Tariffs and the Price of Tools

[onocoffee]

Speaking of gas prices - when I started doing work in Saudi Arabia in the Fall of 2018, gas there was still $0.29/gallon. It's gone up quite a bit since those days but now is around $2.30 - which is nearly a dollar cheaper than where I live.

 

[HowardH]

I am doubtful that manufacturers will pass along all of the cost of the tariffs.

On Monday I went to the local factory Sketchers Shoe store based on two factors:

1. I was going to need a new pair of shoes fairly soon.

And…

2. I read that nearly 100% of all footwear was made or assembled in China, Viet Nam or Mexico, with a smattering in other Asian countries, all, or most of which were going to be hit with tariffs.

I figured that buying now would would save me money.

When I got there they were holding a sale: Buy 2 pair and the second pair is at half price.

All of which means that if they get hit with a 10% tariff, they could choose to pass along all of that cost, some of that cost, or none of that cost.

Some other items, like automobiles, operate at much tighter margins and will likely pass along most or all of that cost.

But some items that are rarely discounted, like Festool, will have generous profit margins, will consider the market implications of passing along the tariffs.

I suspect that some vendor will advertise, “Buy now, and we will pay the tariff on your purchase.” (Which might sound more generous than it is.)

A $1,000.00 retail purchase will likely have a dealer cost of $500.00, and a tariff of $50.00.

“Originally sold for $999.00, now just $949.00. (Yes, we will pay the tariff so you don’t have to.”)

In the (I believe the President Reagan years) there was an added tariff of 10% on imported tires that had to be shown as a line item on invoices. So when you bought an imported tire from a dealer you knew exactly what they paid for it. It made negotiations for better pricing easier.

That phenomenon will be the wrench in the works.

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

wishful thinking. Just saying,

 

[Packard]

wishful thinking. Just saying,

I think that the premium tool manufacturers (read “Festool”, “Snap-on”, et al) will absorb a portion of the increase in an effort to not alienate their customer base. Then they will (slowly) increase prices to return to their earlier business model.

The bottom feeders (read “Harbor Freight”, “Alibaba”, et al) will have to pass along increases as soon as their older inventory is sold. They will not be able to absorb much or any of the tariffs.

I have noticed that Harbor Freight, over the last year or so, has been trying to reposition themselves to directly compete with DeWalt, Milwaukee, etc. with, what appears to be, higher quality power tools. It is a tough transition to make, however.

In my memory, only one company successfully transitioned from economy to premium, and that would be SAAB.

One year, they were competing with VW Beetles, and the next year (with mechanically identical cars) were competing with BMWs. I found that move rather exceptional. But the recession took its toll on them in the long run.

 

[mino]

I think that the premium tool manufacturers (read “Festool”, “Snap-on”, et al) will absorb a portion of the increase in an effort to not alienate their customer base. Then they will (slowly) increase prices to return to their earlier business model.

The bottom feeders (read “Harbor Freight”, “Alibaba”, et al) will have to pass along increases as soon as their older inventory is sold. They will not be able to absorb much or any of the tariffs.

I have noticed that Harbor Freight, over the last year or so, has been trying to reposition themselves to directly compete with DeWalt, Milwaukee, etc. with, what appears to be, higher quality power tools. It is a tough transition to make, however.

In my memory, only one company successfully transitioned from economy to premium, and that would be SAAB.

One year, they were competing with VW Beetles, and the next year (with mechanically identical cars) were competing with BMWs. I found that move rather exceptional. But the recession took its toll on them in the long run.

Well, SAAB was never in the "economy" business to begin.
May have been the case in the US for marketing/sales reasons, but they were always a mid-market player in context of Sweden and mostly a higher-end one in the wider European context. For one, "Swedish Steel" was a well-earned name in times sheet plating was not ubiquitous.

What "did them" was they never consolidated - hence they never got the low-end volume needed to survive post 1990s when the R&D costs went through the roof. Same with Volvo and pretty much any medium-size independent maker. They got either gobbled up or went bust.

---

Agree on the expected outcome.

IMO it is important to understand that the "end-game" with regards to EU-US trade may well be a reduction in tariffs, not an increase. In this pairing, it is the EU that need to keep or even raise disparate tariffs to protect its industry from the effects of its "green" policies while the US wants to force minimal tariffs with the EU to leverage its upcoming competitive advantage in lower energy costs ..

 

[Packard]

Well, SAAB was never in the "economy" business to begin.

My father bought a new 1960 SAAB in 1960. It had a 2 cycle engine and he had to add oil to the gas. The sticker price was about $1900.00. He was proud of the fact that he negotiated a discount and paid about $1600.00–which was almost the exact price that the 2 door VW Beetles sold for. Neither had air conditioning. And neither was available with an automatic transmission. So, economy cars, both.

So I would say that the 1960 SAAB (the car I learned to drive on) was an economy car.

In 1963 dad bought a SAAB GT, which came with Pirelli tires, 4-wheel disc brakes, a Nandi wood steering wheel, and (most important of all) automatically dispensed the oil into the gas as long as the oil reservoir had oil. That car cost more. AC was still not available and neither was an automatic transmission. It was the car that garnered all the rally victories for SAAB.

In my call, an “economy car with performance options”.

Agree on the expected outcome.

IMO it is important to understand that the "end-game" with regards to EU-US trade may well be a reduction in tariffs, not an increase. In this pairing, it is the EU that need to keep or even raise disparate tariffs to protect its industry from the effects of its "green" policies while the US wants to force minimal tariffs with the EU to leverage its upcoming competitive advantage in lower energy costs ..

As for the “end game”, it seems that Trump keeps changing that as he goes along. Historically, he has been a deal-maker. Everything he does seems to be transactional. “If I do this for you, what will you do in exchange for me”. In the case of the Presidency, “If the USA does this for your country, what will you do for the USA?”

I had a friend who was similarly transactional. If I did him a favor, he felt he had to buy me lunch or dinner. And if he helped me, he expected something in exchange. That is an “asterisk-friendship” and not to be valued as much as the genuine thing.

 

[mino]

My father bought a new 1960 SAAB in 1960. It had a 2 cycle engine and he had to add oil to the gas. The sticker price was about $1900.00. He was proud of the fact that he negotiated a discount and paid about $1600.00–which was almost the exact price that the 2 door VW Beetles sold for. Neither had air conditioning. And neither was available with an automatic transmission. So, economy cars, both.
...

This is OT, but there clearly was a very substantial definition difference of what is "an economy car" in Europe and the States of the period.

In Europe, an "economy car" was a car designed and manufactured to be cheap. It was not a car that lacked luxury features of the time like air-conditioning or (what for ?) automatic transmission. Both the SAAB 93 and 96 were compact family cars and were made as-good-as-SAAB-can-make-them. IMO the choice of a 3-cylinder two-stroke was a genius lateral move for such a car - providing the running smoothness of a 6-cylinder at the weight of a 4-cylinder 4-stroke.

In the European context, a Citroen 2CV was an economy car. The original VW was one. The small Fiats were. But. A Fiat 124 was not an economy car in the European context. And the SAAB competed against that.


All that said, compared to the true road cruisers of the time made in the States, I guess ANY European car must have seemed like an "economy car". I think the comment that in 1960 America a car without air conditioning was seen as an "economy car" underlines the vast cultural and economy differences between post-war Europe and US like anything can. Thanks for that reminder.

EDIT: removed trade stuff

 

[semenza]

Edging closer to going political a couple posts up. Let's not .................................

Seth

 

[onocoffee]

It was just a few weekends ago that I was up in the Philly area visiting Nakashima and went to a local dealer who told me (it was Friday, April 11th) that he had just received word from Lamello that the tariffs were resulting in an increase in price for Monday (April 14th). And on Monday, the P2 went from $1600 to $1875 - a 17% price increase.

Evidently, the word is that Festool had prepositioned 4 months worth of inventory prior to the tariffs. So, the speculation is that we probably will not see tariff-related price increases until maybe August (I'm guessing at the latest).

I think the takeaway is that if you have been thinking about tool purchases, it will serve you better to purchase those tools sooner rather than later.

For me, it's a question of: How Desperately Do I Need That Kapex? (not really).

 

[Cheese]

This is just a heads-up to all that order over the internet, but it really spins me up because of the total lack of transparency and fealty from UPS USA...what's the problem? It looks like another Jeff Bezos climb down?

I ordered several Bessey items from Germany, paid for them with PayPal and awaited their delivery. Long story short, the items were out of stock AND manufactured in China. Obviously, they became back ordered and didn't ship for several months. When the items finally arrived in the US, UPS said they needed to collect an additional COD charge of $140 on $107 of the items I purchased. I told the UPS driver the items were already paid for and I asked him what the COD charge was for and he said he didn't know...he just needed me to give him a check. He'd redeliver the parcel the next day if I still wanted it.

So, the next day comes and a different UPS driver drops off the product, he also presents me with a COD for $140. I show him the receipt for shipping from PayPal and ask him what the additional COD charge is for and he also says he has no idea...I just need to write him a check.

I finally had to reach out to the German retailer before I was able to understand what was happening. UPS in Germany is willing to point the finger and they have instructed their personnel as to what is happening with collecting tariffs while UPS USA is unwilling to point the finger because they're afraid of retribution.

The intent is clear...UPS USA doesn't want to upset the applecart.

So, if you have a mysterious UPS COD charge, don't just accept it, do some digging.

Bottom line...I talked with the German retailer and he agreed to accept the return shipment. They were extremely cordial and I would recommend purchasing from them again and I will...guaranteed. It's just too bad that in the USA we have to deny reality.

 

[Cheese]

I am doubtful that manufacturers will pass along all of the cost of the tariffs.

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

Well @Packard maybe you have a delivery address outside of the USA because this one didn't work out very well for me...
I ordered a Bessey item from Germany and it was available for immediate delivery. The item was in stock and cost $15.50 and the shipping to the USA was $20. That seemed fair...
The item was delivered today and UPS then needed me to cut them an additional check for $26.39 for tariffs.
So I'm not catching the math on this one, $15.00 for the item and $26 for the tariff...who's good at math...what multiplier is used to figure out this funds exchange?

So much for not passing on the charges...

 

[semenza]

I've recently ordered a few times from a UK retailer. The tariff was added directly to the total by the retailer at checkout on the website. Seems like that would be the norm rather than the delivery company collecting it.

As for the math on your order cheese? That seems like a lot more than what the Tariff should be. The tariff I paid on my UK orders was the actual percentage. Also why / how is UPS getting away with charging over 100% additional?

Seth

 

[MikeGE]

I've recently ordered a few times from a UK retailer. The tariff was added directly to the total by the retailer at checkout on the website. Seems like that would be the norm rather than the delivery company collecting it.

As for the math on your order cheese? That seems like a lot more than what the Tariff should be. The tariff I paid on my UK orders was the actual percentage. Also why / how is UPS getting away with charging over 100% additional?

Seth

If UPS in the US works like UPS, FedEx, DHL, DPD, GLS, and other commercial carriers in Germany, the extra cost for some imports includes a fixed processing fee and taxes on the fees. Last March I bought a used Blum jig kit from a UK private seller for £200. By the time it arrived a few days later, FedEx wanted €64.74 before they would deliver the package. For some reason, the German Customs Office determined this was a commercial purchase and assessed the 19-percent VAT after converting the declared value in Pounds to Euros. The fee consisted of:

VAT on item: €44.91
Import Duty: €2.80
Processing fee: €14.31
VAT on processing fee: €2.72

A month earlier, I bought an unopened Leigh D4R metric dovetail jig from another UK private seller for £600. This time the Customs Office determined this was a private sale and did not assess the VAT, but the import duty and UPS processing fee was €161.14.

 

[Cheese]

As for the math on your order cheese? That seems like a lot more than what the Tariff should be. The tariff I paid on my UK orders was the actual percentage. Also why / how is UPS getting away with charging over 100% additional?

Seth

That's what I thought... ...but I've been waiting for this item for almost 3 months so I decided to write UPS a check. Felder Group in the US is backordered on the item and is quoting 8-10 weeks delivery.

 

[onocoffee]

While here in the United States we talk about tariffs being a certain percentage on top of the retail price (and no one seems to really know how they are or are supposed to be calculated), another aspect of the fees on Cheese's UPS order could also be handling fees. Perhaps UPS is taking on an additional fee for whatever extra labor is needed to manage tariffs, and then there could be additional fees from whomever is handling the importation (though I expect in this case that would be UPS).

When we import coffee (which has been traditionally un-tariffed), there are a number of additional fees associated with the importation of the coffee beyond the cost of the coffee itself and the shipping.

At least in the case of Cheese and his German suppliers, it's good to know that they are willing to be accommodating for the return.

 

[anthonymall]

@Cheese @onocoffee I had this exact problem in late January/early February. I had an expensive, to me, $300 from Germany from a well known very reputable site that I’ve ordered many times before. Festool items and the store-branded MFT/Vario, etc clamp set that as around $80USD. Rest of the items were festool, prob Around $250USD. Ordered Fri Jan 25th, I think, all items in stock. Usually takes 3-4days to get to me depending if I’m at my apt in lower manhattan, or my home in Lancaster, PA. didn’t get processed until the following Tuesday morning the 28th. Sent out on 29th. I figured I’d get it next week sometime. (Feb 3-7). Tracking it through UPS the entire time. Gets to customs and I get an email from UPS saying I had to pay nearly €130/$150 EXTRA in customs fees in order to receive it. I order a fair amount of stuff from Europe so I’m educated on the $800 de minimis. At I first thought it was a scam, so I called ups and asked them and what it was and it was because the new Chinese tariffs set in on Feb 2. Lo and behold, that store-brand clamp set’s origin was in China even though on the site it states DE. I had to pay it because even if I had sent it back, I would’ve had to pay shipping again and it it was cost prohibitive. I sent the store owner an email explaining this and he said it’s not his problem what the US president does even though the site info was incorrect. Argued with UPS global for a while and they eventually credited my Amex back about $80. @Cheese I think the exact same thing happened to you. I wanted to order that Bessey clamping elements set about a week later, but I asked first where the origin/manufacture was and it was china. Long story short, make sure you check before ordering because they tax the ENTIRE order, not just the item from china. Also, the $800 de minimis is the VAT excl. PLUS shipping fess, so remember that when you’re calculating. Hopefully this will come to an agreement soon than later.

Best,

Ant

 

[Mini Me]

I suspect that the import tariff is calculated from the bottom line of the invoice which includes all charges to place the item in the customer's hand. All handling and transport costs would be included in that figure as well as the item price. Ebay, Amazon etc do that for all items imported into Australia as part of the transaction where duties and taxes need to be applied. There is no way any company would pay any part of the tariff as it is nothing to do with the transaction, it is the customer who imports the goods who undertakes to pay the tariff to the US Govt.

 

[Cheese]

Well...bottom line for me is that the wallet has been officially closed...and that's not a good thing for the economy of the world or even more importantly, the US/Canadian economy as I'm sure others will follow. Until this thing gets straightened out and the extra charges and surcharges start to make some sense...this is just foolishness.