Tariffs!

In this article, I would like to explain to you, fellow modelers, our reaction to the introduction of American tariffs. This is a truly historic issue that has been shaking the world since April, when the first wave of various tariffs was imposed on various countries around the world. That this event is not indifferent to customers was also shown by our two posts on Facebook, in which we announced the suspension of sending shipments to the USA due to the cancellation of the duty-free regime for individual shipments (de minimis) and the cessation of accepting shipments to the USA by European postal outlets, and also explained our future course of action. The reaction to them was stormy, the discussion long and tense. Something like this rarely happens on our Facebook.

So it turns out that imposing customs tariffs on all countries in the world creates a hell of a mess. In August, the situation around customs escalated with the increase in the US customs tariff on European goods, and therefore also on our products, to 15% from the previous rate of 10%, introduced in April shortly after Donald Trump took office as US President. At the end of August, the situation escalated after European post offices stopped accepting small shipments for individual customers in the US as a result of the abolition of the de minimis system. This system allowed sending small shipments worth up to 800 USD to addressees in the US without collecting customs duties or any other form of tax on these shipments. Over the past few months, roughly since June, this system has been undergoing somewhat chaotic development, so to tell the truth, in August it was already quite difficult to figure out what actually applies and what will apply as of August 28th. I won't bore you with the story of how it all unfolded, as it’s really easy to get lost in it all, but the bottom line, reminiscent of the cutting of the proverbial Gordian knot, is actually a deliverance. There will be no exceptions, there will be a 15% duty on everything, end of discussion!

However, European post offices responded to this by the aforementioned suspension of accepting shipments to individual customers, which is still ongoing. This was a fairly logical step for post offices and other carriers to take, because it can be expected that customers, typically e-shop customers, would refuse to accept shipments for which they would suddenly have to pay an additional 15% of the declared value of the shipment. Post offices were therefore obviously afraid that they would get stuck in a stalemate when the addressee would reject the package and send it back. Such customer behavior would mean significant losses for post offices, and of course for senders as well. The whole thing would be on the verge of a postal apocalypse and a total collapse of services. In addition, the post offices' statements indicated that after the restoration of services, the sender would pay customs duties and customs clearance costs. The post office would then mediate the payment of duties to US Customs and Border Protection (USCBP), payment of fees and subsequent smooth delivery of the shipment to the customer. At the time of writing, it is not clear whether this procedure is an explicit request from the American side and part of the decree abolishing the de minimis system, or whether it is an initiative of European post offices and other carriers, some of which began offering this service as a standard part of the shipment clearance at the same time. This means transferring the obligation of paying customs and duties to the exporter, which is a completely offensive matter that concerns not only individual senders, but also e-shops like ours. At least at first glance, because no one has the right to pay such high fees for nothing. Neither the exporter nor the importer. Just to be clear, the normal procedure is that the customs duties are paid by the importer, the person who imports the goods into the country applying customs duties. Of course, the importer then reflects the customs duties paid in his prices. It is an additional cost that must be taken into account. The idea that anyone anywhere would pay an additional 15% tax and it wouldn't affect the final price in the store is completely delusional.

When we introduced the 10% tariff in April, we acted to keep the retail price (MSRP) in the US at the same level if at all possible and not increase it. So we took a significant part of the burden on ourselves and reduced the selling price for our distributors. At the same time, we abandoned the American system of determining the retail price for distributors and introduced the European method. So that you understand what the difference is, in America, a discount is set for the retailer from the manufacturer's recommended retail price excluding tax, which is officially called MSRP (Manufacturer's Sugested Retail Price), and then another discount is given to the distributor from the resulting price. Generally, in the old days, the distributor received a 55% discount from the MSRP and that was his purchase price. The old days ended sometime at the beginning of the century with the arrival of the Chinese, who started offering bigger discounts to grab a bigger share of the market, and since then, distributors have wanted more. In Europe, it is usually the other way around, the manufacturer sets the sales price, from which distributors in different countries create their own Retail Price according to the conditions in their market. Another difference is that in the USA the retail price on store shelves or in e-shops is listed without tax, while in Europe the sticker price includes the tax, which in our case, is the Value Added Tax (VAT).

After the imposition of the 10% tariff, we switched to the European pricing model and began invoicing our American distributors a fixed commercial price. At the same time, we increased their margin, which means we gave them a discount, and thus took on some of the burden that our American distributors carry. We left the recommended retail price, the MSRP, the same. This operation allowed us to keep the price stable on the American market and not increase the price. So we did at least partly what Donald Trump and his supporters imagined would happen after the tariffs were imposed. I am not sure what would have happened if the tariffs had remained at 10%. We might have had to increase the price because we had to give up part of our margin to maintain the price level from before the tariffs. But we don't have to speculate about that anymore, because the American administration solved this problem for us when it raised the tariffs to 15%. After this step, we had no choice but to increase the price anyway. The price increase is on average 11%, so it is still not at the level of the 15% tariff, but unfortunately we had no other choice. Even so, after the introduction of the 15% tariff, one of our four American distributors stopped doing business with us, claiming that it was not worth it for him to buy our goods under these conditions.

When we left the US, it seemed that we had the basic setup of the new tariff system ready and now we can only wait to see how we, our distributors and our customers will be able to function in it. We did not know what the changes to the de minimis system would look like, but we knew that they would come and that we would have to deal with them within the new setup, meaning with a higher MSRP and a fixed commercial (export) price. The way the new delivery system setup was announced did not surprise us much, we still believe that we will be able to deal with it. However, the latest news from the US says that the federal appeals court found most of Trump's tariffs illegal. Honestly, I am starting to get a little skeptical. We can deal with some things, but chaos in which no one really knows what is valid and what is not is the worst thing that can happen to a country and its trade. God bless America, and if He has any spare capacity to do so, please let Him remember us as well. Amen!

Vladimír Šulc