Navigating Trump’s Tariffs: The Art of Negotiation in a Changing Global Market

0:00It is a minute by minute broadcast of how negotiation works. and none of the people who are opining on it have any clue how to do it. And, um, and none of it is fixed there. Their view of it and presentation of it is, I mean, the whole media is skewed anti Trump. It appears to me. Um, I mean, unfairly, and certainly he deserves, you know, a lot of criticism on how he does things, but love it or hate it. No one should be armchair quarterback by unskilled people who don't know what the heck they're doing.

0:50Hey, everybody. Welcome to take two of the Business Lunch podcast for today. The interwebs were not cooperating, so we lost the first one and we're trying again. So I'll say again, I am your host, Roland Frazier, and your co-host, Ryan Dice, is on here also. Although in kind of a pixelated early super nintendo kind of way on my screen yeah but what's funny is i'm the one who's at the beach house like i'm the one who should have the bad internet connection um you're in southern california which should have a good internet connection and yet it's your internet connection it's wonky so i'm in in a very small city called san diego you can't expect you know that no it's rolled out this far yet you know no yeah it's that last mile you'll get it one day one of these days they'll they'll they'll get the internet out to san diego hey until then how's life how are things what's up what's new they'll get the outlying areas things are good and my wife's got stem cells and she's got new knees so she's uh she's feeling frisky and happy it's just great she's like i want to play pickleball i'm like okay not yet but uh it's really great.

1:59Nice. And now I have that is good in this room. So I, uh, we got shades installed in this room today. So I finally have something to block out the sunlight. So, uh, it is, uh, everything is good. I got knees, I got no sunlight that's not wanted. And I got a kind of sort of internet connection ish thing going on with you. So I'm loving life. What more could a modern human being want than stem cells they could want shares i think there's not enough there's just not enough tariffs in people's lives and so uh the government is talking about bringing them to us and i'm not sure that anybody's really pro it on the non-political side but maybe there are people that are and so uh i guess there are because the the industries that those protect um can can somewhat benefit from that.

2:54So do you have any general tariff thoughts before we talk about maybe some strategies that businesses who are affected by them might want to be thinking about? Yeah. I mean, so general thoughts on like my feelings on tariffs and from a macroeconomic perspective, you mean? You're kind of pro. You like them, want more of them? Yeah. I don't know enough about, you know, 16th century kind of mercantilism to know like when they were last effectively deployed. Here's what I will say. And again, let's set the politics of everything aside. I remember when we were negotiating the sale of TNC. And anybody who's ever been a part of any negotiation knows that when there's something that you want, you don't just come out there and offer exactly what you want.

3:42You come out there and you offer something that is very low or very high in the hopes of meeting somewhere in the middle. And And what anybody who's inexperienced says is, no, that's stupid. You shouldn't do that. You should just say what you want. Okay. Says everybody who's ever gotten, you know, screwed on a deal. Right. That's just not how the game is played. And I think what's, what's, I think what we're witnessing, if I'm going to give the most kind of charitable case, because it does just seem like this whole thing is a giant mess. Like it does. It just feels like this whole thing is a, like just mayhem and it's a mess and the tariffs are on and then the tariffs are off and it's completely uncertain and it doesn't seem like it's good for anybody.

4:24And it reminds me exactly of a deal, right? When you're doing a deal, it is just a total colossal mess and everybody hates each other. And then it all comes together and everybody loves each other. And I just remember when, when we were doing that sale, well, you know, I'm, I'm, I'm literally cussing you out on text message, like furious with you that you're about to blow up this deal. And you're like, I got this, I got this. And I think in that moment, I was a little bit like the media where you're doing what you're supposed to do. And I'm getting frustrated because I didn't quite know what was going on.

5:04Cause it was kind of my first time, like being involved in a higher stakes negotiation. The difference is, I only talked to you, right? I didn't go on, you know, news stories and talk about how stupid you were and how mean you were and how unfair you were, you know, to the other party and to our, you know, to these people that we still needed to be in business with and all this other stuff. And I think that's a little bit of what's playing out right now. I think a lot of the, you know, we're going to tariff this country this much and it's going to be whatever. It's just deal-making. It's negotiation.

5:34And I think that's kind of what Trump is doing is he's doing what he does, which is deal-making and negotiation. And it looks really, really messy and it looks really ugly and it pisses people off. And that's kind of how it goes. I don't know. What do you think? Yeah. I agree with you 100%. It is a minute by minute broadcast of how negotiation works. And none of the people who are opining on it have any clue how to do it. And none of it is fixed. Their, their view of it and presentation of it is, I mean, the whole media is skewed anti Trump, it appears to me. Um, I mean, unfairly, and certainly he deserves, you know, a lot of criticism on how he does things, but love it or hate it.

6:31No one should be armchair quartered back by unskilled people who don't know what the heck they're doing. Um, when this isn't where it's going to end up. Like none of this is final. This is if you tax our liquor, we're going to tax you 200 % tariff and so on and so forth. And it's all saber rattling to get people to the table that haven't been to the table in something that's been terribly balanced in the favor of everyone except the United States for years. And this is how you make it happen. You actually have to sometimes put up big words and big threats. And sometimes you have to follow through with them for a period of time.

7:12But when you are the market that we are, the United States is, and you are always giving in to have access to this market, you should be able to extract some cool things for that. Just like China does, just like Brazil does, just like India does. So he's not doing anything that anybody else doesn't do. It's just that things here might be too cheap, you know, at the expense of the country and the economy and, you know, our ability to be viable as makers of chips and other things that are very, very important to us to have as a sovereign country. So I think that, I think that it's all, you know, let's take a look and see what ultimately happens.

8:01but I think it's actually smart to get people to the table and he's using a thing that is smart because he doesn't really need Congress so much to do it either. Right. So, you know, as far as I know, it's, it seems like this is like, Hey, this is how I'm going to get everybody to the table and I'm going to do what I can do. And he, the cool thing is, is he doesn't care about reelection. Right. He's a lame duck. Yeah. That's the table. Yeah. Yeah. It is. It's negotiating in public, which normally doesn't happen. You know, normally this back and forth is happening between select players and you don't have everybody watching.

8:37It's not done in public. This is going to be done in public. This is the most business like foreign policy thing that I think countries can do. Cariffing. And so, yeah, I mean, I think he's probably in his lane. Yeah, you should even probably give him the benefit of the doubt, even if you don't like him. uh you should and i also i'm struck by the notion that the willingness to be disliked is i think something that is ultimately essential for success in business and probably life if you go around just wanting to please everybody you're probably going to be pretty miserable and happy and unsuccessful but it seems like that's what everybody wants them to you could be trillions of dollars in debt with it growing and no end in sight.

9:23I mean, the, all the unpopular things that are being done are just unheard of, but they're the things that need to be done. So, you know, it's, it's like the, we are living on borrowed time because we've lived on such a deficit for so long and nobody's been willing to examine and go first principles on, do we need a department of education? And I'm not saying we do or don't, I'm not saying it's right or wrong. I'm just saying it's a question you should be able to ask. Do we need these 2 million jobs? Should we, you know, is it effectively a subsidized welfare program for a bunch of people? I don't know, but at least someone is asking the questions.

9:59And I think that that's a positive thing for our country. And, um, and it definitely is going to be painful for a whole lot of people, including it's been painful for us. The current economy is painful for you and me, you know? But in the end, I believe that the things that are being done have to be done and nobody else had in the history so far has been willing to do them at the level of intensity that these guys are. So love them, hate them. They're definitely not the best PR people in the world, how they present themselves, you know, but, um, and, and you can disagree with some of the principles and stuff behind, but you can't say that, that the United States is terribly in debt and getting worse and worse and worse and always on the brink of a government shutdown.

10:46And, um, and it's because of the inability of everyone who has come before to take a stand that is severe enough to say, we're going to have to go through some hard times to make things right. And sometimes you do have to do that. So I think that's it, but we're not here to talk about politics as much as we are to talk about. So give me the rules and tell me how I'm going to work within them. That's kind of our, you know, our mantra. So, um, so given generally the fact that it's very possible that either already, as you listen or watch this, um, tariffs have affected you in some way, um, or are perhaps threatened to become something that's going to affect you in some way, it does make sense that we as business people think about how do we deal with that?

11:41And, uh, instead of just complaining about it. So that's what we'd kind of like to chat about today. And I kind of wanted to, to brainstorm with you because I think that there are, uh, there are tariffs on products, um, that will affect pretty much every business. I'm thinking like, how does it affect a wine distributor? That's easy. If there's a 200 % tariff on your wine, it's, you know, it's going to cost a lot more, fewer people are going to be able to buy. That's going to be tough. But how does it affect a digital marketing agency? And since you're the marketing expert among us, what would you say?

12:24Like, how could you see that it would affect a digital marketing agency beyond maybe the clients of the agency are having a hard time. I mean, and this is where I think what we're seeing in general is the stasis that's being created because of the uncertainty. And so I do think the biggest impact is, you know, is the clients. I don't know how it's going to wind up affecting services because I'm not seeing that as much show up, you know, on, you know, on the tariffs. Like it seems like most of what's coming across seems to be impacting manufacturing. And so part of what I was going to say is, if you're heavy on the manufacturing side or on the importing side, I'd be looking pretty closely at like, what does it look like to onshore this stuff?

13:10And I know lots of people that that's the conversations that they're having is what does it look like to bring this stuff onshore? Or what does it look like for us to pivot into services related to this thing? Like, we've got an existing client base. What does it look like for us to shift from providing the products to providing the services in and around those products because it might not be feasible for us to provide these products anymore? And it's difficult. Like diversify your supply chain. I think it's not onshore versus offshore. I think it's how do we diversify? And it might not even be onshoring because the tariff game is played as a puzzle of different countries.

13:56So could you, could you, and should you source from multiple countries and regions? I think the answer is yes. And so I think like, that's the very first thing is, is whatever your supply chain looks like, whether it's labor or it's services, whether it's currently being affected or not being affected. If you are using out of country resources, it would be smart for you to have some in-country and at least two out-of-countries, preferably not aligned in a block. I wouldn't have Russia, Brazil, and China as my three sources. I would probably try to bring Mexico in or Canada or something like that.

14:44So I think that makes sense to, to just say, okay, I'm not giving up on the place that I've got, but I'm hedging my bet. And I think that's like, we should have learned that from the pandemic, right? When there were, there was no way to get stuff over on the ships and things. Let's have at least a continental based, uh, road access to things that would make sense, right? If I'm a manufacturer, what, what are your thoughts on that? Yeah, I mean, I think the challenge with redundancies is they eat margins, right? And so every business should have a redundancy. I think logically everybody understands that.

15:23The issue is that having the redundancy is expensive. You know, it's way less expensive to just have a single source, especially if you have a single source, you likely pick that source because it's your lowest cost provider. You know, or the combination of lowest cost, highest quality. And so if you're going to a second source, it's probably the other one that you're picking, you're sacrificing in one of those two areas. Or let's say it's exactly the same, the added complexity is going to reduce your margins. So I think what the problem that you have, if you're the business that decides to be responsible, in choosing to be responsible, you now have given up your margin to do that, which means you might not have been competitive in this last cycle because nobody else did.

16:09And so you were just giving up margin and nobody else was, and so you would have lost. What this is forcing is it's forcing everybody to be responsible at the same time. Everybody's going to have to make this move or everybody's going to get put out of business. Now, the downside to that is it means everybody's margins are going to get compressed, which probably means that prices are going to go up or everybody's going to have to figure out how to get a little bit better, a little bit more efficient, or the prices on the other side are going to have to go down a little bit to make up for that.

16:38But what I think is good about these moments is they impact everyone at the same time. And that's where I always tell people, don't panic. It's not like this is only impacting you. Every single person in your industry is going to have to deal with this. It's going to create a change. Everybody's going to have to respond to it. A lot of people are going to panic and respond poorly. A lot of people are going to go in denial and do nothing. You can beat those two groups easily. Either way, this is a phenomenal opportunity to grab market share if you just don't panic and if you just don't go into denial.

17:15Yeah. And I would argue it depends on your volume, obviously, but it doesn't have to create increased margins. I think that the other countries that maybe weren't previously lowest cost providers will have incentive to and see that this is a golden opportunity to get business that they weren't able to get before. So they're certainly as long as they are. Say that again. Certainly now they will. Yeah. Yeah. That's what I'm saying is that. So I think that that like how you negotiate and present the opportunity to the new people that you're talking to as look, I'm looking for a permanent solution to another provider.

18:00And and this is your opportunity to do that. I think also that there's either in having the conversation or actively, proactively putting together a buying group, like a co-op to go to your competitors or your friendlies or other people that would be using for non-competitive services the same type of manufacturing, to go to those places and say, here's an opportunity to do this. I think also an examination of trade rules on the tariffs. Like it may make sense for you to break previously fully assembled products into component parts and bring the components in and assemble them here. It may make sense for you to have the components shipped to another place that is more friendly than the place that you're getting them from and have them assembled there and brought in here.

18:57There may be free trade zones or trade agreements that exist that are favorable that should be looked at. So I think there's a lot of opportunity there. And you should definitely, before the rush, get a supply chain consultant to help you navigate this. Because those opportunities are big. Co-op, bulk buy, I'm going to refer you additional people when you give me this deal. assemble, import, assemble, uh, assemble, uh, excuse me, assemble, import, or componentize and import and assemble here are all opportunities and obviously your opportunities to negotiate within the United States. So I think there's a lot of things that you can do that might well cause the margin thing to not be such a big deal.

19:52Right. And then the group buy is a, is a great idea. that is i mean i remember when i was in college we went on a ski trip and you know it was probably a couple dozen of us that went on the ski trip and i don't remember how much it cost but what i do remember is the guy that organized it he didn't pay for his ski trip because he was the one that organized it and so as the organizer of the ski trip everybody paid a little bit and just the way that it worked out is what do you know he didn't have to pay for his his ski trip because we all kind of there was enough margin in there where he had he didn't have to do that and so So if you can be the person in your world who essentially is the ski trip organizer, then not only do you get to just maintain your margins by getting the group buy, but you might actually get to reduce yours.

20:37And the other really nice thing about the group buy scenario is if you can be the coordinator of this, you basically get to see behind the scenes of everybody else's business in your industry. It's like the ultimate due diligence factor. You're going to your competitors and saying, how much are you in for? So you're finding out how much people are actually selling, how much they're actually buying. It's a phenomenal way if you want to do any type of expansion through acquisition, which trust me, this is going to drive a lot of M &A. This is going to drive a lot of roll-up opportunities, a lot of consolidation.

21:15This is a way to get on the front, on the leading edge of that. I love that. The other thing is, and this is something I had to look up because I was not familiar with it, but I think it's actually really cool, is tariff engineering. We talked about a little bit about kind of touched on it, but basically it's the practice of modifying a product's design components or assembly process to legally reduce the amount of tariffs imposed on it when imported into a country by strategically adjusting the classification of a product under a country's harmonized tariff schedule to qualify for a lower duty rate.

21:55Businesses use tariff engineering to minimize import costs and remain competitive. So this would be a big opportunity for you to do that, that, you know, okay, we got the new rules. Let's look at them. And we talked about maybe just having the components that come in and assembling here so that, you know, sometimes that's assembled in USA, or I don't know if it's made in USA anymore. I think it depends on percentages, but like, it's time to look into that. And so I think that if you have a big enough business, having some attorney that specializes in this would be a really good investment of five or 10 ,000 bucks to get opinions on how could we do this?

22:33Because what is the harmonized tariff schedule and how does it work with whom? And there's probably some software that's been created. And if not, some brilliant person is going to do it to calculate all of this stuff, basically putting in, I'm getting stuff from here and here and here and I need this. But like that, to me, that sounds, that actually sounds kind of fun to put that together, like to have a session of how do we, you know, how do we do that? Well, here's an example that Converse actually did this. I don't know if you saw this, but Converse put felt, they've got a line of shoes where they put felt on the bottom so that they would be classified as sandals instead of sneakers because apparently sandals don't have the same tariff rate as sneakers did.

23:15And everybody's like, why do they have felt on the bottom? Isn't that just going to wear off? Yeah, they will. They don't really care, but they didn't have to pay as much taxes on that. So that's that tariff engineering that you're talking about. And it's one of those things where it's stupid, right? It's frustrating that the government imposes this friction that makes it harder for us to do business. It's frustrating. And that's one way to look at it. And that's objectively correct. At the same time, friction creates opportunities. And so you can be frustrated by it. And that's fine. I'll be there frustrated right alongside you.

23:47Cool. Feel better now? Okay. What are we going to do about it? Because it does at the same time, if we agree that the frustration has been created for everybody in the industry, they did not just target you. They did not just target your business. What are, what are you going to do about it? Because if everybody's got to deal with it, you now have an opportunity if you can deal with it in a way that nobody else thought of. Yeah, absolutely. I think also the, there's a thing called product range, which the best example I can ever think of was Steve jobs coming in when Apple was making, I think 17 or so different max.

24:25And he's like, we're doing four. It's for these, you know, it's for consumers and business, low end, high end, that's it. And it changed the game and brought Apple back. And I think this is a really good opportunity for companies to look at their product range and say, do we have the right product mix and product range now? And what are our 80 % sellers that are contributing to profit margin? And maybe we get rid of all the rest. And just that alone could create savings that would allow us to be able to weather and maybe even thrive in this, you know, this tariff laden kind of atmosphere. You know what I mean?

25:05Yeah, no, I think, I mean, the complexity of it, because managing all these tariffs, I mean, I've heard of all these different companies where, you know, they're talking about just the management of figuring out what they owe on all the different items is creating an administrative burden. Like, let's set aside the actual cost. So many of these costs are going to get passed down to the consumer. But the administrative burden that it's going to create is just massive. And so what this is going to force a lot of businesses to do is the stuff that they always should have done. And it's what we were talking about before, right?

25:39This is going to force us to get more efficient. It's going to force us to find new opportunities to find margin that wasn't there before. These things of going, what you talk a lot about e to p expense to profit one of the expense to profit models and formulas that you teach and talk about is can we create buying groups that like how what's the thing that we're already buying that we could get other people in our industry to do a group buy around i mean that's something that you've talked about that i think a lot of people have ignored i bet it becomes popular again. It's not a new concept. And farmers have had co-ops for centuries.

26:20I bet this becomes really popular and cool again if these tariffs get put in place. And for the ones who get on the leading edge of it, they're going to have bigger, more profitable businesses than they ever would have had before these tariffs happened. So everything is a response to change. Yeah, agree. And kind of speaking to the EDP strategies too, it's possible for you to become a supplier of the things that you are having manufactured so that you can provide those to other people. Now you might not want to provide them to your competitors, but maybe you do, you know, or maybe you're going to provide the components to other people because they can be used for several different things.

27:00It's like, depends on what you're making, but if it's not the finished thing that you have intellectual, you know, protection for, then what goes into it? And can I sell those to other people? Because they're all having, like Ryan said before, they're all having the same problem that you are at the same time. So they're looking for solutions too. If you can be a solution provider that turns your expense into a profit center, you know, that's pretty cool. And to me, this is an opportunity for that to happen, right? Yeah. I think that really is the theme of all this. It is just, you know, it's change and it's big change and it's scary change.

27:39I will just, I bet when it's all said and done, it's not as big a change as everybody fears it to be. I think everybody's spending way too much time watching the news. But I think it's actually a great wake-up call to show us all, like the pandemic did, how dependent we are and how vulnerable we are at any moment, at the whims of the current crazy, you know, people that run the world, to do something that's going to damage our business. And we should, we're irresponsible not to take notice of that and fix it, you know, and, and protect and hedge against it. That's, that's, you know, that's a giant missed opportunity.

28:18If we don't, if we didn't learn it from the pandemic, we dang sure ought to learn it from this. And if we don't, then you kind of deserve what you get as a business because you're asleep. That's, that's what I think. Yeah. I think never let a good crisis go to waste. And so, you know, like this is a good crisis. Don't let it go to waste. but what everybody is going to do is they're going to panic or they're going to go into denial um if something happens if it actually happens to the same extent and you're ready for it then then you'll you'll be ready for it if it doesn't you'll be better for it and so whether you're ready or whether you're better you win if you do something about this is your and and as you just said it this is your competitive moment this is when your competitors are going to just go on Facebook and complain and, you know, complain to their friends and family and at the bar and the country club.