Studio Notes 03: Tariffs
dumb math
This is Studio Notes, a series of letters that pulls together things on my desk—cultural references, first hand research, personal archives, or, in this case, grievances—all in relation to how we tell stories, create spaces, and design products at Yun Hai.
This week, I address the “tariffs.” While writing this, the steep reciprocal tariffs enacted this morning were put on a 90-day pause by late afternoon, after an alarming bond sell-off, to give most of the world a “chance” to negotiate with the United States. Except for China, who saw a tariff hike.
While relieved that we have “more time” to adjust and process, my frustration here goes well beyond the impacts of tariff chaos on my own business. I’m enraged at how America’s oversimplified tariff math and posturing as the keeper of the global economy hurts all of us. Trump and team used reductionist numbers to falsify urgency and justify an exorbitant threat to the well-being of the entire world. This evaporated time and money, and forced other countries to pledge things like balancing the trade deficit, which isn’t necessarily a negative indicator in the first place. The rollback of the shockingly high reciprocal tariffs also masks the fact that the 10% remaining global tariff and the giant hikes on China are still a major blow.
Heads up, there are a lot of air quotes in this letter.
Normally, this series is written for paid subscribers of Yun Hai Taiwan Stories, an otherwise free newsletter about Taiwanese food and culture by Lisa Cheng Smith 鄭衍莉, founder of Yun Hai. Because of the nature of the subject, full text is free this week. If you aren’t yet a subscriber, sign up here.
Global commerce has been broken for a long time. There’s the good (place doesn’t matter!) and there’s the bad (place doesn’t matter!). We’ve been steadily marching towards a hypercultural homogenization of the world, and have come to expect a frictionless transfer of goods and services. And Yun Hai has benefited from it—without a robust global trade infrastructure in place, we couldn’t exist. It’s the world we live in (er, were living in) and the negative should be acknowledged along with the positive.
In past issues of this newsletter, I’ve lamented about the detrimental impacts of globalization, which, alongside many other forces, has led to the decimation of traditional industries, the loss of food resilience, the exploitation of domestic topsoil for food surplus, cultural domination, overconsumption, ecocide, exploitation, the list goes on. I’ve written about the loss of traditional salt industries and the decline of rice farming in Taiwan, largely in response to trade policies or artificially cheap goods. We have to recognize that we are all part of an exploitative society; that while progress can be good, there is also harm.
Tariffs could be used to provide targeted protection to those that are smaller, more specialized, less subsidized—to retain the meaning of place where it might otherwise be lost. A leader trying to fix our role in the international economy ought to consider that, and apply tariffs only so far as to stimulate the American industries that need it, while respecting other entities’ rights to do the same. This is a bit of an oversimplification, but for the purposes of this newsletter, I hope it serves. We’re at financial war now, and tariffs have become the blunt weapon of choice, used without discernment, responsibility, or (as it appears) even understanding.
As of this writing (April 9th), the reciprocal tariffs announced last week are on a 90-day “pause,” though we’re still subject to the 10% blanket tariff on all global imports. The initially threatened rates effectively held the Asia-Pacific region hostage as a way to "get" to China, who has offshored much of its manufacturing to neighboring nations. It also forced smaller countries (like Taiwan) to promise capitulation on trade deficits (which aren't necessarily problematic in the first place, as I'll explain below). Meanwhile, small American businesses relying on Chinese imports face an even greater burden, with tariffs on those goods suddenly hiked to 125% without warning or preparation time.
Tariffs may be “on pause,” but what will the world’s leaders need to do to keep it that way?
Greek Letters Can’t Hide Reductive Math
As you know, Trump’s tariffs rained down upon us. And then, after being told to “BE COOL!” when they were enacted this morning, they were “temporarily” reversed this afternoon, supposedly because all the countries targeted promised not to retaliate, except for China, which was then punished with a tax hike of 125%, “based on the lack of respect that China has shown to the World’s Markets.”
Speaking of a lack of respect shown to the “World’s Markets,” Trump basically used an elementary equation to calculate tariffs that didn’t actually reflect the protectionist policies that trading partners were being accused of, to then force them into trade submission on this false pretense.
The administration had called out Taiwan as having overly restrictive policies, and while this might be true in some industries (I don’t have the specific knowledge), the analysis that Trump’s team used doesn’t even actually investigate that claim. No Taiwanese tariff data was used to make these calculations. In fact, no tariff data at all was applied to any of the reciprocal tariffs presented last week by the White House. Trade.gov puts Taiwan’s average nominal tariff rate for imported goods at 6.34%; the White House claimed 64%.
From Fortune:
The formula used to calculate President Donald Trump’s new batch of tariffs announced Wednesday is based on dividing the U.S.’s trade deficit with a given country divided by their total exports to the U.S. A memo from the office of the U.S. trade representative acknowledged this was the methodology used because it was too “complex, if not impossible” to calculate the full extent of each country’s U.S. trade policies.
Trump essentially took a sledgehammer to all of global trade with calculations that a second grader might be asked to make in their evening homework (ok maybe a third grader). This is hidden in plain sight in the formula published by the White House, which contains meaningless Greek variables that seem to exist only to add visual complexity. It’s honestly disgusting: a president releasing a convoluted formula (thinly veiled) to backwards justify numbers he thought would be high enough to force the world to bend the knee.
On CNN, Larry Summers, the 71st United States Secretary of the Treasury, delivered a critique of the behavior. I don’t agree with many things Larry Summers has supported in the past, but I do agree with this searing rebuke:
It is utter and total nonsense.
This action has taken 3 trillion dollars off the stock market as a consequence of an hour of rhetoric. The stock market only reflects part of the economy, so if you took a cumulative loss, it’s closer to 30 trillion dollars. That’s more damage than any economic policy pursued by any president probably in American history.
…
Who could have imagined that someone would have the idea to set reciprocal tariffs without paying any attention to any data on any tariff on any other country? Who could have imagined we would have decided to penalize our closest allies who are key parts of our supply chains, like Canada?
Such is the environment we find ourselves in. Tariffs, when applied strategically, can address specific market failures or support strategic industries, but here they are meant to threaten, obfuscate, and destroy.
In response to the threatened “tariff,” President Lai has promised not to retaliate and seek to balance the trade deficit in an attempt to negotiate. The irony is that Taiwan’s top exports to the US (by far) are integrated circuits and data processing equipment, not finished goods. These parts are critical components to the American manufacturing and technology industries, which Trump is seeking to revitalize. If he’s successful, this would likely lead to an even larger trade surplus for Taiwan until production for these parts is onshored to the US (good luck).
The graphic above shows that in 2024, these exports grew by 140%, indicating a strong interdependence with the growth of manufacturing and tech in the United States. While semiconductors are exempted from the tariff, it’s not clear if they are exempted from calculation of the surplus. What kind of position can Taiwan take here? To promise to buy more American goods while it supplies American growth as cheaply as possible?
As far as I’m concerned, the Rubicon has been crossed, even with this temporary rollback. International trade will not be the same again, and especially not America’s reputation within it.
And if you feel the urge to let me know I ought to keep Yun Hai out of politics—well, 1. too late and 2. this isn’t about left or right. This is a newsletter about dumb math, geopolitical trolling, and irresponsible obfuscation, which should be called out for what it is, no matter what side of the aisle you’re standing on.
How Tariffs Would Impact Yun Hai if They Were Actually Real or Will Be Actually Real One Day
We exist solely to import goods from Taiwan and offer them to American customers. As of today, our products will be taxed at 10%, though almost none of them compete with anything that could, would, or should be made in America. The percentage is still high enough (and the enactment sudden enough) that it forces us to re-examine our business, especially when combined with other factors like rising domestic costs and market uncertainty.
So far, we’ve been lucky. Our most recent shipment cleared just a day before the global 10% tariffs were announced, which we would have had to pay if it had arrived only a few days later. See the video below for a walkthrough of our Taiwanese warehouse, and get a sense of the volume we’re bringing in now:
I can’t emphasize how grateful I am to my business partner Lillian Lin (aka Queen Urgency) for getting our stuff through the gate. If we were trying to manage a surprise 10% tax right now, I probably wouldn’t be able to write to you with a clear head. Operating margins for specialty grocery can be next to none, and ours are certainly below 10%.
Though not specifically relevant for “the next 90 days,” Eater NY published a Q&A with me about how the tariffs might change what we do. I’m excerpting from there, in response to a question about how costs will affect our pricing and profit margins. You can extrapolate this to many other small businesses for a clearer picture on how tariffs would impact the bottom line, and how it really explodes the bottom line for folks making products in China (and believe me, many small, responsible, creative, well-meaning businesses are).
From Eater NY:
Can you walk me through what it might look like in terms of what you paid for something before the tariffs versus after?
Sure! I’m not using exact numbers here, but for transparency’s sake, they are in the ballpark, so you can really understand how much this impacts us.
Assuming all cost increases are passed on, it would look like this:
If we buy something for $10 from a farmer in Taiwan, we’ll need to pay $3.20 to the US for it to enter, or about 32 percent. So that item becomes $13.20.
To sell this at retail, we might mark it up 60% (because our products are expensive to begin with, we keep our markup lower than typical), so the $10 product would sell for $16. With tariffs, the end customer price would be: $21.12, representing the 32 percent increase.
If we didn’t pass any costs on, it would look like this:
Before tariffs: Buy goods for $10, sell them at $16. Gross profit margin was about 37.5 percent. It costs us another 25 to 30 percent to just store, warehouse, and deliver the product, so we’re left with maybe 7.5 percent to pay our staff and run operations.
After tariffs: Buy goods at $13.20 and sell for $16. Gross profit margin becomes 17.5 percent. After warehousing and last-mile fulfillment costs, we’d now be running at a 12.5 percent loss.
What I’m really worried about is that if we can’t continue to provide a realistic, predictable, and rewarding market for Taiwanese producers, they could easily send their supply elsewhere—China, Japan, Korea, Singapore, Europe, Canada—which would negatively impact the diversity and availability of Taiwanese ingredients in this country in the long run. I spoke with my Taiwanese business partner, Ivan Wu, last night, who confirmed that he’s already diverted his team to developing new markets for his other Taiwanese ventures, as security against what he feels is unacceptable volatility in America.
What We Will Still Probably Do About It
The only thing that’s clear is that no one knows exactly how this will settle, or when. Even with no reciprocal tariffs on Taiwan, a 10% global tariff would increase the cost of doing business by a significant amount. Or maybe it will all go away. Planning is a challenge.
Our strategy now is to take actions that will protect us from Trump’s rhetoric and further tariff volatility, but still be advantageous to the business should things return to “normal.”
What we’re investigating:
Diversifying our revenue streams by developing the brick-and-mortar store into more of a deli, with ready-to-eat Taiwanese foods produced in New York City. This has always been the goal, but fast tracking it might help us float by with extra revenue from increased traffic to the store, with products we can make locally. Plus, the store is important to us as a cultural space, and we want to serve our community in New York City even better. This can only be positive.
Working with our vendors to restructure our assortment, prioritizing higher natural margins and lower costs. This may mean that some items are unavailable for a period of time, while we pivot to products that would be more sustainable to import in the short term (lighter weight, easier for us to ship to end customers, seasonally abundant, etc).
Building out fulfillment infrastructure in Taiwan and investigating new markets. If we can fulfill consumer packages out of Taiwan, we might be able to avoid US market volatility and ship to other regions while shortening our cash conversion cycle. This would be a major undertaking, essentially spinning up a third-party fulfillment warehouse in Taiwan, but we’ve been discussing it for quite some time. This might also allow us to sell direct-to-consumer into new markets in Canada and Europe, which customers have been requesting for a while. We don’t know how the costs of this might compare to the costs of the proposed tariffs, but there’s never been a better time to do the research.
Reducing or pausing new product launches. Starting something new is always more capital intensive than maintaining existing products and categories. We need to be conservative with our resources to make sure we can wait out this period of manipulation. Launching new products during a volatile time may also limit the effectiveness of the work and capital we put into it.
Investing into our storytelling and building our brand base. Working with domestic and Taiwanese creatives to create storytelling pieces (video, publications, or otherwise) isn’t subject to market volatility at all. If we can find a way that this could pay off, either through content subscriptions, YouTube ad revenue, or brand audience building, we could increase our support of creatives in Taiwan while staying true to our core mission of sharing Taiwanese stories.
Divesting from tech and advertising platforms as much as possible. Affiliate marketing, performance marketing, payment gateways, social media management platforms, and collaborative cloud-based tools all cost money and add up to a big percentage of the pie. I’m looking at how working manually and in a more lo-fi way could be just as effective while saving cost. We’ve been sold the American technopreneur success story, enabled by big data and scaling tech, but we aren’t even capable of utilizing it all. Our customers already give us everything we need when they sign up for this newsletter and express interest in our store—we just need to dialogue with you all. Even outside of threatened tariffs, I’m ready to move in this direction. It better reflects my values.
You’ll notice that I didn’t mention raising prices here as a strategy, because it’s not. It’s a reaction. We may need to do this, but it will be in response to how the tariffs develop over the coming months. We’re keeping an eye on this and not making major moves.
If you want to help out, it does make sense to buy things now. Not just because prices will likely go up, but having cash now means that businesses have more capital available as they prepare for what’s to come, whether that be making new investment, paying for tariffs, or just weathering a slow season. I think this is particularly relevant for small businesses built on Chinese production. I can think of at least one beloved puzzle company that might need your attention right now.
Next week, we have a big soy sauce launch, and the miniature Tatung steamers will finally return (for the last time, actually). Hopefully, we can celebrate and not have to revisit this topic.
Thank you so much for reading. The opinions expressed here are my own and don’t necessarily reflect the whole of Yun Hai. I hope it’s helpful as you navigate the choices offered to you as a consumer or your own small business. If you found this interesting, please share far and wide. I welcome feedback, questions, or unstructured conversation, as always.
Warmly, fondly, hopefully, and enragedly,
Lisa Cheng Smith 鄭衍莉
The ideas and opinions expressed in Studio Notes are mine, and don’t represent the larger Yun Hai organization. I read all email replies and comments, so please reach out. Photographs, unless credited, are by me. If you enjoyed this newsletter, share it with friends and subscribe if you haven’t already. I email once a month, sometimes more, sometimes less. For more Taiwanese food, head to yunhai.shop, follow us on instagram and twitter, or view the newsletter archives.
This is a nicely written overview of how Yun Hai is likely to be affected by the tariffs and how you're planning for the future accordingly. (I also think it's entirely appropriate content for a newsletter. This is as good a time as any for business to explain to a wider audience how changes in trade and public policy are impacting them.)
I thought I was mentally prepared for Trump 2.0, but it's even worse than I thought. I always thought tariffs were to protect domestic industries from unfair competition. Is the tariff on all Vietnamese exports to the U.S. to protect the American "domestic cinnamon industry"?! Are the tariffs on everything from China and Taiwan to protect the U.S. Sichuan pepper farmers or artisanal soy sauce producers?! We don't even produce these products in this country. This is just plain nuts.