Jesse Petrilla: For Some Small Businesses, Tariffs Are Taxes

US-Manufacturing
ROBYN BECK/AFP/GETTY IMAGES

With all the talk of trade war and tariffs in the media lately, we often hear from economists and CEOs of major corporations, but we don’t often hear from the small business owners who feel the pain the most when costs are increased even by just a small amount.

This is the perspective of one small business owner, and just how we see tariffs affecting us.

Just under five years ago I walked out of a bad job and said to myself I would never work for anyone again. I was a month shy of my thirtieth birthday, and decided to take the terrifying and exciting leap so many Americans have taken before by starting a small business.

I didn’t know how to run a business — almost no one starts out knowing. The only real way to learn is just to do it, and hope that with a lot of hard work it just might succeed.

With my wife four months pregnant at the time with our first child, and bills to pay, it had to work.

I started my business selling telecommunication infrastructure materials with $20,000 that my wife and I had spent nearly a decade working to save. To save on overhead, I worked out of the small one-car garage of our apartment at the time.

I would consider myself patriotic. I served in Afghanistan in the Army, served in elected office, and volunteered countless hours for conservative causes. I was eager to create a “Made in the U.S.A.” product line. But then came the business planning and analysis. Our first product was a simple plastic injected molded item. I priced the machines, the plastic pellets, and then the massive regulatory costs of having a business that melts plastic in California. I also contacted American plastic injection molding factories and received quotes for what it would cost to contract with them to make my product.

For both Made in U.S.A. options, my cost per item, before any markup whatsoever, came out to more than what my competitors were selling the comparable product for — and all of these competitors were importing. Also, I quickly realized even most “Made in U.S.A.” products were comprised of various imported parts.

So I did a little research, flew to China to visit factories, and started importing our products. Clients quickly also demanded related steel materials, so I did the same thing, went first to American steel companies and received their quotes to see if it was viable to make in the U.S.A. It wasn’t — and I understood just why of all American jobs, the ones in that industry are especially not coming back in any significant numbers.

From the moment my great-grandfather stepped off the boat on American soil over a hundred years ago — on a trip paid for by a steel company that he would then work for to pay off the price of the ticket — my family were steel workers. From my great-grandfather, my grandfather, on down to my father, they all worked in the mills.

So naturally, I would prefer to support this American industry that gave us, and so many others, a start in this great nation. But what has happened is the steel unions brought the industry from horrible, unsafe working conditions for low wages; to good working conditions and good wages; and then to unsustainably high wages and benefits.

Couple that with decreased demand and an increase in environmental regulations, and it spelled the end of the American steel era.

So what happened? Most all the mills closed down. My family, like so many others, suffered layoffs. And those mills that survived in the U.S. had to skyrocket their prices.

Now, when the quotes came back for my small steel parts from the few American steel companies that remain, they were again more than what our competitors were selling comparable parts for, before I added any markup whatsoever.

So what did I do? I imported, because if I didn’t, I wouldn’t have made a dime. As much as I respect the hard work of my steel worker ancestors, I won’t be working in a mill, and neither will my children. I want a better life for them than that, just as my grandfather who was electrocuted to death in a mill accident certainly would have wanted for me.

The reality is that industry in America has moved on. It’s just not where the nation is at anymore, and no amount of taxation or federal government interference can change that.

Our company now puts food on the table for our employees. We have put millions of dollars into the U.S. economy — through hundreds of vendors; from freight companies we use to ship our products; in the rent for our warehouse; and through our subcontractors, our utilities, and our payroll. Last year we even sold several hundred thousand dollars worth of materials to Mexico, bringing new money into our country. We have invented items that improved efficiency and helped reduce the costs of telecommunications infrastructure, helping to lower consumer costs and increase the profits of American employers.

These are American jobs that would not have been possible if I didn’t import those products. I created something from nothing. My importing wasn’t a shift, it wasn’t jobs that left —  they never existed. I didn’t own a steel mill, I didn’t own a plastics factory, and never will.

It still remains far cheaper to import. But now when I import, what do I see? A tax increase. They call it a tariff.

If I don’t increase my price, I lose money that I would otherwise use to hire more people and expand. If I increase my prices, passing along the cost to the consumer, I will lose clients who will shop around for a cheaper price from competitors who will absorb the cost increase, and thus I will have less money to expand.

Most companies won’t absorb the cost of new tariffs, and will simply pass it along to their clients, and eventually on down to the consumer. When the prices increase, those clients will now have less money to expend as well — not to mention the overall decrease in the value of the dollar as a result.

Either way, these taxes just slow the growth of small businesses like mine. I voted for President Trump, and I support the vast majority of policies he has proposed, but protectionist policies that add more burdens on American business will have the opposite effect on American jobs than what our president intends.

They can sugar coat it as much as they want, but for this small business owner, and for so many others across the nation, tariffs are taxes.

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