Quinn Robinson is getting hit with the Trump tariffs.
The owner of D&F Battery & Electric in Mineral Wells, Texas, got a notice from his biggest supplier recently saying prices are going up 10% across the board, because of the new Trump tariffs on imports from China. And prices are likely to rise 25% by next year. D&F rebuilds alternators and starters on automotive and industrial equipment, and relies on components that used to be built in the United States, but are now mostly manufactured in China and sent here as imports. Those parts are included in the second batch of Chinese imports now subject to tariffs that went into effect in September.
But Robinson, 62, supports the Trump tariffs, even though they’re raising his costs. That’s because they’ll also raise the price of cheap Chinese-made products he competes against, giving him a pricing advantage, on net. “China has provided unrealistically cheap products to drive people out of the market over here,” Robinson tells Yahoo Finance. “Once that happens, they raise prices. Maybe the tariffs will fix that.”
As part of his protectionist trade policy, Trump has imposed new tariffs on about $307 billion worth of imports this year, most of them from China. And he has threatened more. While Trump has resolved a trade dispute with Canada and Mexico, the impasse with China could persist through the end of the year, and worsen before it gets better. Yahoo Finance is running a series of vignettes on workers and companies affected by the tariffs in various ways.
Economists expect the tariffs overall to modestly impair economic growth in the United States, perhaps lopping a couple tenths of a percentage point off GDP growth. They’ll hurt some companies more, especially those reliant on imports. “While the average firm in the U.S. can likely withstand a rise in costs, vulnerable firms will not,” investing firm UBS reported recently. “Many newly established manufacturing plants may close permanently, while other plans that would have expanded may pull back from hiring and investment.”
In a Yahoo Finance survey of business owners conducted Sept. 18 and 19, 49% said they expect the tariffs to have a favorable impact on their business, while 36% expected the impact of the tariffs to be negative. The tariffs are generally good for companies that compete with importers, since tariffs are a tax that make imported goods more expensive. They’re bad for companies that rely on imports and must deal with rising costs.
Robinson’s firm, which has five employees and caters to Texas oil and gas drillers, is in both categories. While D&F relies on imported components to conduct its repairs, it also competes with retailers selling new equipment, most of it from China. Instead of opting for a starter or alternator rebuild, some customers find it cheaper to simply buy a new one at a local shop, or at chains such as O’Reilly’s or AutoZone. “I can’t go toe-to-toe with the big chains on price,” Robinson says, “but I can outdo them on service and quality.”
Robinson thinks he’ll survive the higher costs caused by the tariffs, because he’ll be able to pass most of it onto his customers. But how he times his own price hikes is important. “I’m hoping to lag behind and then follow the chains when they raise their prices,” he says. To fully pass on a 10% price hike in Chinese components, he’ll have to rise his overall prices 6% to 8%. If the tariffs push component prices up 25% next year, his price hikes will have to reach around 15%.
That’s inflation. At the moment, overall inflation is subdued, with prices rising just 2.7% during the last 12 months. But inflation could become an economic problem if it crests 3% and the Federal Reserve feels it must intervene to prevent it from rising more. Tariffs, by definition, raise costs and prices. If Trump’s tariffs go far enough, they could turn inflation from a theoretical concern to a real problem forcing the Fed to tap on the brakes.
On the other hand, there could be a breakthrough on trade that dials back or ends the Trump tariffs, and the price hikes they will necessitate. Not everybody would be thrilled.
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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