Tariff-ic Blog Post about Beer and Supply Chain

I hope everyone is having a great week. I have been busy with work along with Memorial Day weekend and my subsequent vacation to the Florida Keys. I do hope everyone remembered what Memorial Day is all about, and while hotdogs and hamburgers are great, they should be a compliment to celebrating those who we’ve lost in the military, along the way.

With that said, I definitely enjoyed a few cold beverages last weekend on a short 4 night vacation. My wife and I, along with another couple, went down to Key Largo for 2 nights and then further down highway 1 to Key West. I think I might have enjoyed Key Largo the best this trip. Of course, we stopped at my favorite spot between Miami and Key Largo: Alabama Jack’s. If you’ve not visited and plan on heading down to the keys in the future, I would highly recommend going. It isn’t the finest dining, but it has a great atmosphere and it’s on the water.

While in Key West I tried a new beer called a “Key Billy” from “Brew Hub” brewery. “Brew Hub” is a sort of co-op that allows smaller brewers to utilize the hub’s facilities to brew, package, and distribute their beer.  Key Billy was actually fairly prevalent throughout our trip. It seems, at least initially, this beer has caught on pretty well. It is an “American Amber Ale” and I really like it. It is brewed with lime juice so it has a nice finish with just a little bit of sour (but not even close to a sour ale). It seems like the kind of beer I would drink if I was on the boat fishing, or maybe while sitting on the beach, or perhaps chasing chickens throughout the streets of Key West. Either way, I would highly recommend it as a good drinking beer this summer and to support a new project that benefits small brewers. The more beer you drink the more you support small business, so just keep drinking.

I mention beer with the idea that one might want to have one before they keep reading and hear about the tariff woes our country faces as we have a “trade war” with China. The Trump Administration recently hit us with a “4th list” of items that will receive a 25% tariff from China (meaning essentially EVERYTHING from China will have a 25% tariff attached to it). This is causing serious anguish to some recognizable companies. Both Kohl’s and Nike have noted that this tariff will have dire effects on their business. The same can be said about smaller importers, as well. Remember that due to economies of scale, it is very possible that the 25% in additional expense to some smaller importers could erase their entire profit margin as they lack the large-scale supply chain to keep costs down. These tariffs, should they continue, will no doubt leave a lasting impression and will almost definitely put some companies out of business.

It seems that with all the news coverage emphasizing the negatives of the tariffs, there might not be any positives. I would have to disagree. The tariffs push American companies to source elsewhere. Imagine if you only bought your beer from one liquor store, but they sometimes didn’t have it, and other times the quality was bad, which resulted in boring evenings with lack of said beers. Now, imagine they raised their prices by 25% allowing a new liquor store to pop up down the street to undercut the old store’s prices and become a player in your Friday night beer consumption. Perhaps the new liquor store’s name is “India’s Brews” or “Vietnam Package”. The tariffs are doing the same; promoting new trading partners (i.e. India or Vietnam) allowing for more competition in the market.

Using another example, let’s assume that perhaps you are a supplier to your favorite liquor store in one facet or another, but while you buy a couple 6 packs of craft brew from them every week, they only choose to utilize you for your product on rare occasions. There would seem to be a trade imbalance here. You can either start buying your craft beer at another location who does utilize your services more frequently, or you could even brew your owe! The tariffs will allow the U.S. to (presumably) help to correct the trade imbalance with China (buy less from China, more from other countries or manufacture in the U.S.).

Perhaps the biggest reason (at least per the administration) these tariffs are being pushed is to force China to start recognizing U.S. intellectual property protection. China has long had suppliers pushing out knock offs of some of the United States’ more well-known brands. Recently, a bigger focus has been put on eliminating the loss of IP via technological innovation. It is feared that Chinese companies will continue to steal the technological makeup of products (of which, in many cases, they are producing in Asia) and copy those products for distribution under a new Chinese business name. This is one of many specific reasons the Trump Administration has identified as important in the trade talks.

In the end, I’m not rallying for the tariffs, but rather just pointing out some positives that might get lost along the way. It is obvious the tariffs are having a huge impact to companies’ bottom lines and severely hurting the American Farmer. The Chinese have placed retaliatory tariffs on US Exports of soy beans and other crops, stifling export activities and resulting in large quantities being stored until this trade war can be sorted out. It will be interesting to see how this progresses. As supply chain people, it would be wise to understand alternative suppliers, ensure your supply chain can handle cross border imports from Mexico, communicate tariff implications to your sales teams, and be vigilant in all other regards to ensure your supply chain is nimble enough to accommodate change while staying efficient to offset increased expense in other areas. If all else fails, just drink a beer!

 Cheers!

Featured Beer: www.brewhub.com