Do small business owners stand to lose big with President Trump’s proposed foreign trade policies?
By Jak Daragjati,
Owner, JD Systems
Politics. The economy. The stock market. As a small business owner in New York, I follow these topics closely. And unlike many in my state during this year’s election, I didn’t look at the outcome as The End of Life as We Know It or a global and human rights catastrophe. I like Trump. There, I said it. But his foreign trade policies scare me. And I’ll tell you why.
First, let’s answer this: What do the stock market and politics have to do with my world as the owner of an audio visual technology integration firm in the hospitality market? (I just threw a whole lotta industry jargon at you: What I do is design, install, and service the audio and video systems—the televisions, speakers, and control systems—for hotels, restaurants, and sports bars across the U.S.) The hospitality market relies on these technology systems to attract new customers and to give guests the experience they expect when they’re away from home.
But back to the economy, politics, and trade policies and how these things affect my business (and yours, too, if you work in any industry that deals with manufactured goods). The stock market and trade policies affect products in three separate areas: availability, pricing, and parts/service. And they’re all tied together in very obvious ways once you start to think about it.
How the Stock Market Affects Your Favorite Products
Let me start with an example from back in the day, when I was just starting my career in the audio visual technology industry working in production nights and weekends and in a retail store during the day. My favorite woofer manufacturer was RCF. Meanwhile, Mackie made the mobile world’s hands-down favorite powered speaker, the SRM-40. This little cabinet made a whole lot of noise with half the weight of your typical speaker. Great, right?
So, Mackie sold to a corporation and went public. To be specific, the corporation that purchased Mackie also purchased RCF. Great, right?
Now my favorite woofer manufacturer and my favorite cabinet manufacturer are under one roof. This should make getting parts and service easier, right? But that’s not how it went. The corporation actually defaulted on the payments and RCF became an independent entity again..] Now, instead of all the convenience and cost-savings we expected, you couldn’t get replacement parts for the SRM-450, and Mackie couldn’t get the new woofers they needed to make its best speaker, either. Of course. RCF wouldn’t sell parts to the corporation that defaulted on their payments. That was the end of one of the industry’s favorite powered speakers.
So back to the stock market. If you do your research within your industry and follow the market, you’ll know which manufacturers use which parts. You’ll not only be a more educated consumer and know what’s inside the products you’re buying, but as a business owner, you’ll be able to serve your customers better. Almost every parts manufacturer used in amplifiers, speakers, remote processors, digital signal processors, screens… it’s all tied into the stock market.
Have you ever wondered why there is a constant rollover of model numbers? It’s because internal components change. What happens if one of these large corporations selling OEM parts goes out of business? In many cases, you can say goodbye to that favorite product you spec for so many jobs. And in a lot of cases, you won’t be able to buy parts anymore, so you won’t be able to service these components.
And guess what? Your customers won’t care about the stock market. All they’ll know is the equipment you sold them doesn’t work anymore. It’s on you to fix the problem—often at your own company’s expense.
I could go on with more examples, but you get the point. This problem is not unique to the AV industry, but it does affect us deeply, especially because so many electronics components for consumer and commercial audio/video systems are made in China.
And that brings us back to Trump’s proposed policies for foreign trade.
How World Trade Affects Small Businesses
Trump intends to fight hard against China’s current trade policies, including to:
– “Bring trade cases against China, both in this country and at the WTO.”
– “Instruct the Treasury Secretary to label China a currency manipulator.”
– Use every lawful power to remedy trade disputes with China
– Renegotiate NAFTA, to the point of withdrawing if our requests aren’t met
On the surface, none of this sounds too bad. He wants to fight for a better deal for the U.S. when it comes to world trade. But it makes me cringe every time I hear Trump say he’s going after China. Ultimately, it could work out for the best—but it will take a lot of growing pains to get there.
Here’s why: Almost every major manufacturer of speakers and amplifiers—not to mention digital signal processors, mixers, and many video components—uses parts made in China. Some of them manufacture all their products there. Fewer restrictions lead to cheaper labor, which makes for a less expensive product and more profit for the manufacturer.
Most of these company founders were born and raised in the U.S., still make their homes here, and operate their businesses within U.S. borders. But their products are all made in China. We’re talking ab out speakers, processors, televisions, set-top boxes, control systems… Commercial and consumer technology products we all use every day in our businesses and homes. They are almost all completely manufactured in China or are assembled in the U.S. with parts made in China.
If you’re in the technology industry like me, how does this affect your business? Audiovisual integrators do not produce the product. We pick up the phone and order it from the manufacturer or a manufacturer rep firm. If products are back-ordered, or we can’t get parts because our president has decided to stop trade with China, we will be facing a lot of unhappy customers. From my side, the integrators will be scrambling looking for replacement parts, re-designing systems to accommodate products that we can still get here in the U.S., and fielding many unhappy customer service calls. From the end-user perspective: Audiovisual systems will eventually fail to work as parts die out, and the integration firms won’t have an easy solution. In the end, everyone will lose time and money.
Don’t get me wrong. We need to stand up for our rights and negotiate more equitable trade agreements with China and others across the globe. But, like so many things that are worth it in the end, it’s going to take time and work. And we need to be prepared. Small business owners, especially, have to take steps to protect ourselves.
Are you starting to see why a small business owner from New York who grew up in nightclubs and serves the hospitality sector is paying so much attention to politics and the stock market?
The Solution to Our Trade Problems
No doubt, we aren’t getting a fair deal when it comes to trade with China. But we can’t just cut it off overnight without crippling the economy and hurting untold numbers of small businesses in every industry, especially those that deal with technology and electronic components. (And in today’s integrated, interconnected world, that is virtually every industry!)
How can we fix this? There are still a number of great companies that manufacture many of their parts right here in the U.S. Companies such as Crestron and Community Professional are based in the Northeast and manufacture most of their components right here in huge factories in New Jersey and Pennsylvania, respectively, employing thousands of people in the region. Nearly every industry has similar innovators right here in the states.
When you’re designing a system, or purchasing one, think forward. Understand that you need a product that can be serviced with parts originally specified for that product. Technology integrators should look to design systems they can install on the customer’s timeline, not wait for parts on backorder six months because of a trade tariff.
If you’re a business owner buying audio visual systems for your hotel, restaurant, retail outlet—anywhere—do your research. Shop around for an integrator that tries to buy American-made products whenever possible. Ask questions. Being an educated consumer and an educated business owner—which means paying attention to current events outside your industry—will help you ensure that whatever happens in the U.S. and across the world, your business doesn’t miss a beat.