Thread by @typesfast

Thousands, and then millions, of American small businesses, including many iconic brands, will go bankrupt this year if the tariff policies on China don’t change.

🧵

These small businesses are largely unable to move their manufacturing out of China. They are last in line when they try to go to a new country as those other countries can’t even keep up with the demand from mega corporations.

The manufacturers in Vietnam and elsewhere can’t be bothered with small batch production jobs typical of a small business’s supply chain.

When the brands fail, they will be purchased out of bankruptcy by their Chinese factories who thus far have built everything except a customer facing brand, which is where most of the value capture happens already.

Consumer goods companies typically mark up the goods 3x or more to support their fixed costs (including millions of American employees).

Now the factories will get to vertically integrate and capture the one part of the chain they haven’t yet dominated.

American businesses import $600B worth of goods from China every year. Assuming typical retail markups we see in @flexport data, those goods create almost $2T worth of sales each year.

In the week since the tariffs hit, ocean freight bookings from China are down 50% across the industry. Flexport bookings from China down more like 35%, but sources at carriers and forwarders indicate 50% is the industry wide stat.

That’s around $1T of economic activity wiped out. And these companies tend to run very lean, financing inventory and reinvesting excess cash in more marketing and growth initiatives. If the goods stop, many will die.

And when they die, it may actually be the final victory for the Chinese manufacturer as they scoop up brands that took decades to build through the blood, sweat and tears of some of the most creative and entrepreneurial people in the world. American brand builders are second to none worldwide.

The fact is, America will have to back off these tariffs, it’s just a question of when. Even if it’s not this administration, a future one will realize they’ve got to get us out of the recession. and free trade is one of the most proven strategies to do it.