefully something happens. That can either be the tariff gets changed, or you decide the tariff is due and pay.
