PPB September 2018

office heard public comments on the plan and was scheduled to reach a decision after this issue went to press. “Twenty-five percent is a meaningful number, and this may not be the end of the game,” says Jonathan Isaacson, president of Lawrence, Massachusetts, supplier Gemline. “China is likely to respond in kind, so it’s likely this is not the last set of increases. Over time, more suppliers and distributors will be affected, especially those involved in imports. A tit-for-tat trade war benefits no one. “What the companies in this industry need to understand is that this is coming, and it’s largely out of our control,” Isaacson says. “Suppliers cannot just pick up their supply chain and move it to a new country. That process involves a lot of time and complexity, especially if you need to maintain social and product compliance. Also, other countries they may move into don’t have the same infrastructure that China has to support that supply chain.” Isaacson adds that if the tariffs stay in place for any length of time, it can affect the Chinese factory base and permanently take out capacity in the Chinesemarket. “If you take it out, it’s unlikely to come back, which will force prices up more,” he says. “The ramifications of the tariffs are significant and potentially long-lasting, even if tariffs are removed after a short time. Threemonths, that’s maybe something we can live with. If it’s a year, you’ve got permanent structural change.” He urges distributors to become aware of the tariffs, to stay informed and to have a conversation with customers at an appropriate time, in an appropriate context, that “this is coming down the pike. Also, be aware that if you have a direct import order in the system in an affected category, prices may go up mid-stream. It is happening very quickly and there has been no time to react. And today, as we talk, we don’t know for sure what’s going to happen. “The tariffs are meant to be meaningful, and they are,” Isaacson says. “If this continues to escalate, other product categories will get swept up over time. Given the impact it’s going to have on the industry, contact your legislators and let them know how this affects you.” Gene Geiger, MAS+, CEO of Lewiston, Maine, distributor Geiger, says he has been monitoring the trade conflict with growing concern. “As a person who studied economics in school and believes that free trade brings broad benefits, I feel strongly that we lose if trade barriers go up. Indeed, many of those who have studied the Great Depression of the 1930s feel it was made much worse when trade barriers went up. “The President’s idea that tariffs are good and trade wars are easy to win is totally at odds with what I believe,” Geiger says. “Moreover, given Western countries’ history with the Chinese and their immense sense of pride, we are not going to find them kowtowing to us. They cannot afford to lose face in a conflict with us, and their political system enables them to hold firm for longer than I think we can.” Geiger sends out a newsletter each Sunday to his sales force, and almost every week for the past few months he has published updates on the trade issue. “I’ve told them to prepare themselves for tariffs to impact the products we sell and to begin to talk with their customers about what will potentially happen. Lately, I’ve told them the chances are better than ever that we will be hit.” He adds, “Since the tariffs have not hit us yet, and since everyone hopes Trump is blustering and will subsequently find a way to settle things, I have not been setting off alarm bells. Since we just don’t know for sure, my thought is that our salespeople are the best ones to work into conversations what might happen, knowing that everyone is aware that price rises for consumer goods, food, cars, etc. are on the horizon if things are not settled. Prices going up for our products will be no surprise to anyone. This punch has been telegraphed for weeks.” Bill Mahre, president of Hugo, Minnesota, supplier ADG Promotional Products, says the struggle lies in not having all the information. “Like a lot of things going on, it’s really challenging for any company to know what’s happening day to day because there’s so much fluidity in the situation. “At this point, it may not have affected existing inventory. For products that are on the water, it’s a question of asking yourself if it’s worthwhile, in the scheme of things, to update your costing structure to reflect the tariffs or are you better served by staying with the status quo,” Mahre says. “Nobody is going to win a trade war. Consumers will eventually pay higher prices, and there’s lot of turmoil in the “What the companies in this industry need to understand is that this is coming, and it’s largely out of our control. Suppliers cannot just pick up their supply chain andmove it to a newcountry. ” —Jonathan Isaacson, President , Gemline | SEPTEMBER 2018 | 81 THINK