Lightning like Steve McQueen? I'm in a fast lane when the light turns green And I built tough Find nothing but grit? Cause I made rugged blood, sweat and.
Spit, yeah, like a horse I fly.
I like to play hard but I work harder And I weather the storm Because I'm building stronger.
What is up, ladies and gentlemen? We are back. We are live. It is a freight Coach podcast, the top podcast in transportation coming to you guys every single weekday, 8:30 in Pacific, 10:30 Central, to break down some industry headlines, but most importantly, provide some actual insight into what you can do with all of this information. You guys know the rest of the intro. I'm going to save that because I got a very special guest for you that I want to bring up and talk about tariffs, right? Because that's the talk of literally everything inside of this industry right now. Is, is the Trump tariffs, what he's going to do, what's been going to, what's going to happen here, how it's going to affect the freight market and everything else. And I believe in data.
I believe in, excuse me, hearing multiple sides of every single topic of conversation. Because at the end of the day, you guys, I feel like the point in media, in podcasting and everything is to hear every single angle out here, the good, the bad, the ugly. Because ultimately, my livelihood and all of our livelihood here in the industry is dramatically affected by a lot of this stuff. Stuff. And there is nobody out there who I think, puts more work into their post than this gentleman today. So I have Mr. Jason Miller back on the show to bring this down and break all of this down. So, Jason, as always, thank you so much for coming on and speaking with me, man.
Hey, thanks for having me.
No, absolutely. And, you know, it's been, you know, the talk of tariffs and everything have been all over the meat. Obviously, Trump ran a lot on that and he, you know, it's been then, especially here in these last couple of weeks about how this is going to somehow fix the freight market and everything else. And, you know, I try and take as much of a pragmatic viewpoint on everything that I can because ultimately my business hinges on this. Our entire industry hinges on a lot of this. And, you know, any breathing of a false sense of hope that can't really be backed up. Like, I personally, as a business owner, I'm so sick and tired of all the clickbait of what could possibly happen and how this is the new way I have to deal in reality.
I have to deal in actual freight volumes and opportunities and kind of what to go after. And that's why I always appreciate the stance that you take in a lot of your posts that you put out there. It's based on actual data.
No. And you know, that's what we try to do. Unfortunately, this is a topic that's been very well researched. So compared to a lot of issues, we've got more data to go on. But I'll just throw it out to you. How was the 2019 freight market, Chris?
I mean, not good, we'll put it that way.
And the reason I throw that out is so we've already had sort of our first natural experiment with this and that was we saw tariffs put in place in 2018 and then expanded, especially in 2019 with China. And it was a down freight market in part due to those tariffs. And just as an example, one of the things that we found was that the manufacturers that brought in more inputs that they put into their finished goods, those firms that saw bigger increases in the tariffs that they were facing actually started exporting less than firms that were bringing inputs that were not subject to tariffs. And so we know this because Census Bureau data and some researchers working on this.
And so the big thing that I just, you know, want everybody to recognize with tariffs is it's an idea in a 30 second sound bite. It sounds great. We're going to make goods from China more expensive than the rest of the world and we're just going to magically start producing them here in the United States. That sounds good. That is not the reality. And I don't want anybody to get a false hope that tariffs are going to be a solution to increasing U.S. Manufacturing, because if anything, they will actually cause less U.S. Manufacturing. And the reason for that is the companies that import components tend to be very large, very productive U.S. Manufacturing firms. Your GMs, your Fords, your Schneider Electrics, you know, you pick any industry, these are the biggest manufacturers.
A lot of US imports are from plants that these American companies own and operate overseas in their shipping from overseas plant components to a U.S. Plant for additional assembly and processing and then ultimately to, you know, a construction site, if you know, machinery to another factor or even for export. And so what you end up doing is you just make our most productive, highest wage paying, largest manufacturing firms actually less competitive. And when you look at a lot of the product categories that we did offshore production of. So take like small household appliances like microwaves. No. Does anybody here really think we're going to start assembling microwaves again in the United States? It doesn't make sense.
Mm. Is what. So where does all of, you know, all the revenue will call it? Because that's what it is from tariffs. Where does that, like, where does that ultimately fall? How does that, you know, because, you know, I. Right, right now, you know, obviously it's a tax or, you know, duty or fees to be paid to be sent in or sent out of the country. Where does that revenue go from there?
Yeah, so what you can think is the importer pays the tariff. So that's one thing to be very clear on. Exporters don't pay tariffs. Importers are entities that pay tariffs. And so you basically take money from US Firms and then you transfer it to the federal government. So we're just moving it from a national account standpoint from one part of the ledger to the other. So from a technical standpoint, that profit moves from being what we would call essentially, you know, sort of firm surplus or industry surplus. We move it from that down to taxes. So it's just like a T account. We're balancing one thing against another.
So is there any way that an increase in tariffs could lower the individual tax rate out there? If there was more revenue coming from that than my, you know, like, and this is just all hypothetical examples here. Sales tax could decrease out there, gas tax, any forms like that. Is there any way that there could be a trickle down from that perspective?
So it doesn't seem feasible. I mean, just using, take a look at, you know, dollar figures. We imported something to the tune of three and a half to $4 trillion of goods in 2023, and we're on pace to do that number in 2024. If you throw a 20% tariff on everything, that's about 800 billion in revenue. To use round numbers, the Department of defense alone is $820 billion. So when you look at what the IRS brings in for federal income taxes, it's to the tune of about 4.9 trillion a year. And so there's just no way to make the math. Math and that there's no way we can substitute out, let's say, tariffs for a big share of income taxes.
Okay. No, because, I mean, because obviously that's another thing that you hear out there as well as, you know, where that could happen. And, you know, I'm curious, like, the pushback that is out there because, you know, just the research that I've done that the tariffs that Trump implemented in his first term, Biden stuck with for the most part throughout his presidency, and it seemed like he actually increased it on it was electric vehicles. And the example that I saw, I believe it was MSNBC put out an article on it where, you know, because like the Chinese control like 58 or 60% of the electric vehicle worldwide market that's out there. And that was the. So, like Biden actually increased the tariff on that portion of it. Is that accurate? Did you see that?
Yeah. No. And so that was one where I've, you know, felt the Biden administration made a substantial mistake in continuing most of these tariff policies. We're in a different world where both parties now are very much, I'm going to say, anti free trade today. It's, it's certainly changed from where it was a decade ago. And we have seen expanded imports on or expanded tariffs on, like Chinese solar panels. Even though we don't really bring in them that many solar panels from China, they're coming from other countries. EV batteries. So electric vehicle batteries, finished electric vehicles, even though we hardly import those to begin with. And so what you can think about is, you know, we do this, we try to protect, let's say, the US Auto industry.
The flip side of that is that keeps the US consumer from being able to access, you know, very affordable electric vehicles. And so there's always a trade off here in that everybody listening can think every additional tariff we put on reduces the amount of product variety that the US buyer has access to, whether it's the end consumer, whether it's a wholesaler selling to other businesses. But that's one thing to think about. Wall Street Journal just ran an article this morning. They had talked to several smaller wholesalers about what are they doing. And one firm, I found it interesting, said, well, if we see the tariffs for the Chinese goods go in place, I'm going to just stop selling products as part of my business and I'm just going to focus on my coaching and sort of service side of things.
So what you're seeing as a small business owner is losing part of their business and part of their revenue stream and they're going to have to pivot and diversify a different way. And so I think that's the side of the story that we don't talk about enough, is sort of these negative externalities a lot of small businesses will experience if these type of tariffs are put in place.
So what are the goods? Because I think you put this post out, it could have been early this week or it was last week for sure about what are the main four categories that are going to be affected the most by these potential tariffs.
Yeah. And so, and this is where we have to get into speculative territory because it's important to understand that in the 2018, 2019 tariffs, those minimally targeted consumer goods, and that was for good reason politically, because the Trump administration did not want to cause any type of inflationary situation. So most of those tariffs were aimed at what we would call intermediate inputs. So inputs that are going into another production process. But if we have a 60%, I'm going to call it universal China tariff, a 20% universal rest of world tariff, that's what we're having to operate on because that's what's been discussed. And I'm going to assume effectively no exemption. The big product categories where we are just very reliant on overseas imports are going to be, you know, things like small household appliances.
So your microwaves and your toaster ovens and all this type of stuff, your power strips and all of this stuff, your consumer electronics, so this computer, I'm talking from my phone, everything else that you can think of that is a small consumer electronic, your kids tablets, that stuff is all imported a lot. Tremendous amount of apparel, over 90% of apparel is imported. Shoes as well, you know, shoes, leather goods, things like that. And then a lot of household things that go in your household. So in other words, you know, your organizers, your linens, your, you know, all of this stuff, your flat pack furniture that you may assemble for your kids rooms, almost all of this stuff is imported. And so all of this stuff will get more expensive and then it'll filter down into more industrial topics like machine tools.
We buy a tremendous amount of those from Germany, electrical equipment, switchgear, all this other type of stuff. What doesn't get affected as much as a lot of foods. So the vast majority of food that we consume is grown here now. Things like tropical fruits have become more expensive. Kiwis, bananas, etc. If there's no exemptions granted, seafood will get more expensive because a lot of that is imported. Beef, chicken, really not affected directly because the supply chain for those goods is almost entirely domestic.
Okay. With that being said, so I saw another, a standpoint from somebody where they were like this. A lot of these numbers that are thrown out there from potential tariff increases, if it gets them to the bargaining table, like it's almost like a bargaining chip to do so, like if that were to happen and say China was to come and work with us, what favorable terms could come of that, right? Like where it's like, hey, you know, the US is 60%. And then China's like, well, Actually, we'll agree to do this. How could this potentially, you know, offset economically to where it does benefit the American consumer?
Yeah, so probably the biggest thing would be really in terms of what we export to China, it's primarily ag commodities. So this is more a help to the farmers in particular. Soybeans are the number one commodity that we're thinking about here. And so that does not necessarily help the US Consumer out that much from a standpoint there. I think a lot of our other exports to China, again, industrial pulpit, you know, pulp paper to be used in production, industrial equipment and things like that, we've actually put constraints on, for example, semiconductor manufacturing equipment due to concerns about China's increasing presence there. But at the same time, and this is the challenge with the idea of essentially unilateral tariffs, our exports of semiconductor manufacturing equipment to China have declined since 2021 substantially. And at the same time, Japanese and Dutch exports have increased tremendously.
So it's not like China's not getting semiconductor manufacturing equipment. They're now just buying it from Japan and the Netherlands. So we've just cost ourselves business. And so that's one specifically the Biden administration needs called out on. And so this is the challenge as we live in a globalized world and any type of sort of unilateral approach the United States takes isn't going to accomplish much from a strategic standpoint. If the goal is to change China's behavior.
Yeah, I think that, you know, that's something that I see that's missed out there by a lot of people is like, this isn't a snap fix all of a sudden. Everything's just reindustrialization of the United States of America. Like, I think a realistic, you know, because like, again, I've never hid behind the fact that I'm America first. I want to see jobs back here. I would assume you want to see a stronger America as well, Jason, at the end of the day. But this isn't something that's going to happen overnight. And I don't think that, you know, the tariffs in doing that right away is going to all of a sudden fix everything over here because we are very globally dependent. Like, this has been the reality for the better part of probably 35, 40 years now.
@ this point, before I was born, is when the globalization push really started. So I think people also need to tether their expectations on what this could do and put a more realistic time frame, you know, because again, like, this doesn't snap all of a sudden fix the United States freight Market, Right. Because ultimately that's what this goes down to, right? Is is the US Domestic freight market, how is that going to be an effect on it? Because like, it's not going to be changed overnight. Like, and I've said this now since probably 2023, 2025 is probably going to look a lot like 2024 from an overall freight market perspective. I don't see any massive gains coming anytime soon. I don't think anybody realistically thinks that.
So I actually, so it's funny, I'm actually a little bit more bullish on 25 just because. And the reason for that is we've got the Fed, they've cut interest rates 75 basis points. We're going to get another 25 point cut here in December. That'll start to filter its way through to construction activity, capital investment and machinery. We're likely to see another business tax cut and we're going to have massive deficit spending. All of these things contribute positively to freight demand. So I'm a little encouraged on where I think we'll be at for most of 2025.
Where I'm a little bit more worried is 2026, because I'm very worried that we get ourselves in an inflationary spiral if we have the proposed blanket tariffs implemented as they are and this massive amount of deficit spending as well as if there is a true mass deportation situation. Setting aside, you know, any moral issue with, you know, that is there's just a brutal reality that affects agricultural production, that affects food manufacturing and that affects construction. So you will see wage inflation in those sectors if you deport millions of people because many of them are working especially in those sectors. And so the concern that I have is 2025 starts out by the middle of the year. Q2, Q3, maybe even into Q4 is going really well.
But then we start seeing inflationary concerns to the point that the Fed starts saying we may have to raise rates again in late 25, early 26. And there are some of the professional economic forecasters are baking in that scenario, tying back to the tariffs. I'm even less. It's almost difficult to say how sort of pessimistic I am about tariff effectiveness just because too we know that US Companies having access to being able to especially design goods in the U.S. Specialize in marketing. But leverage overseas production actually allowed a lot of US Companies to grow and add more jobs once we normalize trade with China than they would have otherwise.
And so just to pick an example of what could happen is take the John Deere situation where John Deere has said they want to move skid steer production, not a core product category, down to Mexico. And the threat has been, well, there'll be 100 or 200% tariffs. If John Deere doesn't feel that they can profitably make skid steers in the United States and compete with other firms and they are denied the ability to produce in Mexico, they're very likely just going to say, we're not going to make skid steers.
And so that not only means we lose all the jobs in the US and the manufacturing that was going to be shifted to Mexico, but then we lose jobs at corporate for all the logistics folks who would have coordinated that, we lose all the jobs in corporate for the procurement folks who are going to buy that, and then we're going to lose the manufacturing jobs in the US for the component suppliers, which would have made components that would have been exported to Mexico for the skid steers and then sent back. And so that's the type of complexity that is not being discussed enough.
And, you know, folks need to realize we saw good evidence that in the US in 2018 and 2019, the industries that saw their inputs tariffed more actually saw reductions in manufacturing employment, which is the exact opposite of what we wanted. But the industries that saw their goods protected by tariffs, they didn't change employment, they just raised their prices. Take a look at the steel manufacturers as an example.
Is there a day or an opportunity, Jason, where this is implemented and it has a positive effect on the US Economy is have you ran any of these models where it works out to where it's like, hey, this, there's. There is an actual chance that, you know, something like this improves things or, you know, it might come in, you know, maybe not touching the tariffs at all. It's leaving the tariffs as is and letting them run out there. Have you ran any of those models?
So from all the research we have, the best option right now would be using the threat of additional tariffs to negotiate freer trade, not only for the US But I hate to say it, actually getting rid of those tariffs that we have in place right now, there is bluntly no reason to be tariffing a lot of these goods from China. We're not seeing any type of increase in manufacturing employment in these sectors. I mean, just as a simple example, apparel production in the US has been falling continually since the pandemic. It was falling before the pandemic. I mean, apparel manufacturing isn't something that we think a lot of, but there's still 80, 90,000 individuals employed in that industry. We had 1.7 million back in the 1970s.
You know, there's no amount of tariff you can put in place to make a product that is fundamentally not competitive to produce in the United States competitive. Because the other thing too is we're assuming here that all these countries are just of course, going to abide by these tariffs because there's no chance whatsoever goods from China will get manufactured in China, sent to Vietnam, re boxed, have made in Vietnam printed on them, and then exported to the U.S. I mean, that'll of course, would never happen.
No, exactly. And you know, and then also what I mean, would there be any potential remanufacturing in Mexico or is that, would that be the next iteration, Jason, where, you know, you brought up the John Deere example, right? Where they're like, hey, no, if you bring it down to Mexico, boom, there's going to be a tariff on it for Mexico, anything. And then would there be a way where they could track that? Essentially, right, where it's like, hey, we know it was manufactured in China, it's now made in Mexico, where they would slap a tariff on that as well. Has there been any talk of that potentially happening?
Because, I mean, I know anybody who's been half paying attention over these last four years or so have seen an industrialization in Mexico where there has been a lot more production down there than in years past.
Yeah. So there have been efforts on that, especially with steel, to try to sort of, you know, essentially get this, you know, a back door under control. It becomes much harder if you're talking everything. You know, at the end of the day, it will just be, it will be so hard to police this whole situation. And, you know, I'm going to throw out the question. Most manufacturing operations take millions of dollars of capital investment to do it, any type of scale. Does anybody want to be setting up a factory in the United States to, let's say, assemble consumer electronics full well, knowing that if those tariffs were removed, your business is literally overnight going to shut down? Is any bank going to fund that manufacturing operation?
And so, you know, all of this is predicated on lenders providing loans to, you know, startups if they're going to take on some of this business. Because the important thing for folks to realize is that all of our job loss in manufacturing, when we normalize trade with China, it wasn't small manufacturers getting put out of business. It was big firms that had plants that had R and D plants that had wholesale operations. They shut down their factories. They shifted that overseas in many instances to factories that they operated. There's no reason to think that they're going to shift back. And especially if they not only offshored it, but they outsource that manufacturing, know how they're not in a position to bring that production back. They're just going to move from one low wage country to another, arbitraging on wage rates.
Because when we're talking again, you know, India, Bangladesh, Vietnam, you're looking at paying somebody for a day of work what we're going to be paying for an hour of work here in the United States. That is a very quick payback for a plant.
Yeah, I think that's, you know, obviously that's going to be at the front and center of most corporations out there, Right. I think that, you know, that's the thing that they most people trying and cut right away is labor. Right. Because that's always going to be the most expensive thing. And, you know, I think that with where we are, you know, in today's present day, you know, I think that's just going to open up where they're going to go to the next low wage country that's out there. And, you know, it's going to be interesting to see, right. Like, obviously I'm an optimistic realist. I always want to sit here and think like, all right, well, there's people who are smarter than me that are out there that are, you know, looking at a lot of these things.
But, you know, ultimately I, I have to operate in the present day and I have to operate in how can I make the best of this situation, no matter what, right? Because I think like, that's the beauty of the country that, you know, the republic that we live in is that, you know, we elect these officials to go in and do that and then we have to deal with the after effects of it, no matter what. Right. And you know, from my perspective as an operator, as somebody who's out there cold calling shippers literally every single day, there's a lot of stuff like where it's like, this is why I love having you come on, Jason and talk about this stuff is this gives me a different way to think about how I am actively going to pursue opportunities in the market. Right.
Like, is it best to go after and try and capitalize on, is there going to be a massive import influx here over the next 60 days or whatever? Are people smashing in orders right now into China to Try and offset some of that. You know, if it's like, hey, it's on water, it can't be tariffed at this point.
Well, and it's got a clear customs to get through that. So, I mean, we will see I think a little bit of that. And the other thing for everybody to keep in mind too, there's a lot of legality questions on how far the executive branch can push tariffs by itself. You know, C.H. Robinson recently wrote, like, it would probably take an act of Congress to, you know, to pass a law to essentially do a lot of this. And so I don't know if there's going to be that much of a desire for this because then you're going to have the whole legislative process will take a while to play out because everybody's going to lobby for their exemptions and their exceptions to this. And so that's what makes it more, you know, more and more challenging.
Because, you know, at the end of the day, and you mentioned it, you know, if you're trying to shift something like barbecue grill assembly, right. You know, put it, you know, building grills, you can't just shift the final assembly of where we're putting the grill together. You've got to shift all the component production as well. Are companies in the US Going to be willing to take that on? Can they find the labor with a relatively low unemployment rate in order to do this? I mean, are these attractive value propositions? Because in a lot of ways, you know, when folks talk about things with tariffs, you know, Pogo's statement, we have met the enemy and he is US folks can stop buying goods produced overseas in a lot of different product categories.
Buy your jeans from the United States, buy your shoes from the United States, you can do this, but you're going to pay three, four, five times as much money and you're going to lose your buying power to buy other type of products. And so that's kind of the biggest challenges. At the end of the day, it would take a true societal change of attitude about where we're buying our goods from. Because at the end of the day, if the customer wants to walk into Walmart and get the lowest cost item, that means that, you know, for certain product categories, Walmart's not buying from the United States.
Yeah, no, I mean, it's very true, Jason. Right. And I think that it's a very real conversation that a lot of people are going to need to have. Right. Because I mean, it's true there are plenty of companies out here right now that everything's made in America and you can see that out there. So if you are a cost driven only consumer, then you're going to go for those natural, you know, and I think like ultimately to me it's always about that variety. Right. Like the last thing I ever want the government to do is to tell me how to think what to do and how to act. Right. Like if I want to, you know, because I do, I choose in certain categories to buy American made products and it is more expensive, but I will take that route.
Is that going to trickle into other areas of our lives? It's yet to be seen. Right. And I think that this is a major thing that could happen. There's, you know, like you said, it possibly is going to take an act of Congress to really see a lot of this rollout. So we'll see, man. But I think, you know, again, I, as always, I appreciate you having you taking the time to come out here and talk about this and a lot of the data that you put out there, man, because it makes me think a lot differently about certain things and it's always a different viewpoint that I'm looking for. And I challenge everybody out there to do your research. You guys look at multiple talking points.
Just get out of this echo chamber that so many people are stuck inside of, for the love of God. You need to look at things from a different angle sometimes because you know what, it might actually benefit you by doing that. So, Jason, as always, man, thank you so much for joining me.
Hey, thank you for having me.
No, I appreciate. And that's going to be it for today, you guys. We got a guest on tomorrow as well. As always, if you guys got value in what you heard, subscribe to the show, you guys share it out there to your network because if you see value, your network's going to see value as well. I appreciate you guys. I love you guys and we'll be talking to you soon.