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On COGS
COGS = Costs of Goods Sold. COGS are a critical part of an income statement and generally comprised of material costs and direct labor costs for the production of the products. It’s a straightforward calculation which relates directly to a company’s gross margin. The cost of raw materials is directly tied to your vendors’ prices; which may include fabrication or assembly (modules e.g. have raw materials of steel, electronics and assembly) for your sub-assembly parts. The point of COGS is this… if you order $100,000 of finished products from China, or $100,000 of rolls of steel or aluminum.. those are embedded in your COGS.
So, what happens if your COGS suddenly increase by 40% or possibly 104% in cost due to tariffs? Obviously, your current inventory is unaffected, including the parts you have in inventory to produce new products… but now, you’ve got $100,000 of parts or finished materials on its way to your warehouse; carrying an added tariff cost of somewhere between $40K to $104K for your future production runs. This is best termed a Trump Tax. That tax is imposed on the company or country that ships products into the US. Specifically, your order from China is your quoted cost of those goods, plus the Trump Tax. The buyer, i.e. the US OEM, not the Chinese manufacturer of those goods, are going to pay a 104% Tax; roughly defined as shipping costs. Overnight your COGS have increased by 104%.
Keep in mind that you have a quote backlog of projects with prices tied to pre-tariffed materials and your contractor/distributor and building owner aren’t going to simply approve an abrupt price change of 104%. You’ll have a month or two or more in inventory to meet and honor some of those quotes… but I’ve never seen a price increase announced to the industry that our prices are going up by 40%, or 100% immediately.
The ‘cog’ that is driving our COGS increase is our president. Our president’s business resume includes 6 bankruptcies and multiple fines for fraud (Trump University, e.g.). It makes one ask how familiar he is with the concept of COGS. While he claims tariffs will make our country wealthy (as if we’re a poor 3rd world country?), the source of that ‘wealth’ is the buyer of the newly tariffed import. It’s not that China is paying the tariff, the shipper is paying the Trump Tax and adding that onto the freight order. It’s the consumer who now has to rationalize whether they’ll abandon the new construction entirely. No importer of any goods can ’eat’ a 104% tariff… it’s preposterous to state that China is going to pay the US 104% of the cost of those goods on the ship for pulling into a dock.
I understand bully pulpit tactics and that neither country will ever actually enforce and receive money for 104% tariffs on anything. It’s a grandstand moment to show how a ‘strong’ leader can implement his grand design. It’s also reckless and unnecessary. The US economy was heralded throughout the globe for the best economy in the world, last year. And now, we’re insulting our closest ally and generous supporter of the US… Canada. We publicly belittle a country president who is simply asking for help to stave off the attacks of war on his citizens. We arrest and deport citizens and migrants with no due process to verify they’ve committed a crime. We’ve torn apart families, we fire 10’s of thousands of government employees without due process or performance reviews. We grant an oligarch access to our most guarded personal secrets; social security records, Medicare records, etc. We turned our backs on global support for helping poor countries fight off disease and malnutrition. We’re threatening colleges to force them to abide by a president’s view of ‘college education’. We’re cancelling student Visas, threatening law firms and threatening corporations to eliminate DEI initiatives.
I’m sad and frightened of what America will look like in the future. It’s time to speak up!
Congress is paralyzed; the voters were never truly informed on what Project 2025 entailed before the election. International travel to US is down 40%. And now, we have a daily view of what an American dictator can do to our country in as little as 90 days; despite that he’s played golf half of his time in office so far.
No one can accurately predict what the policies will have on our economy. Most pundits and surveys of large corporate CEOs are predicting a recession. Our construction industry is facing a serious threat.
I wish ‘moral compass’ was a part of COGS. I wish that kindness would be an approach to international agreements. We’ve lost our way and I can only recommend that each of us reach out to your congressional representatives and ask for them to stand up and defend America.
And… for those of you that want to attack my comments, I am not a raving Democrat, I’m an independent and have voted on both sides based on the competency of the candidates. I spent 20 years assessing leadership talent, I know what true leadership looks like.
This isn’t leadership.
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