[00:00:00.160] Hey everybody. So today we have Steve Weyer on the podcast. He’s the president of Gscc, which is a geopolitical strategy and global consulting firm. He’s been doing this for three decades. So quite a long time. And over that time, he has provided strategic advice and tactical operational support to multinationals in establishing operations across the world, multiple continents. Steve’s lived overseas, lived in Japan, Mexico and Hong Kong for long periods of time, and traveled all over the world. So I’ve asked Steve to join today because he has a lot of expertise when it comes to tariffs. North American trade, specifically U.S., Mexico and Canada. There’s been a lot of news, discussion about the new regime, discussion about section 321 and the de minimis exemption. And I thought it would be really good timing to bring Steve on and talk about some of these things and how, you know, products companies or importers may be thinking about them going into the new year. So Steve, welcome.

[00:01:08.950] Thank you Jeff. I appreciate being invited to speak to these interesting topics, very relevant topics.

[00:01:15.590] Yeah. Thanks, Steve. So let’s let’s just get right to it Steve. Tariffs. What we hear a lot about tariffs. Trump talks a lot about tariffs as a Canadian living in the US. I hear people from I hear from family and they say what about these tariffs. What what do I do. What does this mean. Can you just walk us through what do we what are we talking about here?

[00:01:35.910] Sure, sure. No. Very good question. So basically what tariffs are are a designation set by a government. And they’re pretty much harmonized across all the customs bodies of different governments around the world to categorize physical items that are imported into a given country. So let’s take the US example. The US customs code has, um, Mm 97 different chapters covering every physical item that exists in the world. Divided up into 21 sections. And then there’s 10,000 different harmonized tariff schedule codes. So each schedule code, harmonized tariff schedule code is similar to a description of an item or an 18 inch personal computer, a ballpoint pen, a child’s garment, a toy, a basketball. So there’s all of these tariffs that are organized. And most companies, most countries share these tariffs. So the tariff is what a country led by the president or Congress would decide to put a duty rate on. So each country gets to set what duty rate it wants on these different items. Over the last 50 years of since World War Two, there have been a huge liberalization of global trade through General Agreement on Tariffs and Trade and later the WTO.

[00:03:00.300] And so tariffs have really come down to very, very low levels, 1 or 2% for most items around the world. So we’ve had this expansion, this boom of free trade, where companies and countries can trade with each other with very little friction of having to pay extra costs at the border. Sometimes countries will use it as a tool to create certain actions, either to try to protect their domestic industries by putting an additional percentage tariff, a cost on the items being imported, or as a way to punish trade partners to get them to do certain things. And we’ll talk about both of those, both the incentive to help domestic importers, whatever country you’re in, could be us, could be Canada, but also a punishment tool to force other countries to do certain things that we want them to do. So everything is based on the harmonized tariff schedules. And what the incoming president has said is there will be blanket tariff increases on all imports into the US. The number has floated around at different times.

[00:04:04.130] We don’t know what the real number will be until the president is actually in power, and he starts signing legislation for it. So it’s a little bit strange to talk about what the impact will be until we know what’s actually signed. But it seems like there will be some blanket increase above this 2 or 3% of duty rate across all imports. Maybe it will be negotiated away, but there will be some increase on the base costs of things. So who bears this cost? The overseas exporters do not bear this cost directly. The importer who is filing with customs is the party that bears the cost. They have to bring in $1,000 item. If the tariff was 2% and it goes to 10%, there’s going to be $100 price that they have to write a check to US customs that goes to the US Treasury Department. They will. The importer then takes that, either absorbs it into their costs and takes a loss on their profit, or they pass it on to the consumer. The consumer may be an industrial company.

[00:05:05.050] It may be an end consumption company that you and I, as individual human consumers will pay. So there will be a price increase passed along down to the consumers, which if applied broadly across many different industries and many different products will cause inflation. This is just a natural fact has happened every time in history. So there’s this trade off between do we protect domestic industries by putting up tariffs so that we can produce domestically, locally in the US only versus, um, a blanket inflation that will affect many different people in society, especially people in the middle and lower income levels who can less afford to pay a 20% or 30% increase in the things that they’re buying. So that’s that’s kind of the basics of what what a tariff is and how it would affect things.

[00:05:55.680] And in terms of the so I think of two things. One is you said blanket tariffs on one side I’m thinking, well, what what commodities or what categories do we expect this to impact more. And then on the other side I’m thinking, well if I’m a if I’m importing stuff, when is this really going to become a problem. So I guess it’s twofold. Is there are there things we should be focusing on or countries that we should be focusing on? And then secondly, you know, just based on how other incoming presidents have handled this, like what’s the lead time to see these things actually come to action.

[00:06:33.280] Yeah. Yeah. No, that’s a good, good question. So aside from the tariff issue, the harmonized tariff schedule, which determines what the duty rate would be, mostly it’s two, three, 4% very low. Now for certain commodities we already have in place very high tariffs Or full quotas. For example, steal all categories of manufactured steel, from rebar to I-beams to flat steel to every type of steel to bring that into the US. Regardless, regardless of the country Brazil, China, India, um, European Union, Germany, France. It has a very high duty rate already that was placed on top by the Obama administration previously. And so that’s been in place. And the idea is to protect U.S. steel manufacturers in addition. So this is commodity based, but it’s across all countries. In addition, there can be hard quotas where they say after you import 10,000 tons of steel from any origin, the US is closed until the next quarter. So another tool that a government can use is hard quotas, where they say there’s a cap, there’s a physical cap on the quantity or dollar value brought in.

[00:07:52.110] So in, so that’s already in place. Um, Trump kept it in place before Biden’s kept it in place. So we’ve had steel quotas for quite some time. So it’s possible that the new incoming president could expand across other commodities, could be automobiles, because he’s talked about automobiles, regardless of country of origin, that we put a very steep duty rate on automobiles, foreign imported automobiles, including from Mexico and Canada, which we get a large source of automobiles from under NAFTA, because the supply chains are very integrated and there could be hard quotas on on those products. The other tool that a president has is they can go to specific countries where he’s saying that we’re going to put a 50% tariff on China, and if China doesn’t, if China tries to create an alternative system to the US dollar as a reserve currency, we’ll put 100% tariffs on China on any product coming out of China. So then that becomes a country of origin based tariff tool. Now, what’s the likelihood that will happen? Nobody knows.

[00:08:55.180] Nobody knows until he’s in power. Until he talks to all of his advisers. Until legislation is put forth by Congress and it’s actually signed by the president. So we won’t know until we know. Right. And maybe there’s a big period of negotiation with these trading partners to say, well, you need to do this and you need to do that. And as long as we do this, then we’ll back off. So it could be a big negotiating tool. We don’t know. It’s very, very hard to know what what the plan will be.

[00:09:20.300] Unpredictable at this point. And I know one of the in some of the we can talk more about like Mexico and Canada and North American trade. But at least in the news, some of the the language around tariffs for Mexico and Canada were already directly tied to getting a handle on illegal immigration. Right. And so that’s I guess that you would say that’s retaliatory or there’s ramifications, right, of, hey, if this don’t worry about it, but if you if you don’t do this, then we’re going to put the tariffs in place. And again we don’t know how much of that’s actually going to come to fruition. But those are the things that I think our customers and also just people that we know who aren’t familiar with supply chain are, are concerned about.

[00:10:02.810] Yes, definitely. So that’s that’s a really good point. So when we get beyond impact to economy, let’s talk about geopolitical factors around how do we stop illegal immigration. How do we stop illegal drug flows which are huge problems and need to be addressed. Nobody is disputing that. Even our allies and our trading partners are not disputing that. But before we come to that, there’s one more thing that I want to mention that has been talked about is corporate country of origin designations. So in the 1980s, Japanese automakers were really dominating the low end and medium end manufacturing of automobiles. They made really good quality products at really reasonable prices, and they were importing them into the US and Canada and really hurting the auto industries of the US and Canada. So the administration’s at that time, I think it was Nixon. Um, Carter. They negotiated a deal with the Japanese that says you need to set voluntary quotas very, very low, like 10% of the volume that we’re coming in before. So the Japanese said, okay, fine, we will we will restrict because we’re under the US nuclear umbrella.

[00:11:11.040] We appreciate your help in Asia. Bad neighborhood. We will restrict our volume of automobiles made in Japan. But can we set up factories in the US? And we said sure. So the Japanese came in. They set up beautiful, lean factories in the US, hired millions of US auto workers all over the place. All the Japanese companies came in later, the Korean car companies came in, and so they were able to able, as Japanese and Korean owned corporations set up subsidiaries in the US and Canada and later in Mexico to make those products. And it created jobs, it created, you know, technology transfer, and it created this really integrated NAFTA supply chain between the three countries. What the new president is talking about is we’re going to go after companies based on their country of origin. So if BYD, which is a dominant Chinese electric car manufacturer, huge market share outside of China, around the world, they have more market share than Tesla in Europe. If they set up a factory in Mexico, even though it’s made in Mexico, even though it’s under NAFTA, no, we’re not going to allow it.

[00:12:17.680] BYD you try to come in the US. You’re a Chinese company. You have Chinese parent ownership. We’re going to restrict you. So the old way from the 80s of come on in, let’s have manufacturing create jobs here. No, we’re actually targeting talking about targeting the corporate parent ownership of the company. So this is a whole new dimension that hasn’t been worked. We’ve seen it with the attack on ByteDance and, um, TikTok.

[00:12:42.240] Yeah.

[00:12:43.040] In the US operating in a market, making lots of money in the US and Canada. No, but this may also happen with manufacturing. So there’s one more dimension that can affect trade and how an American company or a Canadian company sources goods into our countries, across our borders. If the country of origin and the corporate parent of origin is a country that’s deemed unfriendly to the US or Canada. So this corporate ownership thing is going to be really interesting to see how that plays out.

[00:13:13.670] Yeah, that’s that is interesting. Um, what? Okay. So now that we sort of talked about Mexico a little bit, I want to go in that direction because that’s also been in the news. Um, do you want to talk a little bit about section 321 and the de minimis exemption? And there’s been a lot of talk about that. And US lead working in consumer and working in apparel. Uh, that’s something that we’re definitely keeping our finger on the pulse of.

[00:13:42.790] Sure, sure. Um, could I, could I talk to NAFTA first because that’s the broader US, Mexico, Canada relations. Um, because I think this is section 321 is a subset of that. Um, cut to the chase. I think it’s going to be killed. I think they will make it go away. And we will no longer be able to have this benefit. Um, in general for the US, but I’ll come to that in a moment. Sure. Yeah. But, um, so Mexico, Canada and us have integrated their supply chains via the free trade agreement called NAFTA that Clinton signed way back, you know, 20 years ago. And what it did is it allowed, um, Canada and us mostly to benefit from lower cost, near shored Mexican manufacturing. So the whole maquiladora program was 6 or 7000 factories along the southern border states of the US. And the adjoining Mexican states were able to set up all these inbound factories so raw materials could flow in, either from the US or Canada, or from China and Taiwan and Thailand and Southeast Asia.

[00:14:43.940] Get duty free into Mexico. Be manufactured in bond in these in bond maquiladora factories. And then as long as there is enough significant transformation of the products into the final good, it was considered made in Mexico and could come into the US and Canada duty free. So we had this nearshoring. We had relatively close political allies between Mexico and US and Canada, and we could move parts back and forth multiple times all around the world and still have it end up being made in NAFTA, made in North America, which benefited manufacturers, and it benefited the economies of those three countries. It benefited labor who had had jobs. Most of the high end jobs were in the US and Canada. And the more assembly, lower, lower labor, lower labor skill jobs were in Mexico. So supply chains, especially for automobiles and rolling stock for, for, for trains and other things were highly, highly integrated. So when Trump was president, the first time he changed the the NAFTA to the U. S Mexico Free Trade Agreement, which had some some different provisions in it.

[00:15:52.730] Now there’s talk, but we don’t know if he’s going to tear it up completely. Pull the US out. So it’ll be just a Canada Mexico trade agreement. But the US is physically in between. So you would literally need to if you want a free trade between Canada and Mexico, export out of Canada, pay duties into the US, reexport out of US into Mexico. Maybe US views that as a Canadian import. So they’ll allow it in duty free and vice versa. You go back and forth, but us being stuck in the middle will really, really harm Canadian and Mexican manufacturing interests. It doesn’t gain us much in the US to pull out of NAFTA, because the money we collect as tariffs to import, it’s a US importer that’s imported that it’s just money going from a US company or a US consumer into US Treasury’s pockets. And it will raise prices in prices in the US. So I view is NAFTA going to be torn up or greatly changed, or is NAFTA going to have massive changes to its country of origin rules.

[00:16:53.520] Meaning if you have BYD coming in and making products in Mexico or Canada and trying to claim them as NAFTA as Canadian made or Mexican made, will they be blocked coming to the US with 100% tariffs? Things like that. That to me is the bigger concern to the three economies and inflation in the US. Um, if we change NAFTA too much. So we need to be very, very careful about that. So the bigger issue is us can do what it wants. It’s the most powerful economy in the world, most powerful military in the world. And frankly, it’s the fastest growing economy of developed nations right now. Europe is really not doing well. Canada is not doing well. Just lost its president. They made a big shift. Mexico changed presidents. But there’s, um, drug gang violence everywhere, and a third of the country is not under the state of Mexico’s control. So they really need these trade agreements to work. So putting extreme pressure on Mexico and Canada to clean up the immigration problem, to clean up the drug problem is going to be really, really challenging politically, but also from a physical implementation standpoint.

[00:18:00.880] And so my view is how can we work together to help them to solve those problems with more carrots and less sticks because we can slap these tariffs on. But then if a bunch of Mexican workers, millions of Mexican workers are out of jobs, what are they going to do? They want to come north. Right. If the drug if the drug trade is the only trade in Mexico, and there’s no more commerce in Mexico, that doesn’t help the immigration issue. And it’s not likely that the Mexican government is going to be more likely to try to crack down on the on the narcos. Canada doesn’t want to cooperate if we’re sanctioning Canadian lumber and Canadian dairy products and and alfalfa and the other, um, uh, natural gas and oil and gas that we bring in from Canada. So I think it’s we need to be very, very careful. The new president needs to be very, very careful on their trade policy as it relates to NAFTA, because Canada and Mexico are a natural protection, uh, north and south in the same continent.

[00:18:59.550] Right. Yeah. It’s going to be very, very, um, delicate issue.

[00:19:03.390] Like, um, from a Canadians perspective. You know, there’s we have this Trudeau situation going on now. You probably have conservative government coming in. And the thought that I have is, you know what? What should the Canadian federal government do and what can they do? Like, how much, how much negotiating power do they even really have in a scenario like this? Right. Like I don’t I imagine it’s it’s not a lot. Right.

[00:19:32.030] Yeah. Yeah. Well, and so some of the even more geopolitical things is do we want Mexico and Mexico and Canada stick together with the US when it comes to NATO issues, right? And climate change issues and immigration issues and drug issues and border protection issues. I think we do. I think we do. We don’t want China, Russia, North Korea, Iran to set the the policies for the developed world. So we need to stick with our allies that we have friendly relations with. If we stick it to our allies too much, including Europe with really high tariffs and destroy their economies, um, they’re not likely to want to cooperate. The other thing with tariffs, once you start slapping tariffs on other countries, they will slap tariffs right back on your own. Now will the US economy be able to absorb that? Sure. We’re a big economy. We can we can do what we want. But who suffers in America? Well, it’s the poor people and the middle class people when things are much more expensive.

[00:20:31.980] So the rich folks don’t care. It doesn’t matter. But for for most of Americans, it’s. And Canadians and others. It’s going to really hurt the middle, middle class and the lower class. We’re looking for a very different future. So it’s I think it’s a very, very delicate thing. Um, the challenge is this conservative think tank put together a document, a thousand page document called project 2025. And they talk about many aspects of of society and the economy and the environment and the rest. They have 100 pages on trade and trade policy. In one part of the document they talk about the de minimis rule and getting rid of it. Another part of the document, it’s a little bit contradictory. They said, oh, we need to keep keep this. So maybe we can switch gears and talk about this. Section. 321 de minimis if you like.

[00:21:22.020] Yeah. What. So why don’t you start off by just explaining what the the de minimis exemption is and like how it works today.

[00:21:30.020] Yeah. No good. So de minimis of course is a Latin word for um the minimum and US customs and many customs bodies around the world have a certain threshold that if you come into the country. So if I’m a US citizen and I go overseas, I buy some stuff and I fly home in the airport, I have to declare anything over $800 us that I bought. Um, if I want to import products in, let’s say, someone, I buy something on an e-commerce site in China like Tamu, and they send me a plush toy for my kid or something, or a mechanical car automated, you know, uh, race car or whatever. If it’s under $800, there’s no duty. It’s duty free regardless of country of origin, regardless of HTS code, harmonized tariff schedule code, and there’s very little documentation required and very little scrutiny. They’re not they don’t inspect it. There are a couple exceptions. Exceptions are if it’s something regulated by Food and Drug Administration or by USDA, such as food items, the U.S. Department of Agriculture.

[00:22:34.330] Or if it’s some kind of very strong chemical, like cleaning supplies or anything that’s deemed hazardous, or if it’s an item that is on a anti-dumping or tariff increase list. So if I tried to bring in steel that was under $800, no, that wouldn’t work for de minimis because.

[00:22:53.960] Steel you can’t put steel in your luggage.

[00:22:57.400] No, you can’t put steel in your luggage. You can’t ship in steel as long. Under $800 in claim. So these categories aside from those you can pretty much. So what are people using the rule for? Mostly for consumer goods. Mostly cheap consumer goods. Either things that you buy at Home Depot or at at at Best Buy Home Depot for, you know, do it yourself house fixing things like drills and tools and things like that or things you buy at Best Buy consumer electronics. A cheap and low end laptop or some EarPods or small drone or something. And then all the plethora of kids toys and backpacks and and things that you buy for your kids that are, you know, a couple hundred bucks at Walmart or Costco or wherever at the cheap stores. So these come in e-commerce shipped in, and a lot of it is either if it’s an individual consumer, they’ll buy it directly. If they’re internet savvy, buy it directly from the overseas e-commerce companies, and they just ship it in as parcels or mail.

[00:23:57.240] Yeah. And so it comes right in what there’s been this, um, very interesting, um, very smart zone skipping concept where a US company based in the US will find customers who want to buy these cheap goods. They in turn will buy bulk quantities. Full container load 45 foot container 53 foot container. Loads of these products from China or Southeast Asia bring it into Mexico. It comes in at either zero duty or very low duty under Mexico China free trade agreement. They’ll bundle it up into individual consumer shipments, creating the waybill there. Cross it over into the US as individual de minimis shipments from Mexico under $800. And then at a US CDC right across the border in San Diego or Texas or Arizona, ship it out. So they brought in the full container at a very low, you know, $3,000 container rate for dry containers and then do the little bit of processing in Mexico at a third party logistics company that’s set up to do this, doing the labeling there, crossing in the US and then exploded out as a domestic US shipment for, you know, ten, 15, $12 UPS charge or Fedex to get it to the end consumer.

[00:25:16.230] So that model is under attack, one by the explosion. The potential explosion of NAFTA and two project 2025 has said we should kill the de minimis rule. There are others in Congress and on the new president’s team that says we should also kill the de minimis rule because they’re cheating us and duties aren’t being paid and billions of dollars are flowing in. That should be dutiable items. So on one hand, the new president has said, I disavow project 2025. I have nothing to do with it. On the other hand, a lot of the authors of that document were part of his team, the First Presidency, and are looked at being part of his team, the Second Presidency. So he may not like the document in general, but it may end up be that some of the policies in that document may get implemented. And so I think that there’s a risk that the minimis rule may go away. And the whole idea of bringing in cheap goods, um, with no scrutiny, um, could be stopped.

[00:26:25.580] And if NAFTA gets broken up, then this zone skipping concept may also be under threat. Yeah.

[00:26:35.340] Really interesting. So yeah, I think about it a couple of ways. One is again, as a Canadian, you go to the US and you buy some stuff, right? And you bring it back and it’s under the threshold and you don’t have to pay duties. That’s one thing, right? It seems pretty harmless. Canadians get their consumer goods that aren’t available. The thing I heard about what you’re talking about, which is really doing this at scale, right? And standing up your supply chain to take advantage of this rule is and I saw this quote, somewhere about 30 of the top 100 Shopify brands are doing this, you know, so they’re in Tijuana or they’re somewhere along the border and they’re specifically using this rule. And so those things I understand those, it’s kind of interpreted as that’s the same rule, but the way it’s being used is is very, very different. Right. Yes.

[00:27:26.580] Yes.

[00:27:27.340] So yeah.

[00:27:28.980] No. And so Okay. Americans want their cheap consumer goods. Fine. Make them in Mexico. Then don’t make them in China. It’ll be a little more expensive, but make them in Mexico. If NAFTA holds, they’re made in Mexico. Then you can import them in duty free into the US. Yeah that’s that’s a solution. But NAFTA has to hold. So these are the big challenges. So it kind of gets to what can a company do right now. One not knowing. It’s still you know January 20th is still a little bit a ways. Teams are being formed. Policies are being formulated. What they will do and what will be ready for signing on January 20th after the new president is in place. We don’t know. There’s talk that there’s a bunch of legislation. There’s an omnibus legislation bill that has 40 or 50 different categories of items that they want to all put in one bill. Present to the president so he can sign on January 20th as soon as he’s sworn in to show.

[00:28:37.320] Look, I said I was going to do this, and I did all this stuff. We don’t know how that negotiation is going. We don’t know how those general policy guidelines will actually be implemented and how long it will take. But what companies should be doing right now is really assessing down to the the bill of materials level. Where do they source their products from for every single skew they sell? Customer facing sell or sell to an industrial supplier? If you’re an intermediate manufacturer in the US and you’re selling to a final manufacturer, let’s say you sell components to caterpillar or something. Heavy equipment manufacturer for every single part that you sell. What’s the bill of materials of that part and where did it come from and what’s the value and know based on current import duty rates, current tax codes. What’s the current level of duty associated with that? And then run scenarios where you say, what if that change to 10%, 20%, 30%, 40%, 100% depending. So whatever the president pulls out in signs, whether it’s country of origin based, whether it’s commodity based, whether it’s corporate ownership based.

[00:29:52.200] What is your sliding scale of tariffs and how will it affect your total landed costs on that. Good. Because then you can look at different scenarios. Okay. That bill of material has these components. Could I replace that China made component for a Vietnamese one. And if so how would that change this thing. Oh Vietnamese is going to get hit with a flat tariff of 20% that everyone else in the world is getting. But it’s not the 100% tariff that China is going to get, for example. And how long do you take to to transition that machine tool from one country to another? So start doing that analysis now and have multiple variables that you can flex based on the potential duty rate based on country of origin based on his code. The second thing I think companies should do, if it’s a one way street where it’s just a US centric or Canadian centric country company and they’re just importing from overseas is look, do we sell overseas because many multinationals, even medium sized multinationals, sell in different markets.

[00:30:53.430] They may source from China and have a DC in Singapore and sell to Southeast Asia. They may source from Southeast Asia and sell into Europe through Netherlands DC and sell to EMEA region, to Europe, Middle East and even Africa. So what are your supply chain configurations look like? Can you set up different entities? Start with legal entities in different places and they become the sourcing hub for that region. So maybe if you’re selling in Southeast Asian countries and Japan and China, you keep it in that sphere, set up legal entities there, set up staff, set up sourcing, set up manufacturing, whether it’s insource or outsource manufacturing, and then sell only in that region. So the US can sanction all it wants. They can put duty rates on all they want. They can fight with Europe all they want. But you’re in this closed ecosystem of local sourcing and local sales. Later you can think about how to export your expatriate back your profits to your home country if you decide to do that. And what about you, mate?

[00:31:52.500] Yeah.

[00:31:53.140] What about the what about the guys that are like I’m thinking about kind of mid market. I sell, you know, 95% of my goods in the US. But I have several, several countries overseas that I’m that I’m dealing with from an importing perspective. Same same exercise. Right. Just with a different end goal.

[00:32:17.700] Yes, yes. And really start crunching the numbers and saying, what would it take to set up a US manufacturing, for example. Are there states and counties in the US that have high unemployment but were hollowed out from Rust Belt industries, where the local government will offer incentives to come in and set up a legal entity in that state, develop out facilities, hire people. You better be prepared to do training and a lot of support. But could you build a highly qualified, skilled workforce in that depressed location and really do something good for your country, but also de-risk your supply chain and slowly move products away from other countries? It’s going to be more expensive. But could you do that? Are there government incentives for Made in America?

[00:33:11.970] Yeah, and we’ve seen that a lot with customers just, you know, kind of shopping around to different counties within the US. And I didn’t before I started this job, I didn’t even know that was that was an opportunity. But I wonder if the limiting factor will be, well, we have these high growth brands that are you know, it’s a it’s a marketing company and its expertise is in sales and marketing. And now all of a sudden you’re, you’re you’re giving them the advice, hey, you better set up your own manufacturing. And they say, well, I don’t even know what our manufacturing looks like. I just I just pay somebody for a container. It shows up. It’s finished goods across the border, and I sell it. And so it’s it, it it may lead us down this path of having to learn these things that have probably been forgotten. Right?

[00:33:55.330] Yes, absolutely. So what with with the Bretton Woods agreement after World War two, Europe’s devastated Southeast Asia, Asia, Japan’s devastated. The U.S. is the only, you know, big country still standing. US controls 50% of the world’s GDP. They said, let’s create this global trade environment where the US will protect the sea lanes. We will buy all your products from Europe and from Asia. We’ll give you money, Europe and Japan to rebuild your economy. And let’s create this, this new, this new world order. And that new world order has, has held for 70 years. And it’s gotten more and more and more globalized, and tariffs have fallen lower and lower and lower. We invited China into the WTO thinking that it would make them more democratic. Well, that didn’t happen, but that’s okay. They’re this huge manufacturing, um, entity. And so we’ve been all of us in, in the West, in Asia, um, as consumers, individual consumers for the last 70 years, been in this fairyland of globalized free trade.

[00:35:00.880] Yeah, it’s changing right now. The world is breaking up into two blocs, the West with us and Canada and Singapore and Australia and Japan and Europe, Western Europe and the rest. So the West is a billion people. The rest is 8 billion is 7 billion and it’s led by China, Russia, Iran, North Korea and Africa and poorer countries in Southeast Asia. And there’s this this increasing tension between the two. Military tension, terrorism, tension, drug tension, immigration tension, climate change, tension. And so the world is pulling apart in these two blocks. It’s a brand new world. That’s that’s increasingly technology is is facilitating a lot of things with AI. But it’s also making it worse because who controls the tech? US on one hand controls the tech and China controls the tech. The two most advanced, I guess.

[00:35:58.390] Like if I was a business owner like again mid market I’m putting my client hat on. I would I would just say, you know what. Like I want to have maybe I have 50% control of how things go. Like I want to have 80 or 90% control of how things go looking forward. And I know that my my cost of goods sold is going to go up. But, you know, the know, the alternative could be like my business ceases to exist, right? Yes.

[00:36:24.990] Yes. So I think the first thing is, all of us, as business people, have a responsibility to educate ourselves and understand how the world works, this rapidly changing geopolitical situation that we’re in and then how global trade works, because that’s a subset of that. And read up on all these tariff changes. Read up on how NAFTA worked before. Read up on what the latest policy changes may be. Understand how importing and exporting works. Understanding. Understand very granularly for the marketing company. Example how a bill of material works is and what is landed, cost of goods sold meat and what are the factors that will change that. And you may have 10,000 SKUs in your portfolio of products you sell now because it’s cheap and easy and you just place an order and like you said, fire and forget. But maybe in the future you’re only selling 100 items, and maybe those 100 items are your highest margin. But be ready for the new normal because it’s coming very, very fast. And then figure out either how to acquire a company that’s really good at supply chain or really good at manufacturing, or get experts like your firm or my firm that can advise you on how to set up a strategy, a 3 to 5 year strategy, how to how to be prepared for the new normal.

[00:37:37.740] Yeah, it’s almost like a de-risking, right? Like exercise. Like when you talk about the scenarios like, okay, you know what, where am I okay versus where am I not okay in these scenarios. And because I think it’s going to go to the expertise right away of like, well, sure, I’d love to set up, I’d love to, to to make my clothes in Mexico, but I don’t know how to do that. And so that fear of unknown may just leave people a little paralyzed. Um, but I mean, I imagine and I wanted to come back to this, the timing of all this. Like, we still have some time, right? If people are saying, oh, shit, I should probably think about this. You know, how long do you has this? In the past, you know, how long does it take before these things actually, you know, pass and are actually in effect.

[00:38:26.170] So legislation from what I’ve read often is very broad and very vague, and it’s more of a policy statement. And then it takes because governments generally are not efficient U.S. or Canadian or European or whatever, they’re not efficient. They set out these policy goals and statements, but then they leave it to the bureaucrats who are usually heavily criticized, to go set up the actual implementation of the policies. So it’s the customs official on the line with the computer at the border, trying to interpret what the policy was set at. How do I do? I do an inspection, do I not? What level of inspection do I do? What is the definition of this. Um, and so the implementation can take some time. But from the time the bill is signed to the time it gets implemented, it could be a period of time, it could be three months, six months. But how does a company Any plan for that. And how do you deal with uncertainty? Do you quickly stock up? Do you buy a year’s worth of your best selling items now and get it on the water and bring it in before the new policy gets put into effect?

[00:39:32.010] There’s a cost.

[00:39:33.090] Some people are doing that, but they’ve been doing that.

[00:39:34.890] Yeah, there’s a cost associated with that. Right. Because you’re paying premium prices and you’re buying a large quantity. You got to hold the inventory at inventory carrying costs. You need to store it and pay for storage. And then you need to hope that you made a good forecasting decision on the right mix of products that you bought, and you’re actually going to sell through at the margin that that’s profitable. The other hand is you don’t and the door is shut and you can’t get stuff or it’s it’s double the cost you were paying before and you’re -60% margin. Then like you said, you stop selling and you go out of business. Yeah. And so I think having a really good strategic plan is, is very important and as necessary, engaging experts to help you help you craft that multiyear plan, to look at all kinds of different scenarios and go from worst case to best case and have all these different playbooks ready to go. That’s important to do right now. They should be doing that now in the next month.

[00:40:30.720] Mhm.

[00:40:31.720] Yeah. And I bet like the you know not I don’t want to say niche but let’s say the, the co-manufacturers or the people that already have this expertise in the country are going to do really well because they’ll, they’ll be the ones that people are calling to say, hey, I don’t I can’t learn this myself. Like who can do this next month for me? Um, and so maybe we’ll see more of those, you know, those guys come to the forefront like we’ve seen with three pls. Um, exploding here, you know.

[00:41:00.160] Yeah. Yeah. And what I see is that there are big consultant companies like McKinsey or Deloitte or Booz, um, that offer advice. It’s very, very expensive, millions of dollars. There are smaller and medium firms like ours that can offer some aspects of Aspects of advice. There are political risk firms out there like Verisk. I get various reports all the time, and they have all these country level analysis of labor stability and degree of unionization and labor costs. So you almost have to pull from multiple sources and really get educated and then craft a strategy. And the leader of the company needs to, you know, take take a stake in it, say, okay, we’re going to a lot of the three pls. The three pls like DHL and UPS. They’re really good at helping with planning and organizing. Of course they want business out of it. And they have their whole political and risk analysis teams and their consulting teams that can help with it. But a company needs to own their own strategy development and pull from the three pls.

[00:42:02.430] Advice from big firms. Advice maybe from companies like Verisk and from others and put together a playbook and then keep updating it and then go then go forward because ease of doing business has gotten incredibly difficult. Going forward, the 70 year period, this golden period of globalization we had, it’s over. It’s really over. And it’s going to it’s going to really change this year going forward, not just because of this president, not just because of this president and his approach to doing things, and his advisor, Elon Musk, throwing bombs all around the world at different other countries. Um, not just because of that. It’s it’s this whole rise of the split between the West and the rest. That’s that’s been long time in coming.

[00:42:49.790] Really interesting. Steve. Um, I mean, I think that that was a great point, and I think we can probably wrap on that. Appreciate you joining me today. A lot, of lot of great information. Steve, where, uh, if people want to search you, is LinkedIn the best place or how do people find you?

[00:43:07.910] Yes, LinkedIn.

[00:43:09.110] Okay. All right. Thank you. Steve. Have a great day.

[00:43:12.670] You too. Thanks. Thanks.