I'm not gonna yak about tariffs, but I'll say one thing. Some of you may have heard me say this at the last meeting, but the truth about tariffs is that we don't get one dime from any foreign governments for tariffs.
I'm probably preaching to the choir, but China has never paid us a penny for tariffs. Neither has Mexico or Canada, and if we put tariffs in place, there still won't be a single penny coming to the United States from those countries.
The people that pay for tariffs are those folks in the room here whose companies import things. Services, to my knowledge, don't pay tariffs. It would be pretty hard to regulate people buying services and providing services online, but anytime anything hits the border or a package, probably even in the mail, now, they're trying to capture that. But a customs broker has to do the documentation to get anything cleared through customs when it comes into the United States.
I verified this with a couple of customs brokers. They look at the item, the description, every item has a code, a class of goods that it's in, if it's something physical, and they look to see if there's a tariff in place on those particular goods. If there are, the customs broker makes an electronic payment to Customs and Border Protection who work for the Department of Homeland Security, who work for the President. So we don't really need an external revenue service to collect those tariffs in those foreign countries because our government already collects them through Homeland Security, CBP.
So, what happens when we put tariffs in place is that the company or entity that imported the goods gets the bill from the customs broker and has to reimburse them for those tariffs. So, it's really complicated in manufacturing. The average car components and raw materials and all that sometimes go back and forth, I think, an average of five times across the US-Mexico border before it ends up in a car, coming back for the last time. It's really complicated. The example I like to use, and the simplest and easiest to explain is produce. So, 70 to 80% of all the produce in the United States now comes from Mexico. Produce has a short shelf life, in most cases; some things can be refrigerated and stored for a while, but most produce has to get in the store and get consumed, or get to the restaurant and get consumed before it's more than a few days or a week or two old.
So, when produce comes in, say H-E-B buys it, if there's a 10% tariff or a 25% tariff, which I understand is supposed to go into place the end of next week, then all produce that comes in the United States, the cost of that produce just went up by 25%. It's your avocados, tomatoes, blackberries, grapes or whatever.
So, companies have different opportunities. It doesn't automatically raise prices 25%. So what usually happens is, maybe if you're Walmart or H-E-B, you tell your Mexican growers, you know what, sorry, buddy, I'm cutting what I pay you for your produce by 3%. And then we pass the 7% or 20%, or whatever, on to our customers. Or we find a way to make our business more efficient. Most manufacturing companies have been working on looking for every improvement they can possibly make with automation and technology to lower their costs and improve their efficiency. So there's not a lot of low hanging fruit to further tighten up, get more efficient to offset the cost of those tariffs.
So, it's somewhere between a company making less profits, the company raising their prices a little bit, squeezing their suppliers, or lowering their prices to save them money, all the way to the extreme, which would be just past the 25% cost on all of us when we go to the grocery store. Manufacturing is way more complicated, but that's kind of how it works.
But the bottom line is, there's no free lunch. Someone's going to pay the cost of its tariffs, and it ain't Mexico and China. There are some good strategic reasons, sometimes, for tariffs and all that. That's my two cents on it.
Editor's Note: The above commentary was provided by Mike Willis, executive director of the South Texas Manufacturers Association, at a recent STMA meeting held at the Brownsville Events Center.
Editor's Note: The above commentary is the first in a two-part series featuring Mike Willis. Part Two, focusing on the work of the South Texas Manufacturers Association, will be posted in our next edition.
