Last week, the Estes Valley Voice hosted a panel discussion on what recently imposed tariffs might mean for local retailers and other businesses in the Estes Valley as we head into the high summer visitor season. Scott Applegate, the president and CEO of the Band of Estes Park, was one of the panel members.
Saying that he has literally seen “fire and rain” as a local banker in the Estes Valley, Applegate provided a tip sheet with some guidance about navigating what could be some more volatility in the market over the next few months. We are reprinting his tips as a reference for people who could not attend the panel discussion.
Is it true that tariffs could fund the federal government?
This was true in the early existence of our country, so why couldn’t it work again? The short answer—government spending has astronomically grown. Illustrated simply in the modern era—the U.S. imported over $3 trillion of goods in 2024 compared to federal revenue of $5 trillion.
Even very high tariffs would struggle to cover 10% of government spending—and would be accompanied by unwelcome side effects: 1) The majority of US imports consist of parts that are used to produce other products across many sectors of the economy, so an unwelcome side effect of high tariffs would be wide-spread inflationary pressures; and 2) high tariffs would most heavily impact low-income households, which spend a larger percentage of their income on less expensive imported goods.
So, while tariffs can provide increased government revenue, it is beyond unrealistic to think they could entirely fund the government, and extreme efforts to do so would have undesirable economic effects.
What are the tariffs supposed to accomplish?
One stated goal is fairness—the administration intends to raise tariffs on countries that have higher tariffs on the U.S. than the U.S. has on that country, or where there is otherwise a trade imbalance where that country has a trade surplus for any of various reasons. Basically, this goal is to “level the trading playing field.”
Another stated goal is to bring industries back to the US, which admittedly contradicts the prior objective of a level playing field, though gains in both can be achieved. And lastly, tariffs being used as a government revenue source is a stated goal of the current tariff moves.
Why all the turbulence?
None of the stated goals related to tariffs are unachievable on their own. However, the first two, as noted above, are somewhat contradictory, leading to uncertainty. And a key to any tariff strategy if you want market stability would be predictability.
Due to the unpredictable manner in which tariffs have been rolled out thus far, uncertainty has grown; therefore markets have become very volatile, GPP growth forecasts have been reduced, and inflation forecasts have been increased.
On top of that, things change extremely rapidly, with new changes and major announcements seemingly occurring daily, making it difficult for governments, businesses, investors, and even consumers to make reliable, rational decisions. Thus the turbulence and volatility we have seen thus far.
But can tariffs even work?
With forecasts (at least in the short term) for lower GDP, higher inflation, and market volatility, can we at least expect it to work? It depends on what “it” means, and on what “work” means.
But can tariffs lead to more fair “balance of trade” between the U.S. and other nations? Yes.
Can they result in some manufacturing and other businesses moving back to the U.S.? Yes.
Can they result in increased revenues to the U.S. government? Yes.
So, depending on how implementation continues, successes are possible—time will tell.
I feel like panicking…
Take a breath. It will be okay. Recession rumblings are likely overstated. To the extent that large tariff moves remain unpredictable, there will continue to be volatility; however, moves seem to be tempered recently, and hopefully that continues.
Remain alert to the situation, and stay nimble and ready to act, but don’t panic. The current rate environment remains relatively stable, annual GDP should be flat to 1% positive, and though it may increase, inflation remains reasonable.
Estes Park numbers should still see growth over last year.
Get your bank account ready—cash is king!
If you’re in business for yourself, no one has to tell you how important liquidity is—cash
is king.
So to the extent that your business may be impacted by tariffs, you may want to
increase your access to liquidity in this environment. If you don’t have access to extra
liquidity, that is what your banker is for—secure a “right sized” line of credit that is ready
to use even if you don’t think you will need it.
It’s tempting to lean on credit cards for this, but resist that temptation (pronounced “trap”) if at all possible—get a true commercial line of credit, with interest only minimum payments. (Pro tip—if you bank with Bank of Estes Park and don’t already have a Grow Estes line of credit, just ask!)
Liquidity solves problems, gets discounts, makes it so you can act quickly if/when you
have an opportunity, etc. So be ready. As a sidenote on the investment side of life, if you have investable capital, talk to your investment advisor, as times of uncertainty and volatility can historically be extremely profitable periods to invest on a dollar cost
average basis, while others panic.
Don’t let vendors make the rules.
It’s already happening—you receive an invoice with the agreed upon price, but now
they’ve added a tariff onto it, as if you have no choice but to pay. If you pay the tariff fee,
are you going to be able to pass along that extra amount to your customers, or will
those items sit unsold on your shelves as overpriced?
Or worse, will you have to absorb the cost without raising your price on your own, cutting into your profits, or even forcing a loss? Consider your options now. Be ready. Your vendors don’t make the rules. You do have a choice.
Find alternative vendors and products.
Don’t wait. If you already know that the products you buy and sell may be affected by
tariffs, spend some time now to look for alternate vendors and products that might not
be impacted. It doesn’t mean you have to switch now, just be ready in case.
Don’t burn bridges. Remember that things are changing so quickly that the vendor you are leaving today may be the vendor you need tomorrow.
You might have to or want to consider carrying a new mix of products to sell in order to avoid the higher prices or slimmer profit margins that will naturally result from tariffs. If you try to “time” tariffs, making larger buys before tariffs go into effect, do so with caution, as this can backfire if the tariffs are reduced and/or never go into effect, leaving you with oversized inventory and expense.
Negotiate, renegotiate, and send it back if necessary.
Vendors want you to think they make all the rules. But just because they put the new tariff on the invoice doesn’t mean you’re going to pay it.
Try asking them to pay it this time. Try asking them to split it with you. Try telling them that you’ll pay it if they’ll give you until a future date to pay the extra amount. Ultimately, and especially if the tariff was unexpected and not part of the quoted price, tell them you’re sending the order back, or switching to a new vendor if they don’t find a way to work with you. Some won’t care, but most will engage in the conversation and will find a way to work with you and will try to keep your business.
No one knows your customers like you do—use that knowledge.
Separate your thought process from the invoice and the tariff. You know your customers. In some cases, you see them every year and know the names of their children.
You know what they want and what they will pay. So, protect your profit margin by doing the extra background work on vendors, products, and negotiations, then put the right things on the shelf at the right price that works for them and for you.
Don’t panic. You’ve got this.