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Our flagship series will propel you to the forefront of the global ecommerce revolution. From analyses of breaking current events to the intricacies of navigating cross-border sales and regulations, Business over Borders entertains and informs any audience who wants to learn more about how international ecommerce works.
Welcome to Business Over Borders. I'm your host, Leo, and we're here for an emergency edition of Business Over Borders. I'm joined by Matt Steinbrecher, and we're here to talk today about tariffs. It's hot. It's all over the news.
Leo Tucker:Donald Trump enacted tariffs on Mexico, Canada, and China, some of which are on hold, and we're here to talk about it. Matt, good morning.
Matt Steinbrecher:How we doing? It's been a fun week.
Leo Tucker:We're a little terrified, you could say, but overall pretty well. So what's going on? Tell us a little bit about what, what's happening.
Matt Steinbrecher:Yeah. So pretty pretty clear mandate from the Trump administration that they are trying to you know, you can speculate all you want, but, ultimately, what they're trying to do is enable tariffs on international trade and imports that are coming into The US. And they're gonna start being implemented. Well, they have been implemented, but they will start being implemented even for those that have been delayed faster and faster. And we are going to see the biggest shift in consumer experience that The US has really ever seen, ultimately, since probably Amazon enabled one day or next day shipping for us.
Matt Steinbrecher:So Right. It's going to be a big, big shake up.
Leo Tucker:So I see a couple of scenarios on the horizon. One, like you mentioned, it's a bit of political posturing. You know, it's a bargaining chip. You know, it's just to ruffle everybody's feathers and, you know, the tariffs in Canada and Mexico don't go through. Now scenario two is that they do, and all of a sudden we see, you know, 25, 20 percent tariffs, you know, to America's neighbors.
Leo Tucker:What does that mean for for merchants, for consumers? Like, what's the what's the downstream effect of this short term and long term if we wanna wanna go there too?
Matt Steinbrecher:Basically, kind of taking a step back, the way the tariffs work is there is a organization that a bunch of countries around the world, like most countries, subscribe to called the World Trade Organization. And in the World Trade Organization, they classify every different type of product, where the product is made, at least 50% or more of the products is is actually manufactured and assembled, and the goods are sourced from, as well as, you know, where the product is being shipped from. They call this a harmonization code. And, basically, all of these countries, there's, you know, a hundred plus countries that are subscribed, let's say, to the WTO or members of the WTO, they all work together to basically have a universal classification of goods. And then, of course, you have, within that, you have negotiations and treaties between countries.
Matt Steinbrecher:So, like, in the nineties, Clinton enabled NAFTA between Mexico and Canada and The US to basically open up our borders. That was a pretty critical play for, you know, transportation and logistics of imports coming from Mexico and Canada to be much more seamless, whereas previously, like, every single truck that was coming across the border is being stopped, checked, inspected, figuring out what the harmonization codes of the products that were in that truck, making sure that the right duties and taxes were collected from it, and then making sure that the federal government got that their their duty cost on that. So that was kind of the the bit of a history around what tariffs are, harmonization codes, and then ultimately, the history of trade between The US and Canada and Mexico. Now that agreement was updated recently and ultimately has now basically been very quickly abolished through Trump administration quickly.
Matt Steinbrecher:What happened first? Twenty five percent tariff was implemented on all goods coming in from Canada and Mexico into The US.
Leo Tucker:Right.
Matt Steinbrecher:Basically, what that means is all Canadian made products, so maple syrup that I might buy from up north and get shipped to me here in Texas, I would now have to pay 25% more for that particular Canadian made product, that I traditionally would not have to pay. So what does that mean? It means the retailer basically has to charge me 25% more. Whoever I'm buying from on the website has to charge me 25% more. So, ultimately, the the cost is passed to the consumer.
Matt Steinbrecher:Now some businesses may mask that cost and inflate the cost of goods to the consumer so the consumer doesn't have to see it. But, really, the consumer is always gonna be the one to pay for this. So it's it's really a tax on imports coming into the US, which Trump has utilized as a negotiation tactic to get other things in his agenda. And, of course, you know that it just recently changed. So within just a few days, Mexico agreed to strengthen the border between the US and Mexico, which was one of the demands that came from Trump and sent, you know, 10,000 troops and did a few other things.
Matt Steinbrecher:Basically, they decided that they were going to delay these tariffs because that type of impact on Mexican economy would be huge. Ultimately, what happens is US consumers say, oh, that's made in Mexico. It's only 5% more. I don't wanna buy it. I'll buy it from The US.
Leo Tucker:Right.
Matt Steinbrecher:Same thing with Canada. Right?
Leo Tucker:Right. And merchants start sourcing goods from other countries that are manufactured in other countries as well, so it's quite the domino effect.
Matt Steinbrecher:Just start to get consumers that that will slowly boycott buying products that they know have inflated cost that is literally just a tariff on them, where typically, consumers are buying things from different countries because they're either very unique and they're willing to pay a higher price or they're cheaper than buying it from a domestic country. The main thing is that Mexico very quickly came in and basically decided that they were going to negotiate versus let these tariffs get implemented right away. Now Canada took a bit of a different approach and basically immediately countered with also 25% tariffs, which really is a lose lose situation. At the time, it was kind of a pissing contest between two world leaders, one who just came into power and one who has made it public that he's walking out of power.
Matt Steinbrecher:So it's kind of an interesting dynamic between traditionally two very friendly countries, and the world leaders negotiation ultimately deescalated a bit, and they delayed the implementation of tariffs, as we did with Mexico. But make no mistake that those were not abolished. So those tariffs are still coming. The time of which they are implemented to consumers is unknown. Right?
Matt Steinbrecher:So I think they they did about 30. They pushed it out. Thirty days is not a lot of time.
Leo Tucker:No. No. We'll be hearing about this pretty quickly again.
Matt Steinbrecher:Yeah. I I suspect it's gonna be it's gonna come with more demands, more threats. You know, it's it's really the Trump administration is leveraging the dominance of The US consumer against some of our import trade partners who have heavy exports to us in The US here, and a very large demand of their economy is based on US consumers.
Leo Tucker:So let I wanna make a quick distinction here between direct imports and indirect imports. And just to give you an example, if you've got a Canadian business selling a product made in Canada sent over to The US to to whoever buys it that has, you know, potentially a 25% markup on it. Now what happens in the case, that would be a direct import. Now an indirect import where you're manufacturing the same business in Canada has a product that they have manufactured in China. They import in, then they ship over to The US.
Leo Tucker:That's a bit of a different story. You wanna talk a little bit about direct versus indirect?
Matt Steinbrecher:Where where things get really complicated outside of the the Canada, Mexico tariffs is the Chinese tariffs because so much of the products around the world are made in China.
Leo Tucker:Oh, yeah.
Matt Steinbrecher:My iPhone ultimately is made in China, but it says assembled in California. But it it really everything that you have, there's just so much only 80% of the products that you look around the room, so much of it is manufactured by China, and they are just the dominant powerhouse globally for manufacturing across a lot of different industries. So what happens if you have a Canadian, you know, let's say, fashion company that's selling into The US, but all of their products are made in China, their clothes are made in China, manufactured in China. Basically, what you've got is it doesn't matter that, you know, the the trade between like, the tariffs between The US and Canada for now have deescalated, and we remain under free trade agreements for for most industries. It matters that the product is made in China.
Matt Steinbrecher:So because of the fact that the product is made in China, the coming back to these harmonization codes, there's two things that classify the product. So, like, the T shirt that I'm wearing has up to a 22 digit alphanumeric code that basically classifies it as a T shirt made of, you know, 75% polyester, 25% cotton, whatever. It's blue.
Leo Tucker:Yep.
Matt Steinbrecher:You know, whatever it's made of, there are these very intricate details that basically classify what exactly that product is. The other classification that comes with a harmonization code is the country of origin, where was it manufactured and assembled, more than 50% of it at least or the majority of it if it's under 50%. And that's where it would be China for, again, most of our products.
Leo Tucker:Yeah.
Matt Steinbrecher:So, you know, I don't know. Let's pick on some Canadian retailer, like Hudson Bay or something. Right? And they're shipping into The US. China by the Trump administration and has nothing to do with the Canadian import tariffs.
Matt Steinbrecher:It has everything to do with the Chinese import tariffs into The US. Because what the the way the tariffs are designed, the reason why these harmonization codes classify what the product is, but also where it's been made is because before they have this type of designation, it would be very easy to move a product that has a tariff. You know, if you have a tariff on China, but you don't have a tariff on Canada.
Leo Tucker:Yeah. Just ship everything to Canada. Sure.
Matt Steinbrecher:Ship it to Canada and then ship it into The US from there. So It's
Leo Tucker:made in Canada. That's great.
Matt Steinbrecher:Exactly.
Leo Tucker:Maple leaves on everything.
Matt Steinbrecher:You could build this, like, sneaky supply chain that's just ultimately moving away from tariffs, but that's the whole reason why these products and services are, rather products are are classified with country of origin because that allows the government to track the exact, place that they were manufactured and then implement the tariffs on the.
Leo Tucker:And these sort of indirect tariffs, they stack. Is that correct? So if you've got in your scenario where you're ordering dresses from China, those get shipped over to Canada, and then those Canadian products get exported to The US, is that then a 35% tariff?
Matt Steinbrecher:So it is it is probably about 35%, but not for the reason that you're thinking. So, the common misconception is when the tariff is implemented on Canada, for example. It's based on Canadian made goods. Now Canada is not known for a ton of exports outside of oil and and lumber. But, like, let's go back to when it comes to, like, yeah, when it comes to, like, retail, you know, consumers.
Matt Steinbrecher:Right? But let's go back to the maple syrup example.
Leo Tucker:Yeah. I don't buy a lot of ore.
Matt Steinbrecher:Yeah. If I wanna buy a case of maple syrup as an everyday consumer because I Yeah.
Leo Tucker:I do.
Matt Steinbrecher:For some reason need that much maple syrup, they have to have a price. The experience that I will have with Canada because it's a Canadian made, product and it's fully made in Canada. The country origin that maple syrup is Canada. Right now, there will be no tariffs. In thirty days from now, I might have to pay 25% more.
Matt Steinbrecher:However, if I buy a T shirt from a Canadian retailer that is manufactured in China, One thing that a lot of people don't realize is that the the tariffs are increasing on Chinese goods by 10%, but the tariffs already existed. So what's happening now is that that package will get stopped at the border, not because it's coming from Canada. It's because it's made in China. Now if I were buying that maple syrup and my T shirt that was made in China in the same from the same retailer in the same package, even though there's a free trade agreement between the maple syrup, basically, right, the the Canadian
Leo Tucker:Yeah. Canadian product.
Matt Steinbrecher:And, there's tariffs on the shirt. The package won't get stopped, and the tariffs will still be collected on the shirt at The US customs border, which is a terrible experience. So it basically means if you're buying something if there's anything like, if you throw a gimme, if you're, like, a retailer in Canada and you're selling to US consumers and you throw, like, a gimme product in there that's like, I don't know, some gadget that's, like, $2 or something. Right? And just like, oh, here's a freebie because you spent over $200
Leo Tucker:kinda little swag or something. Yeah.
Matt Steinbrecher:Exactly. But if that product is made in China, the entire package will be stopped now. Even if it was handmade and knitted in Canada or Toronto or whatever, it it will still get stopped now because there's one product in there that has a country of origin in China. And so it could basically, you know, impact your entire package. So let me unpack this a little bit with the with the numbers.
Matt Steinbrecher:When we look at that example, that's kind of the probably more extreme and confusing thing. So if we we take it a step back, let's just look at Chinese retailers that ship into The US today. So what happened with China? Trump basically said China's gonna have a 10% increase in tariffs. Increase in tariffs.
Matt Steinbrecher:It doesn't mean that we went from zero to 10%.
Leo Tucker:No. They were already tariffed.
Matt Steinbrecher:Correct. So China's already had a pretty significant amount of tariffs implemented, and it's very different across, again, harmonization codes. So jewelry might be very different from apparel, which might be different from, you know, shoes. Right. Which might be different from steel.
Matt Steinbrecher:Right? So there's all these different industries and focusing on retail, of course. Even within the retail sector, it's gonna swing quite a bit based on what you're you're making. So, like, if you buy Nikes, they are made in China. The retail price you're buying in The US on your on your Nike shoes, like, that includes tariffs that were already paid at the border coming into The US.
Matt Steinbrecher:And this is prior to these new tariffs being implemented.
Leo Tucker:Yeah. The status goes the way it was, you know, two weeks ago.
Matt Steinbrecher:Yeah. Exactly. Now if you were buying and having it shipped directly from China or anything that was purchased from China, basically, the the tariffs were included. But if it was shipped directly from China, the tariffs were exempt because it was under what's called a de minimis value. Now the de minimis value is an $800 amount, which basically means if there's an order like a shipment that's coming in from China that is under $800, no duties will be collected on that shipment.
Leo Tucker:Right. And I imagine that's an administrative function too because you don't you know, you're sending over a fidget spinner or something. Like, you just don't wanna take up, you know, customs time, you know, going through there and say, oh, this $13 item now has to be checked, and we've got 10,000,000 of them, you know, sitting there. If it's under a hundred bucks, send it through.
Matt Steinbrecher:Exactly. So if you have if you have, like, your you know, in a fidget spinner example. Right? Realistically, the tariffs on that fidget spinner, even though it's like a, let's say, $10 item, imagine shipping is free. The current tariffs on that would be about, you know, let's call it 25% for that fidget spinner.
Matt Steinbrecher:That's what it is or was as a few days ago. It was about 25% on those. But because The US doesn't care about collecting 25% on a $10 item, it's too much, as you said, administrative work to be able to stop all those packages, clear them, get the 25%. It's just not worth The US' time to collect $2.50 on a $10 order.
Leo Tucker:Yeah. Makes sense.
Matt Steinbrecher:So what they did was implement the de minimis rule. And this is, again, direct to consumer packages being shipped from China into The US, it was an $800 de minimis. So if it was over $800 of fidget spinners, now you're gonna pay duties. You're gonna pay that 25% tariff. If it's under $800, it goes through, you don't pay anything.
Matt Steinbrecher:So if you go into an example of, like, let's say, a wholesaler of fidget spinners, they might buy 10,000 fidget spinners and import them in bulk into The US. They are paying 25% tariffs, but they're paying 25% tariffs on the cost of the fidget spinner, which is, like, a dollar. Right? Mhmm. The retail price in fidget spinner is $10.
Matt Steinbrecher:So if you can follow there's two paths that I wanna illustrate. And the first is, like, direct to consumer, and the second is the wholesale of b2b . The wholesale side is significantly easier because when you're clearing those fidget spinners in, 25% of $1 is a hell of a lot less than 25% of $10.
Leo Tucker:In fact, it's Right. Right. Right.
Matt Steinbrecher:Times less because it's the it's the manufacturing value. It's not the retail value because they're taking 10,000 units, bringing them into The US, putting them in a warehouse in The US, and then fulfilling it locally from The US. So it's a very different type of business model. Right? They're not shipping directly from China into The States.
Matt Steinbrecher:With that business model, those tariffs have always applied. When you buy that $10 fidget spinner locally in The US, it's it's from that US importer, you won't you know, the the cost inflation to use is is, what, 2 and a half cents versus $2.50. Right? So it's a it's a significantly different, or rather yeah. 25, sorry, verse, $2.50.
Matt Steinbrecher:So it's a significantly different scale of the absorbed cost by the consumer because it's been bulking for it. Now what happened? 10% increase. That's what happened as of earlier this week. Now that 25 is 35%.
Matt Steinbrecher:But, again, if you're importing for a dollar and you're paying 25¢ as your tariffs, now you're paying 35¢. A 10% increase in that cost to a a bulk importer who's already fulfilling locally for trainings made goods in The US is not going to have a material impact on the ultimate $10 retail price that the retailer sells it. Now here's what retailers that are doing this model are gonna do. They're gonna increase their prices by 10%. Right?
Matt Steinbrecher:Sure. They they even if it's not the actual respective increase to their prices because they're importing at the $1 and selling at the $10, they're still gonna charge you $11 now because it's predatory pricing. Right? This is capitalism. This is the way that our consumer market works.
Matt Steinbrecher:So, again, what happens in this b2b scenario where it's already being imported in bulk, The US consumer is going to take a hit on that impact of the cost increase. That's not even the part that's scary. That's just the part that is pretty status quo. We've had tariffs on Chinese made goods for very long time. They've gone up and down.
Matt Steinbrecher:Lots of different sectors. There's a lot of them.
Leo Tucker:Tariffs go down. Yeah. We've seen it before.
Matt Steinbrecher:It's pretty common. It's really common. There's there's no, you know, there's there's no major shift to business industry and trade there. So let's go to what happens when that fidget spinner now gets shipped from China. Now it is the declared value on the package, which is the retail value.
Matt Steinbrecher:So if I go on the When I pay
Leo Tucker:for it online. Yep. Fidgetspinners.com. Yep.
Matt Steinbrecher:Totally. Right? Or like AliExpress or any of the big Chinese marketplaces that I buy from them, temu , and I buy from them that it's a $10 item. They now have to ship it to me as $10. And now here's the crazy part.
Matt Steinbrecher:The elimination of this de minimis for everyday consumers. Right? Businesses know what a bulking for. They understand how to do that and build tariffs and and work with customs.
Leo Tucker:Yeah. They got they got teams and working to make sure that gets across the border without issue.
Matt Steinbrecher:Yeah. That's why they that's why they make a $9 spread on a fidget spinner. You know? That's what they do. Right?
Matt Steinbrecher:When you're when you're buying direct from China now, which a lot of people do unknowingly and sometimes knowingly. Right? So what's happening now is that retail value is $10. The de minimis threshold of 800 is entirely removed, which means now your package gets stopped at the border. Customs agent scans the package, says this is made in China, a fidget spinner.
Matt Steinbrecher:It's worth $10. That's how much it was sold to the consumer for. You owe 35% tariffs now. Previously, it would have been 25%. So even alone, the disruption to the economy and to global trade is just the removal of the de minimis value.
Matt Steinbrecher:The tariff increase is relatively trivial.
Leo Tucker:It's kind of business as usual, really. I mean, it's Exactly.
Matt Steinbrecher:Yeah. It it makes
Leo Tucker:things more expensive, no doubt, but, you know,
Matt Steinbrecher:we've seen it before. It's an impact, but it's not an impact that, like, really impacts everyday consumers. Like, they'll just see prices go up and, you know, Yeah. It's not great. Right?
Matt Steinbrecher:Because we've been living in a pretty inflationary economy, particularly in The US recently. You wouldn't see it as much. Where you're gonna get really impacted is that $10 item. Now you are going to get a slip from your delivery guy. Right?
Matt Steinbrecher:FedEx, UPS, USPS, DHL, whoever you're getting delivered from. Typically, they're gonna leave something on your door that basically says, so you know, it was $3.50 for the Fidget Spinner that you bought online for $10. Most people in The US have no idea why they would get that package and why all of a sudden someone would try to collect more money.
Leo Tucker:No. It's huge amount of friction. Not only am I surprised at a new cost, I gotta probably drive somewhere, you know, to a post office, which I assume I have in my neighborhood
Matt Steinbrecher:and come Right.
Leo Tucker:Go go pay some some fee that I wasn't expecting to pay on my my fidget spinner.
Matt Steinbrecher:Yeah. And, you know, I mean, Canadians are used to this for US imports, but US consumers are not used to this. A lot of a lot of countries are very used to this this flow of consumer experience as it relates to import duties. But The US doesn't have this because of this de minimis rule. So now what's that person gonna do?
Matt Steinbrecher:Like, would you pay $3.50 on top of a $10 fee for a fidget spinner? No. You probably wouldn't. So you'd say I
Leo Tucker:I was only half in at I was only half in at $10, I'm a be honest with you.
Matt Steinbrecher:Yeah. Exactly. Right? So it's it's like, okay. Well, there's no way I'm gonna pay that.
Matt Steinbrecher:So, like, I don't want it anymore. So what what am I doing? I'm basically I just don't want. I don't care about the $10, but I'm not paying $3.50. Now get this too.
Matt Steinbrecher:The cost all of these logistics companies, right, the actual shipping carriers, so USPS, UPS, FedEx, DHL, you name it, they didn't know. I mean, they kinda knew this was coming, but they didn't they didn't have lead time to build infrastructure for this to actually get pushed through in a seamless manner. So guess what they're having to do? Their delivery truck guys, who they have to pay salaries to and pay overtime for shipment, and and they have to pay the time of their employees, they're now going to chart oh, and they need to store your fidget spinner until you pay that $3.50, and then then they can give it back to you. Maybe they'll deliver it back on their next round in your neighborhood, or you come pick it up from the post office.
Matt Steinbrecher:Right? So there's a cost for them to store the item. There's a cost for them to communicate to the end customer about the delivery fee for duties, which is this $3.50. And, of course, then there's administrative cost for them to figure out how to automate all that stuff very quickly.
Leo Tucker:Oh, nightmarish.
Matt Steinbrecher:Right. Which means they need to stop everything else they're doing in their business, and there's opportunity cost in that. So what are they gonna do? They're gonna implement what we call final mile delivery fee, which is basically like a it's like a surcharge to the shopper, which is basically gonna say, you're also gonna pay us UPS or FedEx. It's not $3.50 to go to the federal government of the United States.
Matt Steinbrecher:It's not going in the pocket of a private company that's delivering the product. So they're gonna say, by the way, you also owe us $5 for your time.
Leo Tucker:Yeah.
Matt Steinbrecher:So we bought a Fidget Spinner for $10. Previously, it would have been $10 delivered to our door and however long it took to ship. Now we get implemented with a $3.50 tariff plus a $5 delivery fee, and $5 is pretty low to be totally honest with you. So we bought a fidget spinner for $10 and then pay $18.50 for it in total with time allocated because we have to communicate to the carrier and pay money somehow and you know? So now you have to deal with all that, which is super fun.
Leo Tucker:That's right. My fidget spinner, sales business just, you know, just took a hit. It's not working out anymore.
Matt Steinbrecher:Yeah. It's, it's it's super impactful. People are people are going to feel this pain this week and especially next week as products start to clear in from China and packages start getting stopped. So this is the biggest shakeup in consumer behavior, kind of coming back to my initial point. It's the biggest shakeup in consumer behavior in The US that we have ever seen, negatively, at least in my lifetime.
Leo Tucker:Right. So, I mean, we we wanted to get this podcast out to talk about it, but not just to bring doom and gloom. Like, you know, if the this is the way the world is, we've gotta, you know, we gotta adapt. We gotta adjust. So, obviously, there's gonna be a lot of chaos at the border, chaos, you know, for customers, confusion for merchants.
Leo Tucker:What is there to do? Like, what what can merchants do? We're selling goods that maybe are manufactured in China. They're moving across the border from Canada or Mexico into The US. What's best practice here, you know, to avoid, you know, chargebacks and things like that from people being, surprised by their, significant increase on their fidget spinners or maple syrup, whatever
Matt Steinbrecher:Yeah. Yeah. So your your costs are your costs are going up for consumers. The consumers don't understand why those costs are going up. Thankfully, our media does a great job of making it in our face every day, the headlines.
Leo Tucker:Mhmm.
Matt Steinbrecher:So they'll probably have an idea as to why, but they truly don't understand the mechanics behind it. They're just gonna assume that the retailers are gonna charge them more. They'll be upset. They'll demand a refund or reject the good or issue a chargeback. It'll be a huge nightmare for retailers.
Matt Steinbrecher:So how do you combat it? The best way, import your products in bulk into The US and start fulfilling locally here. That process takes months for most businesses. It's also incredibly costly because now if I previously had my fidget spinners stored in a warehouse in China, which I sell all over the world, not just in The US, I need to take a section of that inventory or duplicate a section of that inventory and bring it into The US in bulk, have a warehouse, whether I lease it or or outsource it to a third party or buy it myself. I now have to pay for warehouse space, and now I'm pick pack shipping from The US, which is significantly more costly just from a labor perspective than it is doing in China.
Matt Steinbrecher:All of that was super impactful and still very disruptive to my business and will still increase my cost to my US consumers because now I need to implement all these things, which has hard cost of resource allocation. But that is the best thing to do. Right? Now with the fidget spinners, okay. Not that big.
Matt Steinbrecher:It's it's it's small it's a small product, but if we're talking about, like, retail and apparel, especially things that are seasonal, this is this is a pretty big shake up. So what we would start to see here is more businesses scrambling. Most of the businesses that I've been talking to are really looking and trying to scramble to find a local fulfillment center quickly that they can get up and running with. And these are retailers that are based, mind you, in Canada, in The UK, in Australia, in, you know, Singapore, in Germany. Doesn't matter where they're based.
Matt Steinbrecher:If their products are made in China, when those products are shipped from a UK warehouse in London, shipping in to me in Texas, because it was made in China, I now have a 25%, thirty five %. It could be up to, like, 65, 70 five percent tariff as a consumer on that product. And that never existed before. This wasn't a problem before. Right?
Matt Steinbrecher:So for those that have very high tariffs, they somehow need to absorb those costs so that they can basically make sure that it's a seamless shipping experience for the customer. So we Right. What what we walk through in that experience where the cost is absorbed is is DDU. So for these businesses, right, what are their options? Like I said, they can go open a 3PL in The US.
Matt Steinbrecher:That's not fast. If they just ship the way they've been shipping, where they pass this cost of duties to the consumer while they're setting up their local warehouse, let's say Right. They if they just pass the cost of duties to the consumer, then the consumer has to pay it through their mailman, and they they're they're never gonna compete. No one will ever buy from them again, and they will have massive, massive downstream impacts to their business. So what they need to do very short term, like yesterday, is implement what's called DDP, duties delivery paid.
Matt Steinbrecher:That basically allows them to increase the cost of shipping by 25, 30 five, 40 five percent, whatever the cost is for the duty tariff on their particular products being shipped into The US or made in China. Again, even if they're based in The UK, Canada, and Australia, wherever
Leo Tucker:they are. Doesn't matter. Made in China.
Matt Steinbrecher:Right. Made in China. They now need to bake that into the retail price so that when it ships through the carrier, the duties have already been paid. So when it hits US customs and they scan that box, they're gonna be like, oh, okay. Well, the duties are paid off this.
Matt Steinbrecher:Like, it it goes through.
Leo Tucker:Yeah. Yeah. That way, I mean, you're still seeing the price increase, but you don't have the border friction. You don't have the how do I pay this, you know, duty fee friction. So Yeah.
Leo Tucker:You can't avoid the cost. So
Matt Steinbrecher:It's more of the friction for the consumer experience even though the cost is gonna dramatically increase. So we're gonna see a really big we're gonna see a lot of packages getting stopped, assuming things stay the way they are with China. If if the trade if the de minimis value stays removed, or at zero, let's say, you will see massive massive impacts to trade in the very short term that is going to drastically stimulate US spending from US made goods, or non Chinese made goods from other countries. And we will see dramatic dips in basically, spending in China exports from China. So it's a it's a very interesting play here, but, ultimately, I think retailers need to either look at bulk importing.
Matt Steinbrecher:They for sure should be shipping duties paid, today to be able to minimize the impact to shoppers. And, yeah, that's that's basically your your two options at this point. Or if you do nothing and intentionally let your shoppers know this is what's going on. Our prices will be increased by x, which probably makes it so it's too expensive for you to want to purchase it anyway, and they intentionally take the dip in their sales to wait and see how things shake out. Things are changing every day.
Matt Steinbrecher:So we have no idea what it's gonna look like in a week from now, so we're gonna have to make a few of these probably as things
Leo Tucker:This is a fast moving target. You know? I I I think the news has been different every every day this week. You know? We're sort of sitting on the edge of our seats here seeing what the Trump administration's gonna do and how, you know, the affected countries are gonna respond.
Leo Tucker:So stay tuned. Matt, thanks for joining me. We'll, we'll stay on top of this and see how things develop. And that's it for Business Over Borders. If you like what you saw today, go ahead and like this video or subscribe.
Leo Tucker:And if you really wanna see what we got coming down the line in real time, hit that little bell at the bottom. Thanks.
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