Around The Horn Special Report: Inside the Tariff War

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Dancing today.

Yeah. Top of the morning. Early. Too early for dancing?

Yeah. Yep, it is too early and too much to cover. Just gonna hit this quick note out to the LinkedIn audience and welcome everybody this morning to around the Hornet Wholesale Distribution. Kevin Brown, Tom Burton. We get together every Friday. We usually do it at 9:00am Pacific Time, but today we're doing it a little bit early because I got to run out for the day. I'm taking an opportunity to help University of California, Irvine in their Entrepreneur and Business program. They've got a kind of a shark tank like program going on and I take a day off once a year and go help judge that. So looking forward to a fun day with that. But we didn't want to fully miss the show. So we're going to do a shortened version today and chat a little bit about what happened this week in Tariffs. But before we do that, what's that?

Sounds like a new show this week in Tariffs.

This week in Tariffs. You know, it's interesting, we, we get some articles each week from TED Magazine, the electrical distributor, and Scott Costa and his team over there do a great job. And they've got something like that that they've got a consultant and kind of an insider on supply chain stuff that they're doing a tariff update few days a week. It's actually, if you, if you want to check that out, it's probably worthwhile, but let's do some really quick housekeeping. So we get together every week. It's normally at 9 o' clock Pacific time. Those friends on the east coast are joining us at their lunchtime on Fridays and our friends in Europe are usually joining us around cocktail hour for that. But we discuss the news of the week and we discuss things about supply chain and the economy and mergers and acquisitions and technology and robotics and AI, of course, and many, many other things. But this week we're going to do a shortened show just because of time limits that we have today. So you'll be able to watch this recording and we'll be back like normal next week with some great guests coming up as well. We publish a newsletter. The normal newsletter went out today as well. The newsletter is called around the Horn in Wholesale Distribution and Manufacturing. If you would like to get that. Just three simple ways you can, if you're active on LinkedIn, search around the horn and wholesale distribution on LinkedIn and you can subscribe there. You can also find that under the newsletter section on the Lead Smart technologies page on LinkedIn as well. We'd welcome you to stop in there as well. You can do that. You can send us an email@helloadsmartech.com and we'll get that right out to you. And then we have a website for the podcast, www.aroundthehornpod.com and we're happy to get you subscribed to that. We're going to be reviewing on a normal week, the newsletter, so we would love for you to have that with us as well. Just a couple final things. We can't do this without the sponsorship of the company that Tom and I work for, Lead Smart Technologies. We've developed an AI enabled customer intelligence, sales enablement and CRM solution that helps wholesale distributors and manufacturers bring silo data from across the organization into a platform where they can visualize that to make better decisions to help their business grow and serve their customers better. If you have an interest in that, we would love to talk to you. The last point is, if you enjoy what we talk about each week, please subscribe on YouTube, click the Follow button of Lead Smart Technologies in the show on LinkedIn or if you're listening on the recorded podcast version, please click the subscribe button. And most importantly, if you're listening on the podcast, Apple, Spotify, etc. Leave a review. And that helps get this in front of more people. So that's about it. Tom. Move a little quicker. It's good to have RP with us and appreciate him being here. I'm sure we'll get some other live guests coming in. Had some, some takers of the invitation from the UK and from Germany and a couple other countries, plus a handful of people in Canada as well. So we're happy to have them. So listen, we had a bunch of stuff happen in this week. We don't claim to be the ultimate experts on tariffs or economics, but I thought with the work that we do with wholesale distribution and the folks we talk to consistently, it might be worth talking about that today. So Tom, why don't we just kind of get started maybe and talking about what happened because I think it's a trigger point. There's two trigger points, I guess this week. That one is that China is willing to have some discussions. From what we see in the news this week, it looks like, you know, from, from U.S. news agencies. It looked like China blinked, I guess would be the way to look at that. First in the, in the standoff and was willing to have some discussions. We'll talk about that a little bit further in a couple of minutes. But then coming to an agreement with the UK probably don't necessarily those friends that are with us on the UK with, from the UK this morning or this evening there maybe aren't thinking about that maybe as much here in the US Is that being such a big deal, not as big of a trading partner as other partners, but this might be the, the tip of the iceberg of some other deals coming together is, I think, the way to look at it. What are your thoughts, Tom?

Yeah, I mean, I, and I don't. I hadn't seen these specifics. So I know you went.

Now you have me.

You gathered these specifics. So I think it was what I heard or what I read about. It was more of a spiritual deal, a philosophical and a spiritual deal. And there was still a lot of details that weren't coming together. But yeah, if these are accurate, let's, let's go through these.

Yeah. So. Well, I mean, this is the research that was done. This is what they came up with and has been agreed to. So significant impact there from cars. So we can see this. We get a chunk of aluminum and steel from there. The ethanol, I think is tied to farming and so forth, and then US Beef and then Rolls Royce engines. And that impacts the aerospace companies very, very critically.

They also agreed to buy a bunch of planes from Boeing, too. That's $10 billion of planes from Boeing, if I heard that correctly.

Okay, that could be great as well. So I think the kicker with this and the reason that this is valuable is this really, in some of the, you know, the reading and the discussions that I was watching with this was really tied to the. This is kind of the. What would you call it? The tipping. I don't say tipping point is what keeps coming to my mind. But it's not that. It's just the, the start. Right. It's the, it's the first. What do you have? Perfect. That's exactly what I was trying to get to. You always say that the first olive out of the bottle, which is funny because you're not a big martini guy. And, and I've, in fact, I don't know if I've ever seen you have a martini, and certainly not with olives. So. Yep. But the. Maybe you do charcuterie boards that I'm not aware of or something. But first olive out of the bottle. And I think this really looks to be a template for a lot of other countries coming on board with this as well. So I think we'll see that pretty quickly. We're going to talk a little bit. We've got some great, great folks within that work within the supply chain and so forth that are popping in and joining us, Paul and Dominique and Will Quinn and so forth. We're appreciative of them being here as well with us live this morning saying hello. We'll certainly look for some comments from some folks, but I think that's what we can really look at from this component of what we saw this week with the UK is, you know, this is maybe a way to look at it is it's a jumping off point and really becomes a benefit. And you know, as soon as that happened, the US markets rallied pretty quickly. The S&P 500, Nasdaq, Dow all closed higher. Boeing shares, Rolls Royce shares, all jumped up as well. So, you know, definitely this first one had a fairly good impact from an economic standpoint.

Well, and I would assume if I'm, if I'm another country, I'm going to study this and understand what are the, what are the expectations and parameters that I should be thinking with. And so I think we, it would be fair to assume that as other deals come in, China aside, push China aside. But as other deals come in with other countries, you might see similar structures to what we're seeing here.

Well, you got to figure the, the negotiating contingents from India and Germany and other EU countries are very quickly probably reaching out to their counterparts in the UK looking for discussion on, you know, how did it go? What are your thoughts? You know, and, and so, yeah, to your point, they're studying this very closely, but it's, I think the big part of this and we're going to talk in a few moments about the negotiations or the discussions are starting tomorrow in China, in Switzerland with China. I think the key part component of this, Tom, though, is that and I think it's why we've seen the markets doing what they've done this week as well is, and what they're doing this morning. And when I looked a little bit ago, everything was in the green and looking positive. But from that standpoint is it's like, okay, this isn't rhetoric now about getting these deals right, because it's, it's easy to, you know, listen to somebody barking, you know, hey, you know, everybody's coming in line and we're getting ready to announce lots and lots of deals. Well, here's a deal with an important trading partner and an important player and the on the world scene with the UK of that one getting done. So I think that's, that's important for us to look at. Any further thoughts on the UK piece before we jump ahead.

No, let's, let's move ahead.

Yeah, so let's, let's go ahead and let's talk about the other countries that could, could kind of fall in line fairly quickly with this as well. And then we'll talk about China after that maybe a little bit about the, the freight situation out there. So what, what once you jump to that. Yeah, so, so basically we have a slide there about some of the other countries that could be impacted.

That's the next one.

Yeah, there we go. I put a few slides together this morning and threw Tom a curveball at three minutes before we started. So.

Okay.

Yep. I don't know what. There we go. So the, we got a deal announced with the United Kingdom. Supposedly there's a deal fairly close to finalized with India but not announced yet. And then I would assume very quickly with, as in a deal with India gets announced fully and we see what that's in alignment is that you start seeing the European Union countries that are impacted by this fallen line very quickly. Obviously this is a big deal with Germany. Germany has a new, new government that was just installed this week after an election in February. I was talking with my uncle in Germany the other night and in fact my uncle was on his way, I was talking, talking to him late Monday night. He was at the Frankfurt airport on his way to the Galapagos Islands. So I want to be retired as well. That sounded fun, but that he was talking about the new government being installed in Germany. Germany's had a lot of economic challenges over the last few years. So I'm sure they are very, very quick to make a deal that has some similarities probably to the UK deal so promising there. So we'll see what I'm going to guess. You know, this is just.

If it.

Was, it would be easy to just listen to what's being said in Washington about. Yeah, all these deals are falling in place and they're going to just trigger, trigger, trigger, trigger. I would be hesitant to really put any weight to that until we saw the UK deal and the fact that there's discussions with China that brings everybody to the table.

Well, but I also think you have to understand that these are in our business world, these are like mous. Right. These are not, these are or at least outlines of agreed upon. These are not finalized yet. I think they said for the UK it was going to be several more weeks minimally to get a, you know, nailed down contract, if you will. So I think we're going to see a lot of MOUs if you want to call it that. Memo of understanding show up in the. Related to these pretty quickly. I agree. I think that's, you know, obviously everyone's looking for the elephant in the room with China, which we'll talk about in a minute. But I do agree that I think we'll see a lot more MOU type deals materialize probably over the next week, possibly week. Next week or 10 days, easily getting probably 15 to 20 more, I would suspect.

Okay, that's significant.

Yep, yep. So I mean it's in everybody's interest. Right. Especially once they kind of know the rules of the game.

Right.

To try and figure out something to just get this off the plate.

Yep, I would agree, I would agree with that fully. And we're inside that 90 day window where some things have been, you know, tempered as well. So I think that's one another factor. Right. That we're looking at with this. But I think we'll see these, I think if we see the, the India piece happen quickly, I think what it could come down to is the, any of the delays could be just the amount of people that are working on it and the ability to get them done versus a willingness to get them done. So what'll be interesting, you know, and it's probably talking about, I don't know if you see this comment that came in. I, I can almost bet you that that's my good friend Brendan Breen from the Industrial Supply association. Because whenever Brendan's with us and he comments, it just shows up as LinkedIn user, which is so odd. So Brendan, if that's you, send me a, send me a text message and let me know. But yeah, he says, glad we're finally discussing tariffs.

Right.

Which is on everybody's list.

I'm ready to get back to AI. I'm ready to get past this tariff thing and let's get started.

That's right. We've not been talking enough about AI, so. But anyways, I think what will be interesting to see is where we're at over the weekend and we can see that these other countries are coming to the table. Things are looking very promising. But I think what comes out of China will be interesting. I made a, I took one of the news articles. Was it Tuesday? I guess it was maybe or Wednesday when, when China was. Had acknowledged a willingness to, to meet and wanting to meet and they had identified that it would happen tomorrow in Switzerland. To me, I think I said this in a LinkedIn post as I shared that news article. Was that the, excuse me, Tom, the My assumption is what we're going to see out of this weekend is some chest pounding from both sides after they leave the meetings, some very vague things. And in the meantime, as we work through all of these things, the China one's going to take quite a while, I believe. And in comparison and I got a feeling we're going to see some chest pounding and some, some door slamming and some tantrums from both sides along the way just to make their point about the power that they feel that they have because both parties need to feel like they're winning. So I don't think this one's going to be a hey, we had a meeting and we came to an agreement.

No, I certainly not going to be and I don't believe it'll be an agreement. I think you could see maybe a goodwill gesture. I think this even came out this morning of, you know, a shot across. Well, let's bring these down to 80% at least temporarily that are there or.

A pause on some.

Right. I also think a big part of it that no one's been talking a lot about is the rare mineral sort of situation. Right. Because they stopped shipping all rare minerals, which are the key things that we, we get. And this is a whole nother problem. Right. But the majority of the rare minerals we get to make batteries and car EV batteries and things like that come from China. Yeah. Now which is in my opinion kind of a stupid situation to put ourselves in. But that's a different, different discussion. So I think that that will probably be possibly something that there's some concession to this weekend. Is there going to be a deal? No, I don't believe so, but I believe that are there going to be some softening of the position, maybe some goodwill gestures, some things out there that you know. But I would say this is chapter one and a ten. Chapter ten. Chapter ten. Chapter booth or book. So.

Yeah, well the. I think, I think this is. Yeah, this is going to be weeks and you know, I'm, I'm glad to see it happening, I guess is the key thing because what it's doing I think is it's, it's probably helping some people sleep a little bit better of you know, I mean the mark Just look at the market's response to this stuff. I think is key. So. Yeah. So what, what to expect out of this. Right. We possible cut from 145 to 50 to 54% on Chinese imports. This is. Okay, this, this is a summary of a series of different articles. If you're with us live and watching or watch the recording and you can see this slide. There's a some little reference points from some research that I was doing last night. You know, unlikely really. I think this is a great, great point here. It says talks seen as an opening move. Right. It's just the first of a first move of a chess game. I thought it was interesting to give you some feedback. Was using some AI tools to come up with a recap on this and says potential relief. Sorry about the tone. Cautious optimism, both sides remain firm. You know I, it would be interesting to you know really watch if we, if we were watching the equivalent of CNBC in China. And what, what is, what's the tone from there as well? I'd love to kind of get a feel for that but the, you know it talks about here next about economic impact. While there's some potential relief, price hikes and shortages may persist. We're going to talk for a moment before we wrap up today. We're going to wrap up here just pretty quick. We were only going to do 20 minutes or so today but like always we'll go a few minutes longer. But we're going to see probably see some shortages because before we go today we're going to talk quickly about what's going on in the ports and so anyways talking about next steps, more negotiations. It'll be interesting to see how long it takes. I'm going to suggest we're probably a month or more that this will, this one will take while most others will fall in line within that same month.

I think it's more than a month.

What's your guess?

If we have something in 90 days I would be like something firm in 90 days. Like I said, I think this chapter one of a 10 chapter process and multiple meetings back and forth, you know concessions here and there but getting something that, and I agree with will that the Ukraine deal should help with some of the rare earth minerals as well. So that gives the US a little bit of breathing room potentially.

Well the other side of that Tom, before you go, before you finish on that, I also read earlier this week I need to go find the article. There's a U S startup company that's just been showing out some very well funded startup that's showing some battery technology that will take a small, small fraction of the rare earth requirements that could probably all be taken care of by us rare earths.

So no, we're going to adapt but anyway that's, I don't think this is a in my opinion a 30 day just for the reason you said in the beginning. Right. There's every country, both countries have to show to their populace that they're winning, that they're in the upper hand. There's going to be some two steps forward, one step back along the way. But if you look at it just from a market perspective and a business perspective, well, there'll be uncertainty, yes, but I don't think it's going to be 154% tariffs that everybody is operating with right now.

Right.

So is 80% sustainable long term? No, not really. That's not really sustainable either long term, but yeah. So I think you. But it's better than 155 or 154 or whatever it is now.

Yes.

So, you know. Yeah, there's going to be a lot of uncertainty over the next nine, you know, in my opinion, whether it's 60, 90, whatever days, but it's going to get better. I believe one step forward, maybe one step back every along the way.

Yeah, the, so the, the key thing there is, I guess maybe I should walk back my month statement is.

The.

I think we're going to see some very significant impact from it. It might not be done, but we're going to see some easing of the pressure. I think within the, within a month that will be mean, that will be meaningful. Right. So let's talk about in the last couple minutes we're going to spend here, I got to get on the road, but let's talk about just. I'm going to share a little bit about a real world case with this. Just, you know, and we've got people here joining us today that are, are living this every day in their business. But by the way, just RP at Ron Paulson, our good friend had commented earlier, he said, do you think these are going to open up more opportunities for distribution to sell into these countries? I, I think that I'm just going to throw my idea out there and rp, I would say your, your ideas on this would be just as solid as mine. But what, what I would suggest is there's, you know, we start thinking at least about the UK and the EU is their distribution model there is very, very different from the research and the work that I've done, both. There is, if you think most a lot about the UK and a lot of the EU is there's not. What we see in the same way in the US where we have small wholesale distributors, very large and a big component of it is that midsize, say mid sizes, 50 to $500 million a year distributors. What my experience has been for the most of what I've seen in the UK and in Europe is you've got some very smaller amount of very large players and then the rest of it is all small and midsize regional players in that setting. So I don't know what this will do open up there. I don't see this doesn't jump out at me a big factor to help the US that much in those markets. More about what's coming here to help us. But this what I was going to comment on this provider. There's a company called Wise and they're kind of along the lines of a ring doorbell or, or those types of products. But let's just kind of look at their founder put out a tweet the other day and or an X that he put out. I guess he said just got our first tariff bill. We imported $167,000 of floodlights and then paid $255,000 in tariffs. That's more than any of our founders were paid last year. How's that? So $167,000 purchase and a $255,000 tariff bill. How do you, how do you stay in a market like that?

Well, you don't hence. And on the supply side they're not going to stay in the market with that either. So.

Right. Why.

Why they're getting together in Switzerland. That's right. It's both company countries need to do something.

Well, let's talk really quick about the. Before we jump about the impact to this of you know, those were some real world impacts. But now we're seeing this week started showing up the first of the. The ships that are arriving, I. E. What Wise just said it says first boats carrying Chinese goods with 145 tariffs for riding in Long beach and LA harbor shipments are cut in half. We should start expecting shortages soon. I just watched CNBC yesterday at lunchtime and they had one of their reporters in the port of Long beach, which is midway between where both you and I are sitting right now. And those two ports combined support two and a half million jobs, 2.5 million jobs. $450 billion is added to the US GDP out of the port and $100 billion in tax revenue. Now what happens when we cut that in half? Because that's what we're talking about, right. For the foreseeable change we have a.

Lot of workers with nothing to do.

That's right. Now the interesting thing is from a labor standpoint is that a lot of the unions have a minimum floors that their people will get paid on. So there's going to be a lot of those fees going out, but nothing like what the normal payments would be. But what's interesting is, and this is the really critical thing to kind of think about when we look at an article related to what's coming into the ports, whether it's Galveston or it's San Diego or Seattle or wherever it might be. But the ports of LA and Long beach combined, which I think when they're combined, you know, there's just that little sand spit of land between them. So it's, I mean they're really one big port is that 43% of the goods that come in there. So almost half of the goods that come into the port of LA and Long beach, which again combined would be the third busiest port in the world go into other goods and services.

Right.

So it's components of other products that are being built. Right. So when you start thinking about that and all of that being cut in half, you know, it's easy to hear the rhetoric of saying oh we're going to see fewer things on the shelves or oh, prices are going up. Well now we're going to start feeling them in the next couple of weeks and it's going to be a real world scenario here then versus rhetoric about it. Now the good news is I think it's going to be short lived and hopefully some short lived pain. And I'm going to make the comment that I hope the president is right not because of how I feel positively or negatively about our current administration but because if it plays out correctly and this is the short term pain, we're in good, we're in a good place. So.

Yeah.

Good. All right, well we're, we're gonna go 20 minutes. We're at 28. Anything to add to this? I don't know if this was of good value but I, hopefully we were able to provide a good recap of, for folks who hadn't read the news fully in the week. And let's hope the stock market stays up and we'll be talking to see.

What happens this weekend.

Right. So yep, we will be talking next week.

Our predictions are on Monday when they, what actually occurs?

Well, it could, it could just as easily be a, you know, forget those guys. We're never doing anything. It's staying in a, it's going to 180. Right. And we could hear a lot of rhetoric that comes out of this too.

But yeah, anyway, but it's, it's I It's possible, yes. I don't not probable. I, I Anyway, all right, yeah, everybody for joining us.

I'll talk to you later, my friend.

All right, have a good weekend.

Thanks, everybody. Have a great weekend.