President Donald Trump could be about to take the trade war with China to a new level, and one US CEO is worried.
The Trump administration is considering either a 10% or 25% tariff on $200 billion worth of Chinese goods, causing alarm for many businesses that rely on goods from China. Hearings on the new tariffs, which are being pursued under Section 301 of the Trade Act of 1974, took place in Washington, DC. Tariffs could be imposed as soon as next month.
One of those businesses is Joann, a fabric and craft retailer that boasts more than 850 stores around the country and over 22,000 US employees. In an interview, Joann CEO Jill Soltau told Business Insider that the next round of tariffs posed a real threat to not only her company, but also many other US businesses that rely on Joann.
Many of the textiles, yarns, and fabrics sold at Joann stores that are sourced in China are on the proposed list of goods that could get hit by the next wave of tariffs. These goods, Soltau said, are used by many small US businesses and crafters to create final products.
Increasing the cost of these materials would put the squeeze not only on Joann, Soltau said, but also on the small businesses that rely on those items for their products.
The company says that if the tariffs go through, 42% of all of the goods sold at Joann stores will be subject to tariffs.
Soltau has been on a media blitz to try and raise awareness about the possible downsides of the tariffs including speaking at the Section 301 hearing in Washington, DC and creating the Made in America Tax website to highlight the dangers of Trump’s tariffs.
The Joann CEO spoke with Business Insider on Thursday to talk about the tariffs, how Joann is responding, and how small businesses may get the short end of the stick.
This interview has been edited for length and clarity.
Bob Bryan: When you looked at the list of items that were on the Section 301 list and saw some of the goods that you use in your stores, what was your initial reaction?
Jill Soltau: We looked at it and as we digested it the conclusion we came to is that these tariffs would unintentionally create a tax on raw materials that are imported into the United States so that our customers can create projects and products that are made in America.
It’s small business owners that represent over 20% of our customer base that we first thought of because of the amounts that these tariffs are implying — anywhere from a 10% to 25% increase in cost — we will have to share in the cost with our customer.
And that’s what really causes us the greatest concern is that people like Heather and Diane who have this great business out of Hector, Minnesota. They design, sew, and sell these fabric kitchen appliance covers that their customers then buy. With their costs then going up, they’ll have to raise their prices to their customers and then their customers will really have the option to really walk away and buy something that’s foreign-made out of largely the same materials but at a cheapest prices because those finished products won’t have a tariff on them.
So that was our first response: “Wow, this is really unintentionally creating a made in America tax.”
Bryan: What percentage of you goods do you expect to get hit by the tariffs.
Soltau: About 70% of what we import is made in China. [Editor’s note: A Joann spokesperson clarified that while 70% of the company’s total goods come from China, only 60% of those Chinese imports would be subject to the tariffs.] We carry about 40,000 products every single day in a typical store and much of those products come from China, and it’s how we as a craft and fabric retailer have been able to supply such an incredible assortment to our readers and be the strong, growing, profitable retailer that we are today.
It was really in the 1970s when China emerged as a manufacturing country and we became part of a global economy.
For instance, our fleece fabrics, we sell over 40 million yards per year, and it has always been manufactured in China especially at the quality standards we require and the quantity that we need.
Bryan: So it’s not a case where you shift your sourcing or supply chain elsewhere to work around the tariffs?
Soltau: It would be very difficult. In that example, the capital requirements are very intensive for an aspiring business person to want to set up a fleece manufacturing plant somewhere else.
Even if that reach that first hurdle, it would probably be 18 months before they could be up and running, probably three to four years before they could actually get any kind of scale. I don’t think we would see full production requirements inside of a decade. So a lot of hurdles there for someone to scale.
Even after the couple of years it could potentially take if someone had the money, there would be a lot of challenges for out customers.
Bryan: Have y’all estimated the exact cost increase for your company if a 10% or a 25% tariff goes through?
Soltau: Just the sheer fact that the 10% to 25% increase would be what it is if these tariffs pass. I do not believe that Joann could singularly absorb this, nor could our customers, so we would have to share in that effort.
We are looking at every possibility on how we can manage through this if these come to fruition, but our biggest focus right now is creating the awareness with our administration. We support the administration’s efforts to level the playing field with China and have a strong trade agreement between China and the US.
We know their intentions are good and we support that. But, we don’t understand how fabric and yarn and scrap-booking supplies have made it on to a list that’s really been more of a high-tech debate in relation to Made in China 2025.
Bryan: A number of Trump administration officials have compared the tariffs to a “diet,” where the US needs to withstand short-term pain to get the long-term gain of better trade deals. What are your thoughts on that analogy?
Soltau: The third component is that it’s making a made in America tax. We sell the raw materials and the products that are being developed through these materials are in fact made in America. That’s the critical aspect for us and our customers and our employees.
We are supporting manufacturing in America with the small businesses with the organization, that are creating for donations.
Over 22% of our customers are seniors, they live on a fixed income, and they are doing this as part of their livelihood. They’ve earned the right to do what they enjoy in their retirement and for them to pay for these things, that’s really what we’re focused on is spreading the awareness.
Bryan: A lot of other US companies have said that they may have to deal with the increased costs by cutting costs in other areas like labor, so laying off employees, is this something you all have considered?
Soltau: We are looking at every opportunity we can so that we don’t have to go there. Again, the sharing of the cost between our customers and ourselves. In terms of how we can work smarter, how we can negotiate costs with the makers we are engaged with.
That’s really the areas and options that we’re looking at and that’s really where our focus is before we would reduce our workforce.
Bryan: Another response that businesses have had is to put major investments, such an expansions, on hold. Is this something you all are considering?
Soltau: We are evaluating all of that. As I mentioned we are a growing, thriving, profitable company. We’ve opened over 120 stores over the last five years and added over 2,600 jobs into the US economy. We’d like to continue at that cadence, but at this point everything is on the table and we’re just being smart.
We’re watching it, but as I mentioned our focus is bringing to the attention that we don’t want to place a tax on good that are made in America.