A lot of folks whose opinions I respect have been saying that the Trump admin tariffs against China will simply impact our lives in the form of increased prices.
I have maintained otherwise. I have consistently said the imposition of tariffs will create structural changes in the way American importers source and deliver goods to the US economy; and, they will change the way individuals buy/boycott Chinese goods.
As a personal example, I no longer buy any Chinese goods. None. I check everything to see where it was made. Made in China? Adios!
Now, we are seeing the truth of that. I was right. <<< Obnoxious utterance ALERT!
Allow me to rub your nose in it, may I, please?
Comes now the story of the American dollar store industry in the specific exemplars of Dollar General and Dollar Tree who were literally created by their ability to access low cost foreign made goods and to sell them to a slice of America who not only wants a bargain, but desperately needs one.
These stores are ground zero when it comes to selling foreign sourced goods. They are the canary in the mine shaft. The canary has begun to sing.
Dollar Stores, Big Red Car?
Did I mention that Dollar General and Dollar Tree (two of my favorite stocks, BTW) have more than 30,000 stores across America in areas that reflect the entire American buying public. To put that into perspective, there are 4,759 Walmart stores in the USA and they are distributed such that every American lives within 10 miles of a Walmart.
The DG/DT network is 6X the Walmart.
We know that Walmart has long since developed a Chinese and an alternative foreign source for every product they make that is made in China. They announced that years ago. That is why some manufacturers moved production to Vietnam as an example.
“We have negotiated price concessions, cancelled orders, modified specs, evolved product mix and diversified vendors,” said Gary Philbin, Dollar Tree’s chief executive, on the company’s earnings call, according to a FactSet transcript. “We are now taking actions to mitigate the recently announced tariff increases and will continue to assess the future impact of those tariffs.”
This is Dollar Tree’s CEO speaking above in an earnings conference call.
“Over the past several quarters, our teams have been diligently working to mitigate the impact of tariffs on our customers and business,” said John Garratt, chief financial officer at Dollar General. “As a reminder, our efforts have focused on four key areas: continual negotiations with our vendors, product substitutions, product re-engineering and country of origin diversification.”
The above was Dollar General’s CFO speaking.
Two similar companies with identical strategies. This is no accident.
How successful has this strategy been, Big Red Car?
Dollar General has increased its growth and earnings guidance for the next twelve months. They are going to outperform plan because of their new strategy to take manufacturing out of China. Wow!
These are not chump change companies — these are $20B + revenue machines!
How does the USA play the tariffs game?
This is exactly how the game should be played.
1. Stop giving China a pass on its illegal, criminal behavior. They will only change when forced to change.
2. Call China out for being an unfair trader, a currency manipulator, a tyrannical erector of hurdles to fair access to their markets, a thief of intellectual property, and a liar of gargantuan proportions — all things that prior administrations said, but did nothing about.
3. Punish China with tariffs thereby nudging American companies to cut their dependency on China-based manufacturers.
4. Allow/force American companies to grow/harness their creativity to find alternative sources for Chinese goods. This has already turned out to be easier than anybody ever expected.
5. Structurally change the USA – China trading relationship. In some ways this will be permanent. China knows this. It is a game of chicken for China.
6. Let China feel the burn.
In the end, what will happen is what is happening — American companies will change how they access goods to sell to their customers at home. This is exactly what should happen, what I predicted would happen, and it shows the strength of the American economy and the creativity of American companies.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car!