Podcast Summary: "Are Tariffs Good or Bad for Founders?"

Podcast: My First Million
Host/Author: HubSpot Media
Episode Title: Are Tariffs Good or Bad for Founders?
Release Date: April 11, 2025

Introduction

In this episode of My First Million, hosts Sean and Ben delve into the contentious issue of tariffs and their profound impact on founders and entrepreneurs, particularly within the e-commerce sector. They explore the real-world challenges faced by business owners navigating the turbulent waters of international trade policies and offer insights into coping strategies amidst escalating trade tensions.

Personal Experiences and Initial Impact

The conversation kicks off with Sean sharing a personal anecdote that sets the tone for the discussion:

Sean (00:24): "All right, Sean, mahalo. My first question is, what's it feel like to be an extra on the set of White Lotus?"

While the initial exchange touches on celebrity experiences, Sean quickly transitions to more relevant topics, recounting his own financial setbacks:

Sean (02:07): "I landed, and the same day I landed Crypto had the biggest crash. Like Luna basically went broke and it brought down Bitcoin with it. I lost a million dollars."

This experience underscores the volatility that founders often face, not just from market fluctuations but also from broader economic policies like tariffs.

Understanding the Tariff Landscape

Sean and Ben dissect the recent tariff impositions initiated by former President Donald Trump, highlighting the rapid escalation of trade barriers and their immediate repercussions on businesses:

Sean (05:18): "Donald Trump has created a new holiday. Liberation Day... China, you're getting tariffed. Vietnam, you're getting tariffed."

The hosts explain the severity of these tariffs, detailing how they have compounded over time:

Sean (05:31): "It's as simple as that. So basically, if you buy $10,000 worth of goods from China, you're going to pay $20,000."

They emphasize that the tariffs are not just stepping stones but are escalating into a full-blown trade war with retaliatory measures from China:

Sean (05:50): "China retaliated with its own escalating retaliate retaliation, 80 something percent tariff. So we're in a trade war."

Impact on E-commerce and Small Businesses

The discussion zeroes in on the e-commerce sector, where tariffs have a particularly destructive effect due to tight profit margins and global supply chains:

Sean (07:17): "China has a lot of the best machinery to do this work. There's only, like, so many machines that do this right now."

He elaborates on the cascading effects of tariffs on operational costs:

Sean (11:35): "Your COGS was 25% of the... you have to raise the price to five to make up for that. So all your goods are going to go up by 25 to 30%. So that's inflationary."

The hosts discuss how these increased costs force businesses to either absorb the expenses, thereby slashing profit margins, or pass them onto consumers, risking reduced demand.

Real-World Consequences for Founders

Sean provides a grim scenario faced by many founders:

Sean (09:43): "It's gonna put some people out of business because... your COGS go up by 100% is not going to work. They're going to go broke."

He cites a friend's dilemma where a sudden tariff hike meant an unsustainable leap in costs:

Sean (09:09): "He has to pay a million dollars in tariff. He doesn't have a million dollars. So he's like, 'What am I going to do?'"

This highlights the existential threats posed by aggressive tariff policies, especially for small to mid-sized enterprises operating on thin margins.

Strategic Responses and Coping Mechanisms

To mitigate the adverse effects of tariffs, Sean outlines a multi-faceted strategic approach:

1. Pricing Adjustments: Introducing tariff surcharges to offset increased costs.

   Sean (11:35): "You have to pass that to the customer. So now you have to tell the customer, 'Hey, what this means to the customer.'"

2. Diversifying Supply Chains: Sourcing from alternative countries with lower or no tariffs.

   Sean (11:39): "We think it could be in this range that'll offset some, but not all of the amount because we can't pass 100% of it to the customer."

3. Cost Reduction: Negotiating with suppliers to share the burden of increased tariffs.

   Sean (12:47): "You have to look up the... talk to the lawyers and see what's going on with the stuff that's already in flight."

4. Financial Planning: Securing additional debt or lines of credit to manage cash flow disruptions.

Sean emphasizes the urgency and intensity required to implement these strategies effectively:

Sean (17:20): "You have to create like an immediate SWAT team... We're meeting every day... This is your priority now."

Political and Economic Analysis

Sean references Molson Hart's insightful post on the complexities of reviving American manufacturing:

Sean (13:07): "Molson Hart wrote a great post... 'America underestimates the difficulty of bringing Manufacturing Back.'"

He critiques the simplistic notion that imposing tariffs will naturally bolster domestic production, pointing out the logistical and economic hurdles involved:

Sean (15:32): "Even if you take the generous side of this policy, moving manufacturing back to America takes a long time... It's a multi-year period before they get it all online."

Sean argues that instead of revitalizing domestic manufacturing, tariffs are more likely to drive businesses to relocate to other low-tariff countries, undermining the intended economic benefits.

Operational Challenges and Business Survival

The hosts discuss the operational strains tariffs impose, particularly on cash flow and inventory management:

Sean (10:20): "My cash flow that I had in the business went down, and maybe down to a point where I'm needing to borrow money in order to just pay the tariff bills."

They explore how businesses must become more agile and proactive in their operations to survive:

Sean (17:20): "Raise the level of intensity is very key in a situation like this or people will go out of business."

Sean shares his own team's disciplined approach to crisis management, highlighting the importance of prioritizing and reallocating resources swiftly.

Broader Economic Implications

Beyond individual businesses, the hosts touch upon the macroeconomic repercussions of widespread tariff impositions:

Sean (12:47): "This is going to very inflationary... If you thought inflation was bad before... wait till Christmas season comes and nobody could buy a toy because all the toys are made in China."

They illustrate how tariffs contribute to inflationary pressures, affecting consumer prices and overall economic stability.

Conclusion

Throughout the episode, Sean and Ben present a compelling argument against the imposition of tariffs on founders and small businesses. By intertwining personal anecdotes with in-depth analysis, they shed light on the multifaceted challenges tariffs introduce, from increased operational costs and strained cash flows to disrupted supply chains and diminished profit margins. The episode serves as a cautionary tale for entrepreneurs navigating the precarious landscape of international trade policies, advocating for strategic agility and proactive problem-solving to weather economic storms.

Notable Quotes

• Sean (07:17): "China has a lot of the best machinery to do this work. There's only, like, so many machines that do this right now."

• Sean (11:35): "Your COGS was 25% of the... you have to raise the price to five to make up for that. So all your goods are going to go up by 25 to 30%. So that's inflationary."

• Sean (17:20): "You have to create like an immediate SWAT team... This is your priority now."

• Sean (13:07): "Molson Hart wrote a great post... 'America underestimates the difficulty of bringing Manufacturing Back.'"

• Sean (12:47): "This is going to very inflationary... If you thought inflation was bad before... wait till Christmas season comes and nobody could buy a toy because all the toys are made in China."

This detailed summary encapsulates the critical discussions and insights shared by Sean and Ben, providing listeners with a comprehensive understanding of the detrimental effects tariffs can have on founders and small businesses.