Am I Next? BAK USA quitting business due to U.S. tariffs on China.

Buffalo, New York-based electronics manufacturer of computers and components, J.P. Bak USA, has announced that it is laying off all of its 77 employees and discontinuing operations. The decision was driven in part by new tariffs on imported electronic components from China which affected the profit margin and competitiveness of their rugged tablets and 2-in-1 laptop products.

Another example of government policy affecting small business that lacks the capital and customer base to sustain itself during trade wars that disadvantage the citizens of the country that imposes them.

In a statement, Chairman and CEO J.P. Bak said:

“It is with great sadness that I announce today that Bak USA will close its doors. My family started this business nearly four years ago with a bold vision: to empower American students and workers by producing computers in the U.S. Through the innovation and hard work of our talented team, we achieved more than we dreamed.

While we are beyond proud of Bak USA’s many successes, the business did not reach the point of profitability necessary to sustain itself. The additional, unanticipated expenses associated with the tariffs imposed by the White House were a deciding factor in our ultimate decision to close."

Apparently, there was a glimmer of hope until the end…

On October 11, 2018, Chairman and CEO J.P. Bak wrote:

“A few weeks ago, my family and I reached an agreement in principle to buy out Bak USA’s shareholders to regain full control of the company’s operations. There were many reasons for this, but the most important is this: we are deeply committed to this company and to having a positive social impact on customers and the community. To that end, we have hired and upskilled well over 100 people, nearly all of whom were new to tech and manufacturing. We’ve developed an innovative human-centric production process. And our computers are empowering more than 30,000 students across the U.S. this school year alone.”

“We’ve done all of this by innovating our way through a landscape littered with challenges and institutional bias. Despite our achievements, we remain vulnerable to unpredictable external forces—most especially tariffs on Chinese components, which will have a significant financial impact on our young company. And while we are still financially sound, we do not have the runway to absorb these blows as a larger company might.”

“Due to these pressures, Bak USA conducted a reduction in force today. Reducing our headcount was a necessary step to ensuring that the business remains sustainable and has a clear path to profitability. By taking this action, we are working to secure the futures of the employees who remain and reset for future success. The decision to reduce the headcount in each department was made carefully based on the skills that the company needs most; right now, and in preparation for the future.”

“In the coming weeks, we hope to finalize the management buyout of Bak USA. We look forward to sharing more at that time about our new outlook and vision for the next chapter in Bak USA’s company story.”

It can happen to anyone, anytime, anywhere ... are you wondering, Am I Next?


The Politics of Tariffs

First, no matter what the think tanks, pundits, and the government may say, we do not have multi-national or even national free trade or fair trade in this nation. 

What is a tariff?

Technically, a tariff is a government-imposed regulatory device meant to regulate transactions between two parties when some real or imagined inequality or inequity occurs. Therefore, a tariff is nothing more than a tax or fee to be paid on a particular class of imports or exports. 

In reality, a tariff is a tax on the end user who knowingly or unknowingly finds that any tax burden imposed on their purchases is included in the final cost of their purchase. Thus, while tariffs are applied to corporations, they ultimately are paid by the consumer.

Am I Next? Politics of Tariffs

In addition to tariffs as taxes, quotas and tax-free shopping may be considered as another type of tariff with more subtle effects. The goal is to create artificial scarcity and drive the price of the foreign product upward to advantage the domestic producers.and

Why do we use tariffs?

Tariffs are a political device that artificially restricts the importation of goods purchased from foreign (non-domestic) producers with the goal of making these goods less price-attractive to corporations and consumers to convey an advantage o the domestic producer. This advantage can be neutral to achieve equivalence with foreign pricing or advantageous to convey supremacy to the domestic producer.

One, tariffs are imposed nationally or internationally to regulate trade so that one party cannot exert systemic supremacy over another. 

Two, tariffs are imposed to redress currency manipulation where one nation maintains an artificially low currency conversion rate to encourage consumers and corporations to buy goods which appear cheaper than those offered domestically. 

Three, tariffs might be imposed to redress the systemic institutional theft of intellectual property which allows manufacturers to avoid the tremendous costs of research and development and pass the cost savings along to consumers as lower prices.

Some examples: 

A primary example would be goods manufactured in a nation with low labor costs and sold for at a lower price in a nation with higher labor costs. Since the higher-cost producer cannot effectively compete in the marketplace, they are forced to innovate new products, reduce their labor costs through automation, expert systems, and robotics; outsource production; or go out of business. 

Another example would be a nation subsidizing some portion of manufacturing, labor, or currency translation costs of a  manufacturer which allows the manufacturer to dump their goods in another nation at a substantially lower price, thus forcing domestic producers to take affirmative action to remain competitive.

Sometimes domestic tariffs are used to protect obsolete and failing business models from legitimate competition. Hence we see commodity goods such as telephone and cable services being sold at premium prices by deliberately designed complexity which creates confusion in the packaging (bundling) of services which permits higher prices.

And, then there is the government's desire to impose taxes on the population in such a manner as to hide them from those taxed. If the government did not collect these taxes in small increments in utility taxes, at the gas pump, or embedded in large luxury purchases, and presented a tax bill at the end of the year -- the populace would revolt and throw most of the politicians out of office.

The current situation.

There is no doubt in my mind that China is a low-cost labor source, having a 900 million person workforce (compared with approximately 140 million in the United States)that works at what Americans might consider slave-labor wages. 

There is no doubt in my mind that China manipulates their currency to ensure that Chinese purchases are cheaper than their corresponding American counterparts.

There is no doubt in my mind that China engages in both governmental and commercial espionage to gain an unfair advantage for their military and commercial ventures.

The possibilities of a trade war?

If one nation retaliates against another, it is most likely the response will be tariffs imposed on that nation's goods; resulting in a death-spiral of tariffs and quotas that may benefit domestic producers in the short- and medium-term, but may be overly oppressive to the consumer who may shop in big-box stores like Walmart, Costco, etc. and have come to rely on lower prices.

Who is hurt?

While the case is made that domestic producers (and their employees) benefit from tariffs and quotas, it is the end consumer that always pays the price. With a disproportionate impact on the poor who have managed their meager budgets using the lower costs goods available in the marketplace.

The Retail Council of Canada claims that an increase in the duty-free allowance for cross-border shopping from $20 to $800 would lead to hundreds of thousands of job losses and cut billions of dollars from the Canadian economy. In this case, common sense reveals that is not so much about jobs since most of the purchases come from sources in the United States, but a loss of tax revenue for a cash-strapped government. <Source>

Am I Next? Jobs Lost to Tariff on China Solar Products

Another example comes from the Trump Administration's decision to redress artificially low-priced Chinese solar panels, components, and electronics by imposing a 30% tariff on solar products. According to various sources, this may cost the solar industry approximately 23,000 jobs and slow the adoption of clean green energy. Little is being said about the costs to consumers or the government tax revenue windfall.  

Ironically, the second thing subject to the Administration's tariffs was large washing machines. South Korea and Mexico may be among the biggest losers from the tariffs because those countries export the bulk of washers to the United States. Much of the washer production in the two countries comes from Samsung and LG, both South Korean companies. 

Bottom line ...

Tariffs drive political corruption, more massive administrative bureaucracies, and the automation of the workforce. There are no real winners as self-correcting market forces are abridged and inefficient and ineffective government central planning reigns supreme.

Something to watch as an employee if your company operates in tariff-covered industries or depends on lower foreign material and production costs to maintain profit margins.