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A Fuzzy Picture on Tariffs Becomes Sharper, But Questions Linger

By
Carlo Bonavita
Features

Coming into Focus

 

Carlo Bonavita

Carlo Bonavita says tariffs will likely prompt some wine drinkers to switch to domestic products.

 

Clarity.

Ever since tariffs became a main thrust of the Trump administration’s economic policy — that would be day 1 — that’s what business owners and managers have been calling, if not begging, for.

They still don’t have as much as they want, but they now have a lot more than they did 60 or even 30 days ago.

That’s especially true in the auto industry, where trade deals inked with Japan, South Korea, and the EU lock in 15% tariffs on a large list of foreign imports. That translates into a roughly $2,000 increase on an average-priced vehicle, which is now in the mid-40s, said Ben Sullivan, chief operating officer for the Balise Auto Group.

And that number must be put into perspective, he went on, noting that, with the return of incentives such as 0% financing and attractive lease rates, the consumer’s monthly payment — which is what most focus on — may not rise much higher than it is now.

“At the same time as those price increases are coming, most manufacturers have increased production, and when they increase production, they want to sell a bunch of cars, and when they want to sell a bunch of cars, they put incentives on them.”

“At the same time as those price increases are coming, most manufacturers have increased production, and when they increase production, they want to sell a bunch of cars, and when they want to sell a bunch of cars, they put incentives on them,” said Sullivan, who cited the case of a co-worker with a truck coming off lease. She’s getting into a new one and shaving $100 off the monthly payment at the same time.

That’s an indication of how unattractive the incentives were in the years after COVID, and how much better they are now, said Sullivan, adding quickly that, while there’s still a good amount of dust to settle, especially with regard to tariffs imposed on Canada and Mexico and the cars and parts made in those countries, there is a sense of normalcy returning to this sector (more on that later).

Ben Sullivan

Ben Sullivan says that, while car prices are rising by $2,000 on average due to tariffs, with incentives, consumers may not see a rise in their monthly payment.

The same can generally be said for Carlo Bonavita’s business, Springfield Wine Exchange, where clarity is also a technical term.

Bonavita’s shelves are loaded with imported wines, many of which will now be subjected to at least 15% tariffs. This will add a few dollars to the average-priced bottle, which might be enough to sway some consumers to switch to domestic labels, something he’s been promoting for some time now, especially with the prices from some European wines rising even before tariffs were imposed, for reasons he can’t pinpoint.

“The reality is, I’d prefer to find domestic wine alternatives for our customers. It’s our job to go out there and find wines for our customers that are affordable, quality — and that’s easy to do,” he said, adding that he expects that some will shift more to domestic products. “Most people are loyal to the grape, and not necessarily the label,” he said, adding that consumers are likely to trade an Italian Pinot Grigio for one made in California.

There is less clarity in some other sectors, however, and with many different products, especially since a new, wide round of tariffs on individual countries went into effect earlier this month. The countries included Brazil (50%), Switzerland (39%), Vietnam (20%), and Taiwan (20%), and the tariffs are expected to generate price increases on everything from watches to shoes; computers to furniture; coffee to toys.

Construction is another sector where there are still some unknowns.

Dave Fontaine, CEO of Fontaine Bros. Inc., said tariffs will certainly impact the cost of projects large and small because tariffs on products, such as steel or copper, are applied not when they are ordered, but when they enter the country.

“I would equate it to walking into a store … the sales tax is 6.25%, and then, while you’re purchasing the item, the sales tax gets doubled or tripled,” he explained. “That’s going to impact at the register.”

To date, increases in prices from tariffs have been offset by decreases in the cost of some materials due to a general slowdown in the industry, allowing projects to stay on budget, he went on, but it remains to be seen if things will stay that way.

“I don’t know for sure, but I think that what our distributors did, as these tariff talks were going on, was bulk up their warehouses just to get people along for six or seven months in anticipation that the tariff talks would blow over and things would get settled.”

For this issue, BusinessWest talked with business owners and managers across several sectors to get some perspective on tariffs and what they mean for their businesses and their customers.

 

Grape Expectations

The announcement of Trump’s ‘Liberation Day’ tariffs on April 2 has been followed by four and half months of trade talks, new deals, deadlines made, deadlines extended, and seemingly never-ending speculation about the impact of tariffs on prices, individual businesses, and entire sectors.

In many respects, the speculation is giving way to increased clarity, though there are still plenty of question marks on everything from how much of the price increases will be passed on to consumers to how those same consumers will respond to the higher prices.

More will be known in the weeks and months to come, said those we spoke with, adding that much, but not all, of what’s for sale now — be it cars in showrooms or wines on shelves — were delivered before tariffs went into effect.

That’s true of the popular beers from Germany, Belgium, and other European countries sold at the Student Prince, said Nate Yee, director of Hospitality for the Bean Restaurant Group, which counts the downtown Springfield landmark among the many area eateries in its portfolio.

“I don’t know for sure, but I think that what our distributors did, as these tariff talks were going on, was bulk up their warehouses just to get people along for six or seven months in anticipation that the tariff talks would blow over and things would get settled,” he said, adding that prices have remained remarkably, and unexpectedly, stable. “That’s the only explanation I can think of for why our costs haven’t gone nuclear.”

The company has enough in its own warehouses to get through the Big E, where it will have several locations, said Yee, adding that what happens when the current warehouse stock is replaced with post-tariff products remains to be seen.

“Who knows what will happen?” he said, adding that, if costs rise, the Bean Group will have to think about adjusting its own prices. “But we want to be as price-sensitive as we can; we want to be affordable, and we want our guests to come back multiple times a week, and a big part of that is the value aspect of it.”

Bonavita said almost everything at his storefront in Tower Square, and everything shipped to customers elsewhere, including the eastern part of the state (a growing part of this business), arrived pre-tariffs. It will be September or October, he projects, before the nature of the inventory shifts and prices are adjusted.

And while he will continue to order wines from dozens of other countries (together, they make up roughly 35% of what he sells), he fully expects movement toward domestics as the inevitable price increases come. Meanwhile, like Yee, he said he will likely absorb some of the hit to minimize the impact on the consumer.

“We wouldn’t be here without our customers, so I’ll do whatever it takes to keep our customers,” he explained. “If that means we work on a lesser margin, we’ll work on a lesser margin.”

 

Driving Forces

Sullivan said many — but certainly not all — the cars on area lots were delivered pre-tariffs. That means consumers might find two almost identical cars at a dealership with different price tags.

And, as he mentioned earlier, while the price tag on the post-tariffs model might be higher, the monthly payment might — that’s might — not be. And that’s just one of the many intriguing dynamics within the auto industry as a once-fuzzy picture sharpens a bit.

“The tariff landscape is coming into clearer focus,” he told BusinessWest. “Now, it’s about what the scale and the impact of the tariffs will be and when it will all settle into something that’s predictable. We’re not home yet, knowing exactly where this whole thing shakes out, but we’re getting closer.”

Elaborating, Sullivan said there will be more clarity in the months and years to come on issues ranging from used car sales to how long consumers hang on to their cars as the cost of maintaining them rises because of tariffs on parts, many of which are made in China.

Meanwhile, with new car sales, as well as the proverbial big picture, there is more normalcy than a few months ago, when panicked consumers were running to dealerships to beat the tariffs.

“Now, things have calmed down,” he said. “People are aware that it’s not as bad as they feared; it’s still going to cost them more to buy a car, but not as much as they feared. So right now, we’re seeing a more normalized market than we’ve seen in a while.”

‘Normalized’ wouldn’t be a word to describe what’s happening in the construction sector, said Fontaine, noting that tariffs are impacting not only projects in progress — such as the new high schools his company is building in East Longmeadow and Agawam — but some initiatives on the drawing board.

“When the cost of materials is going up, that makes construction projects more difficult to to get financed — and more difficult to make sense,” he explained, adding that this is more prevalent on the private side of ledger than on the public side. “And a lot of people are in the wait-and-see phase because of the uncertainty with the economy.”

For construction firms, the challenge is to find ways to minimize the impact through use of more domestically produced materials and other strategies to keep projects on budget.

“We’re spending a lot of time trying to protect ourselves and our clients from the impact of them, and I think we’ve been generally successful with that,” Fontaine said. “We’ve pushed a lot of things to be imported from places that are not impacted by tariffs or made in America. We’re doing everything we can to mitigate costs, but it’s a hot issue in construction right now.”

And in many other sectors as well.

Coping with Tariffs

By
Opinion

Editorial

 

Maroun Hannoush doesn’t seem fazed by what some are describing as ‘trade wars’ and a rapidly changing scene when it comes to tariffs imposed on products from around the world.

Indeed, while Hannoush, CEO of the family-owned chain of jewelry stores and manufacturing facilities, acknowledged the 39% tariff rate imposed on products from Switzerland, including a wide array of watches sold in his stores, and some uncertainly about will happen with the price tags on those and other items, he was generally upbeat when he talked with BusinessWest.

He spoke of manufacturing moving to other countries, and especially this one, and, more generally, about how his industry (and others) will respond to this latest challenge with creative efforts to continue thriving, while also minimizing the impact on their customers.

“It’s exciting to see — there’s great potential for new jobs and new opportunities,” he said of already announced plans to move some manufacturing to this country, and the promise of more. “The United States has a great deal of untapped resources when it comes to making products like jewelry here.”

While most others are not as openly optimistic and upbeat, the general tone we’re sensing is that, yes, the tariffs are just another challenge to be overcome, and they are confident that they can make the needed adjustments, whether it’s steering wine lovers toward domestic labels or finding ways to absorb or offset some of the price increases.

As we talked with several other local business owners about tariffs, most said the full impact of these measures are still matters for the future tense.

Whether it’s Swiss watches, German beers, French wines, Japanese cars, or even some construction materials, there is mostly plenty of stock in warehouses that arrived well before the tariff rates were set in stone — if they’ve actually been set in stone — for the next several months.

Meanwhile, other factors, from attractive incentives on the sale and lease of new cars to falling prices on some construction materials amid a mild slowdown, are keeping the full effects from tariffs from being felt.

The question is, for how long? Actually, that’s just one of the questions being asked — questions for which there are no real answers at this point.

But amid these questions, there is a certain amount of confidence that many of these tariff issues can be minimized through the same creativity and diligence that has seen this business community endure through a Great Recession, a pandemic, an ongoing workforce crisis, and much more.

Maybe Hannoush is right. Perhaps these tariffs will generate more manufacturing in this country, equating to more jobs and more game-changing investments in communities across the country. Maybe the negotiations will continue, tariffs will fall, and important concessions will be gained as a result.

Maybe.

In the meantime, area businesses are responding as they always do — with imagination and determination.

Why Tariffs Are Fueling Concern Among Large Retailers

By Contributor
Special Coverage Wealth Management

The Big Box Barometer

By Jeff Liguori

Walmart and Costco might be two of the most important businesses in the U.S. today. Costco, the bulk retailer, sells nearly $255 billion worth of products annually, ranging from patio furniture to olive oil to diamond rings. It is arguably the most diverse outlet in terms of product mix and customer base. Walmart, the largest retail chain, holds about 20% share of the U.S. food and beverage market, serving 240 million customers weekly, with stores located within 10 miles of 90% of the U.S. population.

In a recent Trusted & Liked Companies Survey of 14,000 consumers by the Caliber Group, Costco ranked second in quality of reputation, slightly behind Amazon, on a list of the 30 most trusted retailers in the U.S., while Walmart ranked 10th.

During Costco’s last quarterly earnings conference call, CFO Gary Millerchap discussed the company’s plan to deal with tariffs and the potential effect on their customers. Predicting the impact is a challenge, he said, because of the “uncertainty around the timing and scope” of the tariffs. As part of its plan, Costco has been pulling inventory forward — in other words, adding excess inventory in anticipation of prices rising in the future.

The tariffs being levied on exporting countries by the Trump administration are a headwind for many businesses and routinely discussed by CEOs and CFOs of major companies. A tariff is a tax on a foreign country, a tactic to help generate greater tax revenue for the U.S. from countries where there is either a trade imbalance, an adversarial relationship, or — in the case of our neighboring states, Canada and Mexico — to curb illegal drug trafficking.

Most economists agree that tariffs will ultimately result in higher prices for the consumer. Walmart issued a cautious outlook on its last conference call. John Rainey, the CFO, told analysts there are too many uncertainties related to consumer behavior and global economic and geopolitical conditions to give clear guidance to analysts — a nice way of saying “we have no idea what the tariffs might mean for the global economy.” The stock price fell nearly 11% following the earnings report.

“When companies like Walmart and Costco import, the tariff gets passed on to them, which gets passed on to the consumer. The Trump strategy is tricky at a time when inflation remains stubborn.”

When companies like Walmart and Costco import, the tariff gets passed on to them, which gets passed on to the consumer. The Trump strategy is tricky at a time when inflation remains stubborn. At the last meeting of the Federal Reserve in January, the Federal Open Market Committee left interest rates unchanged, pausing the rate-cutting cycle that started last September because inflation remains elevated. Continuing to cut rates would put additional upward pressure on prices. Tariffs may exacerbate that dynamic further.

The Tax Policy Center, an independent think tank, estimates that tariffs would reduce imports by $9 trillion over 10 years. Currently, imports are at the highest level in history; the U.S. imported about $4.1 trillion in goods in 2024, up 20% from 2021, and have increased by 6% annually, on average. A decrease of $9 trillion, spread over a decade, would be about a 25% decrease in imports per year. Presumably, goods produced domestically would replace those that are imported, but such a transition doesn’t occur overnight.

So, what does this mean for the U.S. economy? Increasing inventories by retailers, as a measure to protect against higher prices related to tariffs, might be coming at the exact wrong time. From Costco’s conference call, the CFO noted that recent shopping habits have trended more toward lower-priced groceries, and the company saw a shift to more food eaten in the home. The CEO, Ron Vachris, suggested that customers have been making more pragmatic choices in recent months.

Jeff Liguori

Jeff Liguori

“Increasing inventories by retailers, as a measure to protect against higher prices related to tariffs, might be coming at the exact wrong time.”

Such behavior is consistent with recent consumer surveys, which illustrate more cautious spending by individuals and families. Higher inventories, or supply, and weaker demand will soften inflation without any help from the Fed’s monetary policy.

Prices matter. The most Googled economic term in 2024 was ‘inflation.’ Costco and Walmart have the wherewithal to manage through uncertainty, but we, as consumers, may not. What we spend accounts for 70% of GDP; what we import accounts for 14%. It is not difficult to see how the U.S. economy could tip into recession if those two categories contract.

At a recent meeting of the Economic Club of Chicago, Doug McMillon, the CEO of Walmart, told an audience he expects the situation to worsen with increased price pressure ahead amid shoppers already experiencing “frustration and pain.”

Time will tell if that pain will be worth it for the long-term financial well-being of our country.

 

Jeff Liguori is managing partner and chief investment officer of Napatree Capital, with offices in Longmeadow and Westerly, R.I.

Manufacturers Face Higher Costs, Global Uncertainty from Trade War

By
Manufacturing

Tight Squeeze

President Trump has made no secret of his hope that a series of tariffs on goods from China and other countries will eventually force a more favorable balance of trade for the U.S. But in the meantime, the escalating trade war has posed very real, often negative impacts for manufacturers, particularly in the form of higher costs and a general sense of uncertainty that makes it difficult to pursue growth. And no one seems to have any idea when the situation will ease up.

A trade war can hurt business in more ways than one, Kristin Carlson says.

For example, as a contractor for the U.S. Department of Defense, her manufacturing company, Westfield-based Peerless Precision, doesn’t buy a lot of foreign materials, like steel and aluminum — in fact, she buys about 95% domestic — so she hasn’t been subject to the direct cost increases on imported goods resulting from the volley of back-and-forth tariffs posed by President Trump and Chinese President Xi Jinping.

“As a result of tariffs and increased pressure on domestic supply, we’ve had supply and demand issues. We’ve been seeing pricing going up 25% to 40% from what we have historically paid.”

But those increased costs of Chinese products have pressured the domestic supply chain, so she is, indeed, paying more.

“As a result of tariffs and increased pressure on domestic supply, we’ve had supply and demand issues. We’ve been seeing pricing going up 25% to 40% from what we have historically paid,” she said. “Costs are a big issue.”

Peerless Precision, which makes parts for the aerospace and defense industries, employs 32 people and has generated strong revenue in recent years, but profits are being squeezed by the trade war.

Kristin Carlson says manufacturers are dealing with price increases and supply-chain disruptions due to the recent tariffs.

Lead times are also affected, she added. “Because of this supply and demand issue on the domestic supply chain, companies are stocking up to make sure they’re getting the prices they need. When times are normal, we’ll get material in one to three business days, and that’s turned into one to four weeks.”

Trump’s trade war, now about 18 months old, has had a ripple effect on the global supply chain of many products, driving up the price of imported raw materials and finished goods. It’s not just manufacturers feeling the heat — for example, farmers have lost lucrative markets as well.

NPR recently reported that cranberry growers worked for years to develop a market in China, and sales of dried cranberries to China increased by more than 1,000% between 2013 and 2018. But after the White House approved tariffs on $50 billion worth of Chinese goods in July, China immediately retaliated with tariffs on dozens of U.S. goods, including dried cranberries, and now growers — many of them in Massachusetts — are faced with a serious glut of product.

That’s just one example of the impact of tariffs, but for manufacturers, the equation can have even more moving parts (pun intended). Many shop owners say the uncertainty of the situation is causing them to hold off on hiring and expansion because they’re not sure how or when a deal will take shape.

“The imposition of 15% tariffs on $112 billion worth of Chinese goods on Sept. 1 underscores the uncertainty facing employers, particularly manufacturers, who do business in overseas markets,” Raymond Torto, chair of the Associated Industries of Massachusetts (AIM) Board of Economic Advisors, wrote last month. “At the same time, employers are beginning to see evidence from both customers and suppliers of a slowdown in the U.S. economy.”

Stirring the Pot

Robert Lawrence, professor of International Trade and Investment at the Harvard Kennedy School and a former member of President Clinton’s Council of Economic Advisers, recently told the Boston Globe that, while U.S. strategy over the past century has been to use protectionist measures like tariffs sparingly, Trump has a more aggressive outlook.

“This is at odds with the entire thrust of our policies over the post-war period,” he said. “We’re acting unilaterally. We’re bullying the Chinese by putting these tariffs on them.”

The Trump administration has taken aim at China for a variety of economic reasons, from the nations’ trade imbalance to accusations that Chinese companies steal intellectual property from American companies. But, as Carlson noted, China isn’t the only affected supplier.

“When we submit a quote for a customer purchase, we’re locked into the price we quote them. If our cost changes, we have to suck it up. We can’t go back to the customer and say, ‘oops, materials went up 50%, so we have to raise the price.’ We don’t do that.”

“Tariffs weren’t just slapped onto China, but onto Canada, Mexico … maybe three to five countries in the entire world don’t have tariffs on them.”

Not all manufacturers see the impact the same way. Eric Hagopian, who owns Pilot Precision Products in South Deerfield, told the Globe that, while the price of domestic steel he buys has gone up 43% this year, the tariffs are boosting American industry as many companies are moving to American products as a result of tariffs on products from Pilot Precision’s Chinese competitors. “It actually helps our business,” he said.

Rick Sullivan, president and CEO of the Economic Development Council of Western Mass., said he has heard from members with differing perspectives on the impact of the trade war.

“Some people, I think, are really impacted; they feel there are some pretty serious impacts on cost and competitiveness,” he told BusinessWest. “Then, if you go to someone like Eric Hagopian, he’s a little less adamant that it’s a big issue.”

MassBenchmarks, an initiative of the UMass Donahue Institute and the Federal Reserve Bank of Boston, reported on economic trends in Massachusetts this week, pointing out that the economy is doing well overall, with low unemployment, but employment and output growth are decelerating.

“Growth in the global economy is slowing, and labor-supply constraints, softening demand, and rising international geopolitical uncertainty all signal concerns for the economy going forward,” the report notes.

Rick Sullivan says manufacturers — and other businesses — have differing takes on the pros and cons of a trade war, but no one likes the uncertainty it generates.

Board members focused on a number of broad sources of uncertainty in the economic and geopolitical environment and what they could mean for the Massachusetts economy. One board member said the current environment is characterized by “considerable internal and external disharmony,” which includes ongoing trade conflicts, as well as continued tension around Brexit, the apparent impacts of climate change, particularly as it relates to agricultural production in various places around the world, and increasing instability in global markets among advanced economies. Against that backdrop, Trump’s ongoing impeachment inquiry is yet another wild card.

But there’s a reason MassBenchmarks placed trade conflicts at the top of that list.

“I think they create an uncertainty, and they increase costs,” Sullivan said. “Certainly, costs are a concern, and competitiveness is a concern.”

Cost and Effect

Those costs aren’t easily passed on to customers, Carlson said, and manufacturers, by and large, would rather not do that.

“When we submit a quote for a customer purchase, we’re locked into the price we quote them,” she explained. “If our cost changes, we have to suck it up. We can’t go back to the customer and say, ‘oops, materials went up 50%, so we have to raise the price.’ We don’t do that.”

AIM releases its Business Confidence Index every month, gauging exactly that — how member businesses are feeling about the economic outlook of the state and their own businesses. The overall Index, which is scored on a 100-point scale, has lost 3.7 points since a year ago but remains within optimistic territory.

“For a long time, a lot of us have been eating the material cost increases. Everything I hear is there’s not really an end date. We’ll see what happens.”

However, September’s reading was weighed down by weakening sentiment among Bay State manufacturers. The Index’s manufacturing component dropped 2.4 points in September and has lost 7.9 points for the year. Non-manufacturers were more confident than manufacturers by a 6.5-point margin.

The results mirrored the national Institute for Supply Management’s manufacturing index, which fell to its lowest level since 2009 last month. A separate report by IHS Markit showed that the manufacturing sector suffered its worst quarter since 2009, though activity increased during September.

“Manufacturers are bearing the brunt of both actual and threatened tariffs against goods imported from China,” Torto wrote. “Many Massachusetts companies have also become caught in retaliatory tariffs and are seeing significant weakening of their overseas business.”

Michael Tyler, chief investment officer at Eastern Bank Wealth Management and a BEA member, noted that the gaps in confidence between manufacturing companies and other businesses appear to be growing.

“Manufacturing has been hit by the steady increase in tariffs imposed by the United States, China, and other nations since 2018,” he noted. “The World Trade Organization estimates that the flow of goods across borders will increase by just 1.2% this year, and manufacturing companies are feeling that downdraft.”

Carlson is feeling it, for sure, and as president of the Western Mass. chapter of the National Tooling and Machining Assoc., she knows others are, too.

“For a long time, a lot of us have been eating the material cost increases,” she told BusinessWest, conceding that the uncertainty around the trade war has been equally vexing. “Everything I hear is there’s not really an end date. We’ll see what happens.”

Joseph Bednar can be reached at [email protected]