Caught in the Trade War Crossfire
When your cost of goods sold increases 25 percent with the stroke of a pen.
Good Morning!
Here are today’s highlights:
What-A-Lawsuit: Two burger chains are fighting over a name.
Some of the neighbors would prefer to have a less successful business next door.
A TV news power couple in Boston decides their future will not be televised.
Believe it or not, there are people who will make all of your travel arrangements for you, and you probably don’t even have to pay them.
TRADE
Ben Knepler, co-founder of a startup that makes a portable chair (the Emmett), says he’s caught in the crossfire of the trade wars: “Last time, I mentioned that a tariff imposed by the U.S. government is paid by businesses importing those goods into the U.S. (typically U.S. businesses). This seems to come as a surprise to many people who think that a tariff on goods coming from China is paid by China. The reality is that China (and Chinese exporters) don't pay a single penny directly. This is just a fact. But that still left us with the obvious further question: Beyond who makes the actual payment, what are the effects? That's what I'll start to get into today first by thinking about the effects rippling out from a single business, using the example of my own experience.”
“Designing and engineering the Emmett (not to mention applying for patents and planning out every other aspect of the business) was a long road, mostly traversed at the height of the global pandemic, and we finally started shipping the first version of the product to our very earliest customers in late 2021.”
“By that time, the various tariffs imposed by the Trump administration (to be fair, the Biden administration has continued the trade policy; one of the few areas of bipartisan consensus in D.C.) were in effect, including the category that our product falls under which went from 0 percent to 25 percent duty.”
“What does that percentage mean? It's a percentage of the cost of the product (in accounting jargon: cost of goods sold, ‘COGS’), so 25 percent means as a U.S. business bringing products into the U.S. from our factory in China, we pay the U.S. government an extra 25 percent of the cost to produce, i.e. our costs increased by 25 percent. Twenty-five percent!” READ MORE
Europe wants to protect its automakers with tariffs. Europe’s automakers are opposed: “The European Union plans to impose tariffs on imported Chinese electric vehicles, marking an early victory for officials who view the imports as a threat to the region’s powerful car sector despite deep divisions in Europe over the issue. The baseline level of tariffs, calculated at 21 percent for companies that cooperated in an EU probe, would come on top of the EU’s existing 10 percent tariff, the bloc said Wednesday. While some individual companies would face lower or higher tariffs—up to 38.1 percent in additional duties for Chinese company SAIC—they are still well below the duties the U.S. announced recently, likely blunting how much they can disrupt the flow of Chinese EVs to the continent.”
“Brussels’ pushback against China is controversial—and not just in China. The tariffs’ most vocal opponents include Europe’s largest carmakers, which are concerned about retaliation in China, a vast and highly profitable market on which they have become dependent. This reliance has complicated Europe’s effort to follow the U.S. in raising barriers to Chinese imports.”
“At stake, economists say, isn’t just the future of an industry that is among Europe’s largest employers. The outcome could determine whether and how much Beijing’s industrial offensive, which some have dubbed the second China shock after the country’s conquest of consumer goods manufacturing in the early 2000s, reshapes the economies of the West.” READ MORE
INTELLECTUAL PROPERTY
Whataburger is suing What-A-Burger: “Whataburger, the beloved San Antonio-based burger chain, is going to court to protect its good name. The company on Tuesday filed suit in federal court against a North Carolina restaurant group, alleging trademark infringement. The other company's name? What-A-Burger. Or, to be more precise, What-A-Burger #13. The suit alleges that the North Carolina restaurants sell food that is ‘identical to Whataburger’s offerings.’ What-A-Burger's menu, online, includes burgers, patty melts, chicken tenders and milk shakes as well as North Carolina specialties such as grits and pulled pork.”
“The North Carolina chain is small, listing two brick-and-mortar locations in Mount Pleasant and Locust, both east of Charlotte. Its website explains that it is a family business, opened in 1969 by Marvin and Jane Bost and currently run by their son, Zeb Bost.”
“Whataburger remains Texas' favorite burger chain, even after sale to a Chicago company. Whataburger, founded as a hamburger stand in Corpus Christi in 1950, says in the suit that it trademarked its name over a decade before the Bosts opened What-A-Burger #13.”
“The name became an issue a couple of years ago, when Whataburger, the Texas one, was planning to open its first restaurant in North Carolina. While most Whataburgers today are still in Texas, the company has been marching into other states since it was acquired by Chicago-based BDT Capital Partners in 2019.” READ MORE
POLICY
Can a neighborhood business be too successful? “If the crowds scarfing bagels outside got to make the call, the self-described ‘Jew-ish’ deli in a bright pink D.C. rowhome would have no trouble winning officials’ blessing to keep selling sandwiches to the hungry masses. But on the street in Georgetown where Call Your Mother sits amid million-plus-dollar rowhouses, some neighbors are not thrilled with strangers downing pastrami and candied salmon on their stoops, then leaving the trash behind. Citing decades-old zoning laws and a D.C. Appeals Court ruling, they want the business operating in a residential area to stop serving prepared food.”
“Call Your Mother, an instant hit at area farmers markets, where their 400 bagels usually sold out in an hour, opened its first store in Park View in 2018. Since then, it has rapidly expanded across the region to 10 stores, half of which opened in the last four years, said Andrew Dana, the co-owner of the restaurant.”
“Locals consider it a staple. Tourists seek out the shop for the food and snap Instagram-worthy photos with the bright pink backdrop. Even President Biden visited days after his inauguration. But the Georgetown location at 35th and O Streets NW, which opened in 2020, has been a source of consternation. Sixteen residents upset about its operation—among them a law professor, tax lawyer and a dentist—took their complaints to court.”
“Melinda Roth, who lives nearby and was among the 16 people who took an earlier dispute over Call Your Mother to court, wrote in a PowerPoint presentation to the zoning board that the matter was ‘Not a Popularity Contest’ and asked if it would be possible for a less ‘objectionable’ tenant to move in to the corner location, floating the possibility of ‘some quiet sleepy business that isn’t super successful.’” READ MORE
TRAVEL
Believe it or not, travel agents are back: “Ever since the pandemic-era travel restrictions subsided, travel has boomed. Everyone is jetting off to Italy, Japan, and Costa Rica. Money spent on travel and entertainment surged 30 percent in 2023, fueled largely by young people. We're all desperate to make up for lost time, but there's a catch: Many of us 20- and 30-somethings are tired. It turns out that aspiring to be a DIY traveler takes a lot of energy — energy that we've already exhausted on careers, relationships, and day-to-day responsibilities. When we do finally have the time to venture away from home, we're burning ourselves out trying to coordinate all the details of our trip.”
“That's precisely why some are turning back to travel agents. In 2014, the number of travel agents was half of what it was at the industry's mid-'90s peak, with many expecting it to become obsolete. But by 2021, 76 percent of advisors were seeing more customers than before the pandemic. And in a 2023 survey of 2,000 American travelers, 38 percent of Gen Z and millennial respondents said they preferred a traditional travel agent over online booking.”
“For as little as $100 — or nothing at all, given that some agents work on commission from the hotels and other travel companies they work with — overwhelmed young travelers can have someone take all the pressure off the experience.”
“There are travel agents specializing in just about every type of travel imaginable, from multicountry group tours to luxury all-inclusive trips. And different types of agents can offer different perks.” READ MORE
THE ECONOMY
More good news on inflation: “U.S. producer prices unexpectedly declined in May by the most in seven months, another welcome development that will strengthen the Federal Reserve’s confidence in moderating inflation. The producer price index for final demand decreased 0.2 percent from a month earlier, lower than all estimates in a Bloomberg survey of economists. Compared with a year ago, the PPI rose 2.2 percent, Bureau of Labor Statistics data showed Thursday.”
“Stripping out food, energy, and trade services, which is an even-less-volatile PPI measure, prices were flat compared with the prior month, the tamest in a year.”
“Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, decreased 1.5 percent — the most since the end of 2022. That reflected plunging energy costs.” READ MORE
The U.S. economy looks pretty great from abroad: “What is striking about America is how immune its markets appear to be to the threat of political dysfunction and fiscal frailty. By contrast, in the rest of the world those factors are weighing increasingly heavily. According to the European Central Bank’s latest projections, the euro zone’s economy will grow by 0.9 percent in 2024. A real-time estimate by the Federal Reserve Bank of Atlanta suggests that America’s is currently growing at more than three times that pace. China is struggling with a property crisis and the threat of deflation; Japan has been defending its weak currency and Britain has become synonymous with dreadful productivity.”
“As others catch up to the world’s biggest economy, America’s share of global GDP at market exchange rates should be falling. A mix of strong growth and a strong dollar means that it is growing instead.” READ MORE
STARTUPS
Matt and Danielle Noyes, a Boston TV power couple, gave up their jobs to start their own weather business: “The 45-year-old quit his dream job as chief meteorologist at a big Boston station, the exact job he’d fantasized about as a kid in Haverhill, when he used to cut out weather maps from the Lawrence Eagle-Tribune and lie in bed delivering forecasts in his head. Instead, he left all that behind to start his own thing, a new thing, which is doing New England forecasts exclusively online. It’s called 1Degree Outside, and he’ll be the first to tell you it’s a huge risk, a keep-you-up-at-night-worrying sorta gamble. But he’s not the only one taking it, and he’s not the only one worrying in that bed. ‘That was great,’ Danielle Noyes says after her husband wraps up the forecast and loosens his tie. ‘Well done.’”
“Three times a day, the couple takes turns delivering a traditional, TV-style forecast, which is also available on YouTube, while the app and website, 1degreeoutside.com, provide their town-by-town forecasts, hour-by-hour for the next 24 hours, as well as a 14-day outlook. They also have specific forecasts for each Massachusetts state park.”
“In addition, the company is offering private forecasts for companies with outdoor workers. Unlike algorithm-based weather apps, what they are pitching is a local forecast, crunched by actual meteorologists with years of experience with New England weather.”
“It’s a lot for two people, and Danielle still works part time as a meteorologist for NBC10 and NECN. But in its first month, the site already has exceeded expectations, drawing 540,000 pageviews from 145,000 visitors, according to figures they provided. Much of that initial momentum can be attributed to the social media followings they built up as TV personalities.”
“But there is still a long way to go toward profitability, and they are well aware that most startups fail because they run out of money.” READ MORE
THE 21 HATS PODCAST
I Decided to Slow Our Growth: This week, Jennifer Kerhin tells Shawn Busse and Jay Goltz that she finally managed to take her first real vacation since starting her business almost 20 years ago. The vacation is part of a decision she made last year to regroup a bit, in part by backing off on her sales and marketing outreach. The goal is to give her team and herself a bit of a respite while they catch their breath and while Jennifer institutes processes that will improve operations. Of course, that raises an obvious question: Will she be able to turn the growth back on when the time comes?
Plus: Shawn and Jay explain how they’ve eliminated negotiation from their hiring regimens. And all three debate who’s really responsible when owners pay for a marketing plan that doesn’t work: Is it the salesperson who pitched the plan? Or the owner who fell for the pitch?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren