Small Manufacturers Struggle with 11000 Tariff Bills

Robert Keeley, the CEO of Keeley Electronics, a guitar-pedal manufacturer based in Oklahoma City, found himself in a dire financial situation when an unexpected tariff bill of nearly $11,000 arrived. In a desperate move to keep his business afloat, Keeley cashed in 1.83 million American Express reward points to settle the bill. This drastic measure highlights the broader challenges faced by smaller businesses in the U.S. as they navigate the volatile landscape of trade policies.

Keeley's predicament is not an isolated incident but rather a symptom of the broader economic strain experienced by small manufacturers. These businesses, which account for a significant portion of the U.S. industrial sector, often lack the financial reserves and supply-chain flexibility to absorb steep tariff hikes. The situation is particularly acute for manufacturers with fewer than 100 employees, who make up 93% of the roughly 240,000 U.S. industrial firms. Unlike larger conglomerates, these smaller firms struggle to pivot production or secure favorable trade deals, leaving them vulnerable to the whims of tariff policies.

One niche industry feeling the pinch is the guitar-pedal manufacturing sector. These boutique businesses, which build the stomp boxes that shape the sound of music, are turning to each other for support. Julie Robbins, the CEO of EarthQuaker Devices in Akron, Ohio, started a support group for pedal builders. Robbins tapped into her company’s credit line to avoid layoffs but fears that this strategy won't be sustainable in the long run. She is considering moving some production overseas, a painful decision given that the tariffs were initially intended to bring jobs back to the U.S.

President Donald Trump has claimed that the tariffs are encouraging manufacturers to reshore production, citing examples like Apple Inc., which plans to invest over $500 billion in the U.S. over the next four years. However, small manufacturers often rely on imported components and lack the deep pockets needed to rebuild supply chains. EarthQuaker Devices, for instance, sources critical components like circuit boards, resistors, and transistors from China. The tariffs have forced these companies to seek alternative solutions, such as forming support groups to share strategies and resources.

In early May, nearly 50 people joined the second meeting of the Pedal Builders Support Group, double the turnout of its inaugural call. The group's rules prohibited discussions on pricing or anything that could be considered collusion. Participants shared their struggles and brainstormed ways to raise awareness about the impact of tariffs on small U.S. manufacturers. Jon Cusack, who runs a pedal manufacturer in Holland, Michigan, shared that he had spent $200,000 on inventory before tariffs took effect, draining his savings. He expressed concern about his ability to survive the financial strain, considering his next step might be to mortgage his house.

Josh Scott, owner of JHS Pedals in Kansas City, has used his YouTube channel to educate consumers about how tariffs work. He emphasized that American businesses ultimately pay the tariff, a cost that gets passed along to customers. Scott's efforts to raise awareness reflect the broader sentiment among small manufacturers that they are fighting for their survival in the face of tariff policies.

Julie Robbins traveled to Washington to testify before the U.S. Senate Committee on Small Business and Entrepreneurship, urging lawmakers to provide immediate relief from the tariffs. She highlighted the stark difference in costs between imported and domestic components, noting that the price of blank printed circuit boards from China was $1.40 each, compared to $20.70 to $31.19 for domestic alternatives. This price disparity makes it impossible for small manufacturers to switch to domestic suppliers without significantly increasing their prices.

EveAnna Manley, president of Manley Laboratories Inc., shared her cost-cutting tactics during a support group meeting. Her company, based in Chino, California, has reduced employee hours and factory operating days to save on expenses. Keeley, who used Amex credit-card points to pay his tariff bills, shared his story with the group, highlighting the limited options available to small manufacturers in combating the tariffs.

During a follow-up Zoom meeting, frustrations boiled over as participants exchanged ideas on how to raise awareness about the impact of tariffs. The perception gap between policymakers and small manufacturers was a recurring theme, with many feeling that their struggles were not understood. Robbins and Cusack both expressed their determination to fight for their businesses, viewing the tariffs as a threat to their survival.