October 21, 2024 • 40 mins
Episode 341: How are tariffs affecting heavy-duty parts companies? In this in-depth discussion, we talk about the history of tariffs, the real reasons behind them and whether they will go up in the near future.
After preparing for this episode, Jamie Irvine and Scott Boltz discovered that tariffs are not what they thought and there is a dark side to tariffs rarely, if ever, discussed by those promoting them.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Jamie Irvine (00:00):
You're listening to the Heavy-Duty Parts Report.
I'm your host, jamie Irvin, andthis is the place where we have
conversations that empowerheavy-duty people.
Welcome to another episode.
In this episode, we areresponding to a request from a
number of our clients to talkabout a subject that is on their
(00:21):
minds and that is tariffs, andso I asked our director of
consulting services at theHeavy-Duty Consulting
Corporation to do some researchand go deep, and because of that
, this is going to be anextended episode and it is not
going to follow the normalformat of our show, because we
have so much material to cover,we need to get into it right
away.
(00:41):
So I'd like to introduce areturning guest to the podcast,
one who hasn't been on for awhile because he's been busy
working at our consultingbusiness.
So Scott Boltz is our Directorof Consulting Services.
He's been on the show before.
We're going to drop a link toan episode that we did together
almost five years ago that agedvery well in the show notes, and
(01:02):
Scott's role as Director ofConsult services at the Heavy
Duty Consulting Corporation hasbeen really integral in helping
us to develop that company andto move beyond just me
consulting with clientspersonally, but to actually be
able to build a company thatprovides this service.
Our why is to help heavy dutypeople thrive, so I am so happy
(01:22):
to have Scott back.
For those of you that don't knowScott, scott has worked in the
trucking industry for over 20years.
He's been involved in technical, sales, marketing and
commercial management in that 20years and he has pioneered
several companies into success,into the heavy duty aftermarket
in North America.
(01:42):
Scott, welcome back to theheavy duty parts report.
So glad to have you here.
Hey, welcome back to theHeavy-Duty Parts Report.
So glad to have you here.
Scott Boltz (01:48):
Hey.
Jamie Irvine (01:48):
Jamie, Good to see you.
My friend, how are you?
I'm good.
I'm good.
It's nice.
I get to see you every day nowthat we work together.
This subject of tariffs itreally came up because of our
clients.
They wanted to know more.
There's some things that arebeing posted in the media about
it and they really, at the endof the day, just want to know
(02:09):
how it's going to impact them,whether they're a aftermarket
manufacturer or maybe they are adistributor or repair center.
That's involved in parts.
So that's what we're going totalk about today.
You've prepared some reallygreat information and I'm
looking forward to getting intoit with you.
So let's get started and I'llask you the first question here
(02:30):
Are we tariffs experts?
Scott Boltz (02:32):
No, jamie, we are not.
But this has been a bit of anendeavor to kind of delve deep
into something that reallyaffects anyone in the United
States who's importing truckparts, whether they're finished
goods or whether they're worksin truck parts, whether they're
finished goods or whetherthey're works in progress or
whether they're raw materials,and all those categories are
quite different.
So I have a few disclaimers, ifyou don't mind.
(02:53):
Yeah, let's go over them.
Yeah, so we are not tariffexperts.
I've done a ton of research onthem.
The real experts are the peoplethat are working for the
executive branch of thegovernment and the lobby that
lobby them, and the you know,the congressman and everyone
else, as well as both foreignand domestic lobbyists in that
regard.
So I always like to open with abit of a joke when I don't know
(03:15):
everything.
A man who carries a cat by thetail learns something that he
can learn in no other way, andthat's what we're going to do
today.
So we're going to grab the catby the tail and we're going to
lift it up and see what happens.
Jamie Irvine (03:26):
So I mentioned in the intro that our clients were
very interested in the subjectof tariffs, so can you talk
about the genesis of this topic?
Scott Boltz (03:45):
the service company brought this to our attention
in one of our strategic meetings, and he had some concerns about
whether he's sourcing drumsfrom what company, and are those
drums coming from China, arethey coming from Turkey or
domestically?
And he asked us basically to dosome research on that topic to
get a better understanding of it.
And so, zeb, this is for you.
Jamie Irvine (04:02):
Right, and then we asked a few of our other
clients and they all expressed asimilar interest.
So when you look at these kindsof media stories, what are you
seeing?
And then we'll talk a littlebit about what you're not seeing
.
Scott Boltz (04:16):
Well, I'm always skeptical of these type of
articles that talk about whatmight be what could be what they
think is coming, when there isnothing that is indicating that
change.
So if you read this article inits entirety from Truck Parts
Service, they talk a lot aboutanti-dumping laws and other
things like that, but right nowthere's been no definitive move
(04:40):
and we have some data to showyou later on about where we are
at in that movement.
Jamie Irvine (04:45):
Okay, so if that's the case, what are we really
going to talk about then?
Scott Boltz (04:49):
So we're going to get into, basically, a storyline
of tariffs.
What are they, how do theyaffect us in the parts industry
in North America, how does itbenefit the government, how does
it benefit other entities otherthan the people that are
actually making the finaltransactions, as well as how
does it hurt the end user andeverybody along the supply chain
(05:12):
.
So the first thing that I wantto cover ad valorem is basically
Latin, for you know, at value,and so we're taxing something at
its value as it comes into thecountry.
So, to give you a sense ofscale, in 2016, the US imports
were about $2.2 trillion, andwe're going to get into what
made up that volume at that time.
(05:34):
It's not just what we think.
We talked about finishedproduct, we talked about works
in progress and we talked aboutraw materials, but there's also
a financial component to it.
So, from that interesting point, president Trump began
elevating the tariffrestrictions on imports from
China, as well as othercountries, at the same time that
(05:55):
he was negotiating the freetrade agreements amongst North
America, and so the interestingpoint in that is that in 2023,
the US imported about $3.9trillion worth of product, so
the imports after the tariffswent up.
That's interesting.
Jamie Irvine (06:12):
Yeah, because the general, I guess, consensus
would be that the trade war andtariffs is designed to reduce
what is imported in support of,let's say, US manufacture.
Scott Boltz (06:27):
Exactly and what government officials will tell
you.
The reason for tariffs is.
There's three differentcomponents of it to protect the
United States suppliers and todo several other things, raise
revenue being one of them.
But that's not the net effect,that's not the reality on the
ground.
So we're being gaslit in someways by that definition of
tariffs.
Jamie Irvine (06:48):
Okay, so that's interesting to me, because this
is not necessarily what it seems.
So you just mentioned what itcould be or how we should be
looking at it.
Can you go into more detail?
We talked about what they sayit is what actually is it.
Scott Boltz (07:03):
Correct.
So this is a screen grab fromChatGPT to basically say what's
the basic definition of a tariff, and you'll see that it's to
protect domestic industries,it's to generate revenue for the
government and it's to regulatetrade, and then there's two
primary types.
There's an ad valorem, which isthe at-value tax, and then a
specific tax, which is fixedbased on, usually, raw materials
(07:27):
, based on weight or whatevershipping method that those units
come into.
The thing that I'd like to sayabout this, though, is that the
net effect of those tariffs onheavy-duty parts manufacturers
in the United States and Canada,heavy-duty distributors and
service centers and fleets isoutside of this definition.
Jamie Irvine (07:48):
So, Scott, if that's the case, help us
understand tariffs better.
What are they really?
So they?
Scott Boltz (07:54):
are a mechanism in which the US government can
impose political, financial andmilitary influence upon other
actors within the globe.
In this case, for instance fromthis Wall Street Journal
article, the Bidenadministration is proposing a
total ban, not just a tariff, atotal ban on components that
(08:15):
belong to connected vehicles,which, anything manufactured
within the last few years andgoing forward are considered
connected vehicles, and that hasactually a big impact on
companies like Volvo, forinstance.
So when we get into the classeight market, those connected
vehicles are going to beaffected by these same pressures
(08:35):
.
Jamie Irvine (08:36):
I hope you're enjoying this conversation about
tariffs.
We're going to take a quickbreak and when we get back from
the break we're going to talkabout something that surprised
Scott when he did this research.
So stay tuned, we'll be rightback.
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We're back from the break.
Before the break, we got a goodintroduction and a definition
of tariffs, what it is supposedto be, or what the general
(10:21):
consensus is, what it actuallyis.
We're starting to talk aboutthat.
So, scott, during doingresearch in preparation for this
, you found something thatreally surprised you Can you
explain that to us?
Scott Boltz (10:32):
Yeah, going through the regulatory website from the
executive office of thepresident that manages tariffs,
imports and exports, imports andexports One of the big things
that keyed off that I didn'teven know about was the
consideration of imports andexports, of what they call
foreign direct investment, whichmeans money.
So when American companiesinvest in Turkish companies,
(10:56):
israeli companies, chinesecompanies, that's considered as
an export as well, and whenthose returns come back, they
pay some form of import dutyrelative to equity investments
to reinvest earnings intointra-company loans.
So I think what I gleaned fromthis research was that they're
(11:17):
trying to stem the flow of moneyin and out of the country, just
like it is a circuit board or abrake drum.
Jamie Irvine (11:31):
Okay, so there's a lot more to this subject than
most of us really understand.
Unfortunately, we live in atime right now where there's a
lot of war.
When you were doing research,you really discovered that war
actually has a big impact ontariffs, so we know that in a
previous administration.
Scott Boltz (11:46):
You know this isn't meant to be a political
conversation.
It's just historically accuratethat the US was much less
engaged in war type activitiesaround the globe, and it's not
just whether or not we deployour military or not, it's also
how we deploy our financialinstruments, which is why it
ties into this topic of tariffs.
(12:08):
So when countries do things thatdisplease the executive branch
of the United States, we imposefinancial means upon them.
We'll talk a little bit aboutBretton Woods and how the IMF
was created during that time,and we use that as a leverage
piece to say hey, listen, wedon't like what you're doing, we
(12:29):
would prefer you don't do it,and so we're going to try to
restrict your inputs into oureconomy to the best of our
ability, and that's another waythat wasn't listed in the
previous notes about how tariffsare imposed, listed in the
previous notes about how tariffsare imposed.
So this is a long list that youcan source from many places
(12:50):
online, but there are conflictsgoing on around the country in
which we have vested interest inwho comes out the winner, and
it all plays back into what weallow them to engage with within
our own internal North Americaneconomy.
Jamie Irvine (13:03):
Interesting, interesting.
So, at the end of the day, whoactually pays tariffs?
Because the consensus, or likethe message we get, is these
tariffs are going to negativelyimpact countries that don't have
our best interests at heart,and we're going to bring all
this manufacturing back to ourshores and it's going to really
(13:23):
benefit us.
And so these other countriespay the tariff.
That's the message that I get.
Is that true?
Scott Boltz (13:30):
They do suffer some pressure on pricing in order to
be able to play in the space.
But the idea that by placingtaxes upon imports that you
level the game in the NorthAmerican economy is absolutely
false.
That you level the game in theNorth American economy is
absolutely false.
I've worked for manufacturersin the past that have imported
(13:53):
raw materials and have importedworks in progress, and the
person who imports that productpays the tariff.
So their cost goes up.
The exporter again is affectedby a reduction in imports
because the cost has gone up.
But the person who pays for itis the importer.
But how does that trickle downand where does the benefit
ultimately lie?
(14:14):
So the importer pays the tariff.
They translate those costs intotheir cost structure, their
bill of materials, in order toproduce the product, the
finished good.
That is then transferred to thedistributor who is paying for
the cost of goods sold.
And if those costs go up, notbecause of inflation but because
(14:35):
of taxation, they pay the costof that transition.
But they don't pay it bythemselves.
They transition that cost ontothe end user, the service
centers and the fleets that arebuying the product.
So that cost trickles downthroughout the entire supply
chain.
And then my final note is whoultimately wins because the
(14:55):
taxation process is stepped?
Ultimately the IRS.
Jamie Irvine (14:59):
I guess let's just talk about this for a minute.
So if you have this cheap, lowquality product coming out of,
let's say, china or anothercountry and it's coming into the
North American market underwhat a North American
manufacturer could make it for,because of things maybe like not
as good quality or the laborlaws that that country has, and
(15:22):
basically having subservientpeople forced and pressed into
labor at low wages, doesn't itactually actually, though, level
the price of those products andmake it so that buying the
higher quality US made productis more appealing to the
consumer?
Is that not still true in this?
Scott Boltz (15:41):
paradigm.
This is not binary, this is notlike black and white.
So, yes, there is some truth inwhat you just said, but the
majority of manufacturingdepending on the product
category, because that's veryspecific.
So there's many things that weused to make here that we don't
make here anymore, and we couldturn that on very quickly, but
it's just not cost-effective atthe moment.
(16:03):
So there's the bulk.
What I perceive to be the bulkof what we're importing are
things that we don't make.
It's not that there's anAmerican or Canadian equivalent
that we're offsetting.
That's a very small portion ofthe actual total bandwidth of
the import.
Jamie Irvine (16:20):
Yeah, and I think that that is.
The problem is a lot of timeswith these headlines that we see
it comes across in that verybinary or linear way and the
reality is it's just so muchmore complicated than that.
Let me ask you somethingbecause people might not have
picked up on it in one of ourearly slides when we had our
disclaimer.
If you read the information onthat disclaimer, it talks about
(16:42):
kind of the approach that wetake with the free market.
Could you talk about that alittle bit in conjunction with
what we're talking about here onwho pays tariffs?
Scott Boltz (16:50):
Indeed, yeah, so there's basically I mean, it's
very vast, but you could breakmost economists into two camps
the original founder of what weconsider to be modern economics,
which was Adam Smith, who was aScottish economist around the
time of the founding of theUnited States in the 1700s,
developed a work called theWealth of Nations, and in that
(17:14):
work he's considered the fatherof modern economics, and it was
very much a capitalist approachto.
One of the biggest takeawaysthat most people take away from
Adam Smith is what we call theinvisible hand of the market.
Like you, let the market handleit, supply and demand.
All those concepts come out ofthat work.
In response to that, we saw KarlMarx create an economic
(17:36):
paradigm in his writings.
That was that the individualwas at the peril of these
companies that were leveragingtheir labor for their benefit,
and so that's where the two kindof sides kind of plugged in and
started opposing each other.
So in modern day economicsMilton Friedman is considered a
(17:56):
modern economist who was verymuch in the camp of Adam Smith,
as well as guys like ThomasSowell.
And then, you know, on the onthe other side of that equation,
the Keynesian side of theequation, is another economist
who favors more of a socialistor other you know far end
spectrum version of that.
Jamie Irvine (18:17):
Yeah, yeah, and so this all plays a part in it,
because anytime you have, like,government entities taking a
position and interfering withthe free market, that impacts
things right, and so that reallyplays a part into the
complexity of this issue andthis question of who pays the
(18:39):
tariffs and why Exactly.
Scott Boltz (18:41):
Exactly.
Ultimately, the consumer payseverything.
Jamie Irvine (18:44):
Yeah, At the end of the day, that is true.
So let's start helpingheavy-duty parts people to
understand how tariffs are goingto like how it's been affecting
them, how it's going tocontinue to affect them.
That's what we're going to talkabout next.
So talk about this harmonizedtariff schedule, because this is
a resource people need to knowabout.
Scott Boltz (19:03):
Indeed, indeed, and I didn't know about it in
advance go down the rabbit holethat is the US tax tariff
structure for imports andexports.
You need to be familiarized withthe harmonized tariff schedule
of the United States, the HTSUS,and specifically for most
heavy-duty parts, that's goingto be under the headings of
(19:24):
Chapter 87.
Okay, so there is a very longlist.
I have a couple examples on thescreen, but there's a very long
list that you can look uponline, and that's only a
portion of the knowledge youneed.
So you need to understand whatproducts you care about, what
their 87 code is, and then youhave to go back into another
(19:45):
website to look up on anyupdates on what's going on at
the moment, up on any updates onwhat's going on at the moment,
and so we could do this wholeshow just on break drums, just
as Zeb brought up.
But it's not just that, becausewe want to speak to the whole
market.
So it's so complex, if you readhere on the slide, that the
book of the tariff schedule issix and one quarter inches thick
with more than 10,000 different10 digit classifications, so we
(20:10):
cannot present that in apodcast, of course.
Jamie Irvine (20:13):
Right, but we do have all the links.
So every single thing we talkabout today, the links are going
to be in the show notes to backup everything we say and to
give you access to the site.
So then you'll be able to doadditional research on your own.
All right, so talk to me aboutexclusions, because as long as
the playing field is fair andeven and level for everyone,
(20:33):
then, ok, whatever it is, we'lldeal with it, right?
But is it?
Is it fair and level and evenfor everybody?
Scott Boltz (20:40):
So there's a saying that basically says there's no
such thing as a conspiracy or acoincidence.
So, that being said, if you gothrough the executive offices of
the president's website for thetrade representative, there are
processes where you can applyfor exclusions from these import
duties.
Ok, and they even report whothey actually grant them to.
Jamie Irvine (21:04):
So you can actually see that by going to
this website, which, again, thelinks will be in the show notes,
if you want to check it out foryourself, correct?
Scott Boltz (21:10):
And my point in this is that anytime the
government officials, eitherwithin the bureaucracy or within
the elected offices, there'salways the opportunity for the
ability to influence favor ofone thing over another in some
form and shape, and that's why Isay they're for sale.
(21:33):
So companies that areexperiencing these tariffs that
are hurting their business,there is an opportunity to apply
for some level of relief inthat regard.
But I'm sure there are otherways as well.
Jamie Irvine (21:45):
Yeah, no doubt.
So.
In the past, we've talked aboutlong wave cycles and we've
talked about the four turnings,and when I say we, I mean you
and I on this show all the wayback in 2020, talked about this.
So I just want everyone tolisten into this short clip from
one of our originalconversations that Scott and I
(22:07):
had in 2020.
That really has aged well.
Scott and I had in 2020.
That really has aged well.
What comes to mind is kind ofsome common characteristics
within each generation, and soif you put what Scott just said
in that context, you really aregrasping these characteristics
and differences betweengenerations and how they impact
(22:28):
people.
And what the book is saying isthat this actually rolls on a
cycle.
Scott Boltz (22:33):
So just to make sure that everybody kind of is
on the same page, yeah, and theidea of the cycle, that is, as
soon as one generation of acertain persona ages out,
reaches mortality, they create avacuum that is regenerated.
So.
So if we want to understand thebuying decisions in at the
(22:54):
trucking fleets and and thebuying decisions that govern
distribution, we need to look atwho's emerging into power, and
that's currently at generation x.
Now the, the, the boomergeneration, is hanging on for
dear life, right there's in alot of ways, uh, but at some
point in time their money willleave the market and their,
their, their efforts will leavethe positions that they hold,
(23:16):
and it'll be subsumed by thegeneration x well, scott, we
just watched a clip from overfive years ago and, uh, it has
been really interesting to seehow the things that we talked
about back then have really agedwell and are playing out in
real time now.
Jamie Irvine (23:35):
For those of us who maybe aren't as familiar
with the four turningsgenerational turnings, things of
that nature could you give usan explanation and then tie it
to tariffs?
Scott Boltz (23:47):
So there's something called the sacculum,
which is about the length of ahuman life.
Within that sacculum there'sfour turnings and if you think
about it like a sine wave, as wediscussed in our previous times
, we see a rise to a peak, wesee a fall back to normal, and
then we see a fall down to abottom and then a rise again,
and that takes about the lengthof a human life, or 20 years per
(24:07):
turn.
So 80 years ago, if you startin 1929 with the Great
Depression, that lasted.
That fourth turning lasted allthe way through World War II,
which ended in Bretton Woods,which was the new economic
paradigm that we created, whichwe now understand as global
economics.
Jamie Irvine (24:34):
Right.
So how does that relate totoday?
Because I mean that was 80, 90years ago.
We saw that happen.
Tie that into this idea of aseculum and how it's totally not
surprising that we're seeingthe things we're seeing today.
Like, make that connection forme Sure.
Scott Boltz (24:43):
So I mean we can lead backwards for a second and
I'll get to today.
But 80 years ago we were inWorld War II.
80 years before that we were inthe American Civil War.
80 years before that we were inworld war ii.
Eight years before that we werein the american civil war.
Eight years before that we werein the american revolution.
And so it's not just a warcycle, it's an economic cycle,
it's a social cycle, it's manydifferent things.
So fast forward to today andwe're in this cycle now where
(25:05):
the world's at much more war nowthan it's ever been in the last
80 years.
And the same thing holds truethat the economic shift and the
society shifts, the politicsshift and everything moves.
So we're coming into a periodwhere we're going to define the
next 80 years of the future.
What that might be and I don'tknow what that is, but how that
relates currently to what we'redealing right now with tariffs
(25:26):
is that we're going to be in acontinual state of volatility
until this period is over.
Jamie Irvine (25:33):
You mentioned Bretton Woods, and that is
something that came into effectjust at the conclusion of World
War II.
Explain how that is reallyimpacting today.
Scott Boltz (25:44):
The Second World War ended in 1945, in the summer
of 1945.
A year before that, the UnitedStates took the initiative to
bring in all of our alliedcountries that we were allied
with, and get together and makethe new economic paradigm and
what that paradigm was sold aswas.
We are going to open up theonly market that's going to
(26:06):
survive this war, because we didnot experience battles on our
own home turf, so we're going toopen up our market.
We're going to be the only onesthat survive economically.
You know home turf, so we'regoing to open up our market.
We're going to be the only onesthat survive economically.
We're going to help you rebuild.
So we rebuilt Japan and werebuilt Germany and many of the
other war affected areas, and intrade, for that you're going to
give us assistance and tryingour best at that time to stop
(26:30):
the spread of communism.
Okay, and so it was.
It was a, it was a gambit, itwas, it was a bribe, and so our
Navy survived.
We patrolled the sea lanes andopened up trade for everybody.
We said no one amongst ourgroup is going to have any war
between each other.
That's when the IMF was createdand the World Bank and all
these other systems, nato aswell, to ensure that through
(26:53):
economics we would have globalstability and a group of allies
that would fight againstcommunism.
Jamie Irvine (26:59):
So then, as you fast forward and we come to
today and we talk about tariffs,what is the connection to today
and what do you think we'regoing to see?
Scott Boltz (27:10):
So, as normal with these four turnings, we don't
see the next turning coming.
And so in the late 80s, early90s, we saw the fall of
communism.
As we understood at the time,it was the end of the Cold War.
So tariffs become much moreinto play to protect American
steel, american grain,agriculture and other things.
And so when we startinstituting that level of
(27:34):
protectionism, the countriesthat are affected respond, so
they elevate import tariffs fromus, and then so it becomes a
game of where are we going tostop with this elevation?
And it fluctuates up and down,as the global economy does.
But now we're in the fourthturning, and so under from 2018
to 2020,.
There was a game between us andChina where we raised tariffs
(27:57):
and they raised them above us,and then we raised them again
and they raised them above us,and so it just becomes this back
and forth in which we'reelevating the cost of goods.
It's not inflation, it'selevation of cost of goods
through taxation.
Jamie Irvine (28:13):
So when we look at that time period where we saw,
you know, so when we look atthat time period where we saw
the end of the Cold War and wesaw really the rise of
globalization especially earlyon in our career, it was really
starting to take off.
With that comes trade deficits.
Scott Boltz (28:27):
So talk to me about the reality of trade deficits
and in connection to things liketariffs, right, and so if you
listen to any politician speak,doesn't matter what side they're
on they'll often bring up theprevious guy's trade deficits
and we're losing at a trade war.
And it's a bit of a gaslightingstatement because it's by
(28:49):
design.
We traded and leveraged ourNavy and our military to protect
the global economy in order tocreate a deficit, and so we're
coming out of that now and we'reseeing a lot of reshoring on
shoring and near shoring withinour trade agreements within
north america that are going toaddress this, but it's often
(29:11):
sold to us as some type of faultof some other administration
and it doesn't matter what sidethey both do it.
Jamie Irvine (29:19):
So where is this going to take us then?
If you kind of indicated thisis coming to an end now, what do
you kind of envision thatlooking like?
Scott Boltz (29:30):
Well, we can lean on what we know in the near
history, and so manufacturing ofHD parts globally and in North
America are going to remainrelatively flat.
If you look to the um, this isa graph of um.
Auto parts includes heavy dutyand normal automotive.
But the love, the level from2018 is flat 100.
(29:50):
You'll see a dip in China, butit regrew back to normal, but
they're only back to where theywere um six years ago.
The rest of the world, on theother hand, is growing with us,
so it's just a trade-off.
We're moving where we'resourcing parts from to other
regions like India and Turkey,and Europe.
Jamie Irvine (30:08):
We haven't seen this kind of inflation since
early 1980s.
So, scott, I also want to talka little bit about inflation,
because tariffs are part of that, or maybe they're not.
I don't know.
You can answer that questionbetter than I can, but when it
comes to inflation versustaxation, we're seeing inflation
right now greater than we'veseen it in 40 years, or at least
(30:32):
not this high since 40 yearsago, which actually went much
higher.
What's the situation when itcomes to tariffs?
Is this inflation?
Is this taxation?
What is it?
Scott Boltz (30:43):
Exactly, and so it's common for people to
conceptualize an increase inpricing at the market level and
attribute it all to inflation.
At least in my understanding ofit, it's not the case.
Inflation, according to MiltonFriedman, is strictly related to
monetary policy of the US Fed.
(31:03):
So the more money that we printand put into the market through
the banking system, we devaluethe dollar, and so when there is
more dollars chasing less goods, you experience inflation.
And the current inflation thatwe experienced through the COVID
time was the infusement ofmoney from governments, canada
(31:24):
included, into their populace,as well as the United States, to
stem any negative effect fromthe shutdown of the economy, and
that was the inflation weexperienced.
So there was too many dollarschasing too few goods, and now
your cost of bacon and eggs andgasoline and houses and
everything else goes up.
That is in my I need, in in myconception, you need to break
(31:47):
away the increase in cost ofgoods created by taxation.
Jamie Irvine (31:51):
Okay.
Scott Boltz (31:51):
And so tariff is attacked and it affects the cost
of goods, but it is solely atthe whim of the executive branch
of the government.
So I don't want to conflatewhat is inflation, which is a
monetary net effect, and thenmatch that to how the
governments of our countries caninstitute an increase in
(32:13):
pricing without inflation.
Jamie Irvine (32:16):
Okay, that makes sense.
So what tool did you discoverto help heavy duty parts people
understand and keep up with thefast moving world of tariffs?
Scott Boltz (32:26):
So you can go to the this website, which is the
Office of the United StatesTrade Representative.
It's part of the executivebranch ofS government and they
have extensive, deep resourceson how you can go back to your
HTS codes and pull them in tolook things up.
So you need the codes to workin this site.
(32:46):
But all the information aboutany given tariff is updated
relatively recently.
Some of them go back to like2016, but most of it is 23, 24.
And there's so much informationhere.
Like I said, if this wasprinted into a book it'd be 10
and a half inches.
Jamie Irvine (33:03):
So let me ask you something Is this something that
heavy duty parts peopleespecially those that are
involved in strategic planningfor their company, that are
involved in purchasing likeshould they be rushing out and
looking up every code andspending an enormous amount of
time on this?
Or is there some information wecould share with them about
trade wars that might help themto see what's coming?
Scott Boltz (33:28):
So we have a unique situation in our at least in
the US electoral process, wherewe have one party who's been in
power, we have another party whois in power and they both are
operating, with regard to importtariffs, in the exact same
fashion.
Jamie Irvine (33:44):
Okay, explain that .
Scott Boltz (33:45):
Explain that more to me If you look at the graph
on the screen, um, in thesection that is under the Trump
administration, and you'll seehow the trade war begins and
they get to a certain level andthen the presidency changes,
biden comes into office andthere's zero change.
So both administrations areoperating with an acceptable
(34:05):
level within their political andeconomic policies at this level
.
So the idea that if Trump comesback in, or if the Harris
administration, which is theBiden administration, comes back
in, that we should expect anychanges, no, so Trump brought it
up to that level under hisadministration.
Jamie Irvine (34:24):
Biden has kept it at that level.
Would we expect Trump to raiseit again, or why do we say that
it'll just stay at this levelnow?
Scott Boltz (34:32):
Well, personally speaking, I don't know what
Trump's ever going to do, but Iwould.
Who does?
But I would, I would.
I would say that if he was toraise them anymore, it would
have negative effects on theeconomy in which he's trying to
resurrect.
Right, the probability ofraising them is small.
The probability of loweringthem is I don't know the answer
to that, because he does want to.
(34:53):
He does want to maintainpressure on these foreign
entities that we're trying tofight for reasons other than
what's listed in the standarddefinition of tariffs.
Jamie Irvine (35:08):
I believe the Harris administration would do
the same thing probability thatthe situation with tariffs is
going to remain relativelyconsistent with what it's been
over the last few years, whichkind of negates the inflammatory
media coverage that suggestedthat we might see huge increases
in tariffs.
Scott Boltz (35:28):
Yeah, I don't know if you could take them much
higher without crashing certainsectors of the economy.
Jamie Irvine (35:35):
Okay.
So if we're going to see moreof the same um, that means
pricing is going to remain high.
So, like, what advice do youhave for heavy duty parts?
People Like I said.
They're involved in strategicbusiness planning, they're
involved in purchasing.
Um, if we're going to be in anenvironment where prices remain
high, what?
(35:55):
What strategic advice do youhave for them?
Scott Boltz (35:58):
I think the biggest takeaway is that you should
eliminate any expectation forsome return to a normal.
This is the normal for theforeseeable future, and so if
we're all purchasing productsthat are imported at the same
price level with varying degrees, then you need to take pricing
out of your value proposition.
You have to find other ways toadd value, whether it be through
(36:26):
availability or speed or otherthings like that quality, but we
have to find ways todifferentiate ourselves, our
individual companies, in such away that takes price off the
board.
Jamie Irvine (36:33):
Yeah, and when we work with our clients and we
talk about their valueproposition, we talk about that
in terms of five to sevencommercial covenants that really
make you differentiated in themarketplace, and one of the
things I always emphasize isthat you have to remove the
barriers to entry.
Those can't be really part ofyour value proposition, because
we all need to know what we'redoing and have years of
(36:55):
experience.
We should all be striving tohave quality products at
competitive prices relative towhere prices are, and we want to
be able to provide a wide rangeof products with good service
levels.
This is not your valueproposition.
This is the barriers to entryinto the parts business.
So if you're going to movebeyond that, what would that
(37:15):
look like?
How do we help clients do thatevery day?
Scott Boltz (37:18):
So we have a tried and true process that we walk
through and we first establishthe core values, the value
proposition, the reason whythey're in business, and that
informs a process that we applyto those businesses, where we
establish an executive summaryof, basically in one page page,
what it is that we want to do,and then we spend a really
(37:41):
in-depth analysis on how we getthere.
We do an analysis on thecurrent state and the future
state, and then we develop abridge between the two, and then
what that is is it's a documentthat aligns your team, it
aligns your customers, it alignsyour marketing, it aligns your
leadership in such a way thatwe're all on the same page.
We know what we're doing andall we have to do is execute.
Jamie Irvine (38:03):
So I'll tell you this If you want a disciplined
approach and if you're willingto put the work in and you want
to do this right, this is theprocess for you.
If you want and or if you thinkthat getting into the parts
business is just a matter ofbeing connected with some
suppliers, buying some stuff andselling it out the door, this
program is not for you, and Iwould highly encourage you to
(38:42):
reach out to us, because we'dlike the opportunity to talk to
you and work with you Absolutely.
Scott, thank you so much forsharing this.
First of all, you did atremendous amount of research.
This deck is available.
We've got it now.
So if people want to review itwith us, if they want more
in-depth information, or if theywant to work with us to help
them with their business, headover to heavydutyconsultingcom.
(39:05):
Or if you're already on thepodcast website,
heavydutypartsreportcom, you canalways click the consulting
button.
It's in the top menu.
It'll take you right throughwhere you can book an
appointment with us.
Scott, once again, thank you somuch for being on the show
again.
Really appreciate it.
Thank you, jimmy.
(39:27):
Thank you again for listening tothis extended conversation
about tariffs today andsupporting the Heavy-Duty Parts
Report.
If you haven't already, headover to heavydutypartsreportcom,
hit the follow button andsubscribe to our weekly email so
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(39:48):
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As always, I want to thank youso much for supporting our show
and, as always, I want toencourage you to be heavy duty.
You're listening to the Heavy-Duty Parts Report.
I'm your host, jamie Irvin, andthis is the place where we have
conversations that empowerheavy-duty people.
Welcome to another episode.
In this episode, we areresponding to a request from a
number of our clients to talkabout a subject that is on their
(00:21):
minds and that is tariffs, andso I asked our director of
consulting services at theHeavy-Duty Consulting
Corporation to do some researchand go deep, and because of that
, this is going to be anextended episode and it is not
going to follow the normalformat of our show, because we
have so much material to cover,we need to get into it right
away.
(00:41):
So I'd like to introduce areturning guest to the podcast,
one who hasn't been on for awhile because he's been busy
working at our consultingbusiness.
So Scott Boltz is our Directorof Consulting Services.
He's been on the show before.
We're going to drop a link toan episode that we did together
almost five years ago that agedvery well in the show notes, and
(01:02):
Scott's role as Director ofConsult services at the Heavy
Duty Consulting Corporation hasbeen really integral in helping
us to develop that company andto move beyond just me
consulting with clientspersonally, but to actually be
able to build a company thatprovides this service.
Our why is to help heavy dutypeople thrive, so I am so happy
(01:22):
to have Scott back.
For those of you that don't knowScott, scott has worked in the
trucking industry for over 20years.
He's been involved in technical, sales, marketing and
commercial management in that 20years and he has pioneered
several companies into success,into the heavy duty aftermarket
in North America.
(01:42):
Scott, welcome back to theheavy duty parts report.
So glad to have you here.
Hey, welcome back to theHeavy-Duty Parts Report.
So glad to have you here.
Scott Boltz (01:48):
Hey.
Jamie Irvine (01:48):
Jamie, Good to see you.
My friend, how are you?
I'm good.
I'm good.
It's nice.
I get to see you every day nowthat we work together.
This subject of tariffs itreally came up because of our
clients.
They wanted to know more.
There's some things that arebeing posted in the media about
it and they really, at the endof the day, just want to know
(02:09):
how it's going to impact them,whether they're a aftermarket
manufacturer or maybe they are adistributor or repair center.
That's involved in parts.
So that's what we're going totalk about today.
You've prepared some reallygreat information and I'm
looking forward to getting intoit with you.
So let's get started and I'llask you the first question here
(02:30):
Are we tariffs experts?
Scott Boltz (02:32):
No, jamie, we are not.
But this has been a bit of anendeavor to kind of delve deep
into something that reallyaffects anyone in the United
States who's importing truckparts, whether they're finished
goods or whether they're worksin truck parts, whether they're
finished goods or whetherthey're works in progress or
whether they're raw materials,and all those categories are
quite different.
So I have a few disclaimers, ifyou don't mind.
(02:53):
Yeah, let's go over them.
Yeah, so we are not tariffexperts.
I've done a ton of research onthem.
The real experts are the peoplethat are working for the
executive branch of thegovernment and the lobby that
lobby them, and the you know,the congressman and everyone
else, as well as both foreignand domestic lobbyists in that
regard.
So I always like to open with abit of a joke when I don't know
(03:15):
everything.
A man who carries a cat by thetail learns something that he
can learn in no other way, andthat's what we're going to do
today.
So we're going to grab the catby the tail and we're going to
lift it up and see what happens.
Jamie Irvine (03:26):
So I mentioned in the intro that our clients were
very interested in the subjectof tariffs, so can you talk
about the genesis of this topic?
Scott Boltz (03:45):
the service company brought this to our attention
in one of our strategic meetings, and he had some concerns about
whether he's sourcing drumsfrom what company, and are those
drums coming from China, arethey coming from Turkey or
domestically?
And he asked us basically to dosome research on that topic to
get a better understanding of it.
And so, zeb, this is for you.
Jamie Irvine (04:02):
Right, and then we asked a few of our other
clients and they all expressed asimilar interest.
So when you look at these kindsof media stories, what are you
seeing?
And then we'll talk a littlebit about what you're not seeing
.
Scott Boltz (04:16):
Well, I'm always skeptical of these type of
articles that talk about whatmight be what could be what they
think is coming, when there isnothing that is indicating that
change.
So if you read this article inits entirety from Truck Parts
Service, they talk a lot aboutanti-dumping laws and other
things like that, but right nowthere's been no definitive move
(04:40):
and we have some data to showyou later on about where we are
at in that movement.
Jamie Irvine (04:45):
Okay, so if that's the case, what are we really
going to talk about then?
Scott Boltz (04:49):
So we're going to get into, basically, a storyline
of tariffs.
What are they, how do theyaffect us in the parts industry
in North America, how does itbenefit the government, how does
it benefit other entities otherthan the people that are
actually making the finaltransactions, as well as how
does it hurt the end user andeverybody along the supply chain
(05:12):
.
So the first thing that I wantto cover ad valorem is basically
Latin, for you know, at value,and so we're taxing something at
its value as it comes into thecountry.
So, to give you a sense ofscale, in 2016, the US imports
were about $2.2 trillion, andwe're going to get into what
made up that volume at that time.
(05:34):
It's not just what we think.
We talked about finishedproduct, we talked about works
in progress and we talked aboutraw materials, but there's also
a financial component to it.
So, from that interesting point, president Trump began
elevating the tariffrestrictions on imports from
China, as well as othercountries, at the same time that
(05:55):
he was negotiating the freetrade agreements amongst North
America, and so the interestingpoint in that is that in 2023,
the US imported about $3.9trillion worth of product, so
the imports after the tariffswent up.
That's interesting.
Jamie Irvine (06:12):
Yeah, because the general, I guess, consensus
would be that the trade war andtariffs is designed to reduce
what is imported in support of,let's say, US manufacture.
Scott Boltz (06:27):
Exactly and what government officials will tell
you.
The reason for tariffs is.
There's three differentcomponents of it to protect the
United States suppliers and todo several other things, raise
revenue being one of them.
But that's not the net effect,that's not the reality on the
ground.
So we're being gaslit in someways by that definition of
tariffs.
Jamie Irvine (06:48):
Okay, so that's interesting to me, because this
is not necessarily what it seems.
So you just mentioned what itcould be or how we should be
looking at it.
Can you go into more detail?
We talked about what they sayit is what actually is it.
Scott Boltz (07:03):
Correct.
So this is a screen grab fromChatGPT to basically say what's
the basic definition of a tariff, and you'll see that it's to
protect domestic industries,it's to generate revenue for the
government and it's to regulatetrade, and then there's two
primary types.
There's an ad valorem, which isthe at-value tax, and then a
specific tax, which is fixedbased on, usually, raw materials
(07:27):
, based on weight or whatevershipping method that those units
come into.
The thing that I'd like to sayabout this, though, is that the
net effect of those tariffs onheavy-duty parts manufacturers
in the United States and Canada,heavy-duty distributors and
service centers and fleets isoutside of this definition.
Jamie Irvine (07:48):
So, Scott, if that's the case, help us
understand tariffs better.
What are they really?
So they?
Scott Boltz (07:54):
are a mechanism in which the US government can
impose political, financial andmilitary influence upon other
actors within the globe.
In this case, for instance fromthis Wall Street Journal
article, the Bidenadministration is proposing a
total ban, not just a tariff, atotal ban on components that
(08:15):
belong to connected vehicles,which, anything manufactured
within the last few years andgoing forward are considered
connected vehicles, and that hasactually a big impact on
companies like Volvo, forinstance.
So when we get into the classeight market, those connected
vehicles are going to beaffected by these same pressures
(08:35):
.
Jamie Irvine (08:36):
I hope you're enjoying this conversation about
tariffs.
We're going to take a quickbreak and when we get back from
the break we're going to talkabout something that surprised
Scott when he did this research.
So stay tuned, we'll be rightback.
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We're back from the break.
Before the break, we got a goodintroduction and a definition
of tariffs, what it is supposedto be, or what the general
(10:21):
consensus is, what it actuallyis.
We're starting to talk aboutthat.
So, scott, during doingresearch in preparation for this
, you found something thatreally surprised you Can you
explain that to us?
Scott Boltz (10:32):
Yeah, going through the regulatory website from the
executive office of thepresident that manages tariffs,
imports and exports, imports andexports One of the big things
that keyed off that I didn'teven know about was the
consideration of imports andexports, of what they call
foreign direct investment, whichmeans money.
So when American companiesinvest in Turkish companies,
(10:56):
israeli companies, chinesecompanies, that's considered as
an export as well, and whenthose returns come back, they
pay some form of import dutyrelative to equity investments
to reinvest earnings intointra-company loans.
So I think what I gleaned fromthis research was that they're
(11:17):
trying to stem the flow of moneyin and out of the country, just
like it is a circuit board or abrake drum.
Jamie Irvine (11:31):
Okay, so there's a lot more to this subject than
most of us really understand.
Unfortunately, we live in atime right now where there's a
lot of war.
When you were doing research,you really discovered that war
actually has a big impact ontariffs, so we know that in a
previous administration.
Scott Boltz (11:46):
You know this isn't meant to be a political
conversation.
It's just historically accuratethat the US was much less
engaged in war type activitiesaround the globe, and it's not
just whether or not we deployour military or not, it's also
how we deploy our financialinstruments, which is why it
ties into this topic of tariffs.
(12:08):
So when countries do things thatdisplease the executive branch
of the United States, we imposefinancial means upon them.
We'll talk a little bit aboutBretton Woods and how the IMF
was created during that time,and we use that as a leverage
piece to say hey, listen, wedon't like what you're doing, we
(12:29):
would prefer you don't do it,and so we're going to try to
restrict your inputs into oureconomy to the best of our
ability, and that's another waythat wasn't listed in the
previous notes about how tariffsare imposed, listed in the
previous notes about how tariffsare imposed.
So this is a long list that youcan source from many places
(12:50):
online, but there are conflictsgoing on around the country in
which we have vested interest inwho comes out the winner, and
it all plays back into what weallow them to engage with within
our own internal North Americaneconomy.
Jamie Irvine (13:03):
Interesting, interesting.
So, at the end of the day, whoactually pays tariffs?
Because the consensus, or likethe message we get, is these
tariffs are going to negativelyimpact countries that don't have
our best interests at heart,and we're going to bring all
this manufacturing back to ourshores and it's going to really
(13:23):
benefit us.
And so these other countriespay the tariff.
That's the message that I get.
Is that true?
Scott Boltz (13:30):
They do suffer some pressure on pricing in order to
be able to play in the space.
But the idea that by placingtaxes upon imports that you
level the game in the NorthAmerican economy is absolutely
false.
That you level the game in theNorth American economy is
absolutely false.
I've worked for manufacturersin the past that have imported
(13:53):
raw materials and have importedworks in progress, and the
person who imports that productpays the tariff.
So their cost goes up.
The exporter again is affectedby a reduction in imports
because the cost has gone up.
But the person who pays for itis the importer.
But how does that trickle downand where does the benefit
ultimately lie?
(14:14):
So the importer pays the tariff.
They translate those costs intotheir cost structure, their
bill of materials, in order toproduce the product, the
finished good.
That is then transferred to thedistributor who is paying for
the cost of goods sold.
And if those costs go up, notbecause of inflation but because
(14:35):
of taxation, they pay the costof that transition.
But they don't pay it bythemselves.
They transition that cost ontothe end user, the service
centers and the fleets that arebuying the product.
So that cost trickles downthroughout the entire supply
chain.
And then my final note is whoultimately wins because the
(14:55):
taxation process is stepped?
Ultimately the IRS.
Jamie Irvine (14:59):
I guess let's just talk about this for a minute.
So if you have this cheap, lowquality product coming out of,
let's say, china or anothercountry and it's coming into the
North American market underwhat a North American
manufacturer could make it for,because of things maybe like not
as good quality or the laborlaws that that country has, and
(15:22):
basically having subservientpeople forced and pressed into
labor at low wages, doesn't itactually actually, though, level
the price of those products andmake it so that buying the
higher quality US made productis more appealing to the
consumer?
Is that not still true in this?
Scott Boltz (15:41):
paradigm.
This is not binary, this is notlike black and white.
So, yes, there is some truth inwhat you just said, but the
majority of manufacturingdepending on the product
category, because that's veryspecific.
So there's many things that weused to make here that we don't
make here anymore, and we couldturn that on very quickly, but
it's just not cost-effective atthe moment.
(16:03):
So there's the bulk.
What I perceive to be the bulkof what we're importing are
things that we don't make.
It's not that there's anAmerican or Canadian equivalent
that we're offsetting.
That's a very small portion ofthe actual total bandwidth of
the import.
Jamie Irvine (16:20):
Yeah, and I think that that is.
The problem is a lot of timeswith these headlines that we see
it comes across in that verybinary or linear way and the
reality is it's just so muchmore complicated than that.
Let me ask you somethingbecause people might not have
picked up on it in one of ourearly slides when we had our
disclaimer.
If you read the information onthat disclaimer, it talks about
(16:42):
kind of the approach that wetake with the free market.
Could you talk about that alittle bit in conjunction with
what we're talking about here onwho pays tariffs?
Scott Boltz (16:50):
Indeed, yeah, so there's basically I mean, it's
very vast, but you could breakmost economists into two camps
the original founder of what weconsider to be modern economics,
which was Adam Smith, who was aScottish economist around the
time of the founding of theUnited States in the 1700s,
developed a work called theWealth of Nations, and in that
(17:14):
work he's considered the fatherof modern economics, and it was
very much a capitalist approachto.
One of the biggest takeawaysthat most people take away from
Adam Smith is what we call theinvisible hand of the market.
Like you, let the market handleit, supply and demand.
All those concepts come out ofthat work.
In response to that, we saw KarlMarx create an economic
(17:36):
paradigm in his writings.
That was that the individualwas at the peril of these
companies that were leveragingtheir labor for their benefit,
and so that's where the two kindof sides kind of plugged in and
started opposing each other.
So in modern day economicsMilton Friedman is considered a
(17:56):
modern economist who was verymuch in the camp of Adam Smith,
as well as guys like ThomasSowell.
And then, you know, on the onthe other side of that equation,
the Keynesian side of theequation, is another economist
who favors more of a socialistor other you know far end
spectrum version of that.
Jamie Irvine (18:17):
Yeah, yeah, and so this all plays a part in it,
because anytime you have, like,government entities taking a
position and interfering withthe free market, that impacts
things right, and so that reallyplays a part into the
complexity of this issue andthis question of who pays the
(18:39):
tariffs and why Exactly.
Scott Boltz (18:41):
Exactly.
Ultimately, the consumer payseverything.
Jamie Irvine (18:44):
Yeah, At the end of the day, that is true.
So let's start helpingheavy-duty parts people to
understand how tariffs are goingto like how it's been affecting
them, how it's going tocontinue to affect them.
That's what we're going to talkabout next.
So talk about this harmonizedtariff schedule, because this is
a resource people need to knowabout.
Scott Boltz (19:03):
Indeed, indeed, and I didn't know about it in
advance go down the rabbit holethat is the US tax tariff
structure for imports andexports.
You need to be familiarized withthe harmonized tariff schedule
of the United States, the HTSUS,and specifically for most
heavy-duty parts, that's goingto be under the headings of
(19:24):
Chapter 87.
Okay, so there is a very longlist.
I have a couple examples on thescreen, but there's a very long
list that you can look uponline, and that's only a
portion of the knowledge youneed.
So you need to understand whatproducts you care about, what
their 87 code is, and then youhave to go back into another
(19:45):
website to look up on anyupdates on what's going on at
the moment, up on any updates onwhat's going on at the moment,
and so we could do this wholeshow just on break drums, just
as Zeb brought up.
But it's not just that, becausewe want to speak to the whole
market.
So it's so complex, if you readhere on the slide, that the
book of the tariff schedule issix and one quarter inches thick
with more than 10,000 different10 digit classifications, so we
(20:10):
cannot present that in apodcast, of course.
Jamie Irvine (20:13):
Right, but we do have all the links.
So every single thing we talkabout today, the links are going
to be in the show notes to backup everything we say and to
give you access to the site.
So then you'll be able to doadditional research on your own.
All right, so talk to me aboutexclusions, because as long as
the playing field is fair andeven and level for everyone,
(20:33):
then, ok, whatever it is, we'lldeal with it, right?
But is it?
Is it fair and level and evenfor everybody?
Scott Boltz (20:40):
So there's a saying that basically says there's no
such thing as a conspiracy or acoincidence.
So, that being said, if you gothrough the executive offices of
the president's website for thetrade representative, there are
processes where you can applyfor exclusions from these import
duties.
Ok, and they even report whothey actually grant them to.
Jamie Irvine (21:04):
So you can actually see that by going to
this website, which, again, thelinks will be in the show notes,
if you want to check it out foryourself, correct?
Scott Boltz (21:10):
And my point in this is that anytime the
government officials, eitherwithin the bureaucracy or within
the elected offices, there'salways the opportunity for the
ability to influence favor ofone thing over another in some
form and shape, and that's why Isay they're for sale.
(21:33):
So companies that areexperiencing these tariffs that
are hurting their business,there is an opportunity to apply
for some level of relief inthat regard.
But I'm sure there are otherways as well.
Jamie Irvine (21:45):
Yeah, no doubt.
So.
In the past, we've talked aboutlong wave cycles and we've
talked about the four turnings,and when I say we, I mean you
and I on this show all the wayback in 2020, talked about this.
So I just want everyone tolisten into this short clip from
one of our originalconversations that Scott and I
(22:07):
had in 2020.
That really has aged well.
Scott and I had in 2020.
That really has aged well.
What comes to mind is kind ofsome common characteristics
within each generation, and soif you put what Scott just said
in that context, you really aregrasping these characteristics
and differences betweengenerations and how they impact
(22:28):
people.
And what the book is saying isthat this actually rolls on a
cycle.
Scott Boltz (22:33):
So just to make sure that everybody kind of is
on the same page, yeah, and theidea of the cycle, that is, as
soon as one generation of acertain persona ages out,
reaches mortality, they create avacuum that is regenerated.
So.
So if we want to understand thebuying decisions in at the
(22:54):
trucking fleets and and thebuying decisions that govern
distribution, we need to look atwho's emerging into power, and
that's currently at generation x.
Now the, the, the boomergeneration, is hanging on for
dear life, right there's in alot of ways, uh, but at some
point in time their money willleave the market and their,
their, their efforts will leavethe positions that they hold,
(23:16):
and it'll be subsumed by thegeneration x well, scott, we
just watched a clip from overfive years ago and, uh, it has
been really interesting to seehow the things that we talked
about back then have really agedwell and are playing out in
real time now.
Jamie Irvine (23:35):
For those of us who maybe aren't as familiar
with the four turningsgenerational turnings, things of
that nature could you give usan explanation and then tie it
to tariffs?
Scott Boltz (23:47):
So there's something called the sacculum,
which is about the length of ahuman life.
Within that sacculum there'sfour turnings and if you think
about it like a sine wave, as wediscussed in our previous times
, we see a rise to a peak, wesee a fall back to normal, and
then we see a fall down to abottom and then a rise again,
and that takes about the lengthof a human life, or 20 years per
(24:07):
turn.
So 80 years ago, if you startin 1929 with the Great
Depression, that lasted.
That fourth turning lasted allthe way through World War II,
which ended in Bretton Woods,which was the new economic
paradigm that we created, whichwe now understand as global
economics.
Jamie Irvine (24:34):
Right.
So how does that relate totoday?
Because I mean that was 80, 90years ago.
We saw that happen.
Tie that into this idea of aseculum and how it's totally not
surprising that we're seeingthe things we're seeing today.
Like, make that connection forme Sure.
Scott Boltz (24:43):
So I mean we can lead backwards for a second and
I'll get to today.
But 80 years ago we were inWorld War II.
80 years before that we were inthe American Civil War.
80 years before that we were inworld war ii.
Eight years before that we werein the american civil war.
Eight years before that we werein the american revolution.
And so it's not just a warcycle, it's an economic cycle,
it's a social cycle, it's manydifferent things.
So fast forward to today andwe're in this cycle now where
(25:05):
the world's at much more war nowthan it's ever been in the last
80 years.
And the same thing holds truethat the economic shift and the
society shifts, the politicsshift and everything moves.
So we're coming into a periodwhere we're going to define the
next 80 years of the future.
What that might be and I don'tknow what that is, but how that
relates currently to what we'redealing right now with tariffs
(25:26):
is that we're going to be in acontinual state of volatility
until this period is over.
Jamie Irvine (25:33):
You mentioned Bretton Woods, and that is
something that came into effectjust at the conclusion of World
War II.
Explain how that is reallyimpacting today.
Scott Boltz (25:44):
The Second World War ended in 1945, in the summer
of 1945.
A year before that, the UnitedStates took the initiative to
bring in all of our alliedcountries that we were allied
with, and get together and makethe new economic paradigm and
what that paradigm was sold aswas.
We are going to open up theonly market that's going to
(26:06):
survive this war, because we didnot experience battles on our
own home turf, so we're going toopen up our market.
We're going to be the only onesthat survive economically.
You know home turf, so we'regoing to open up our market.
We're going to be the only onesthat survive economically.
We're going to help you rebuild.
So we rebuilt Japan and werebuilt Germany and many of the
other war affected areas, and intrade, for that you're going to
give us assistance and tryingour best at that time to stop
(26:30):
the spread of communism.
Okay, and so it was.
It was a, it was a gambit, itwas, it was a bribe, and so our
Navy survived.
We patrolled the sea lanes andopened up trade for everybody.
We said no one amongst ourgroup is going to have any war
between each other.
That's when the IMF was createdand the World Bank and all
these other systems, nato aswell, to ensure that through
(26:53):
economics we would have globalstability and a group of allies
that would fight againstcommunism.
Jamie Irvine (26:59):
So then, as you fast forward and we come to
today and we talk about tariffs,what is the connection to today
and what do you think we'regoing to see?
Scott Boltz (27:10):
So, as normal with these four turnings, we don't
see the next turning coming.
And so in the late 80s, early90s, we saw the fall of
communism.
As we understood at the time,it was the end of the Cold War.
So tariffs become much moreinto play to protect American
steel, american grain,agriculture and other things.
And so when we startinstituting that level of
(27:34):
protectionism, the countriesthat are affected respond, so
they elevate import tariffs fromus, and then so it becomes a
game of where are we going tostop with this elevation?
And it fluctuates up and down,as the global economy does.
But now we're in the fourthturning, and so under from 2018
to 2020,.
There was a game between us andChina where we raised tariffs
(27:57):
and they raised them above us,and then we raised them again
and they raised them above us,and so it just becomes this back
and forth in which we'reelevating the cost of goods.
It's not inflation, it'selevation of cost of goods
through taxation.
Jamie Irvine (28:13):
So when we look at that time period where we saw,
you know, so when we look atthat time period where we saw
the end of the Cold War and wesaw really the rise of
globalization especially earlyon in our career, it was really
starting to take off.
With that comes trade deficits.
Scott Boltz (28:27):
So talk to me about the reality of trade deficits
and in connection to things liketariffs, right, and so if you
listen to any politician speak,doesn't matter what side they're
on they'll often bring up theprevious guy's trade deficits
and we're losing at a trade war.
And it's a bit of a gaslightingstatement because it's by
(28:49):
design.
We traded and leveraged ourNavy and our military to protect
the global economy in order tocreate a deficit, and so we're
coming out of that now and we'reseeing a lot of reshoring on
shoring and near shoring withinour trade agreements within
north america that are going toaddress this, but it's often
(29:11):
sold to us as some type of faultof some other administration
and it doesn't matter what sidethey both do it.
Jamie Irvine (29:19):
So where is this going to take us then?
If you kind of indicated thisis coming to an end now, what do
you kind of envision thatlooking like?
Scott Boltz (29:30):
Well, we can lean on what we know in the near
history, and so manufacturing ofHD parts globally and in North
America are going to remainrelatively flat.
If you look to the um, this isa graph of um.
Auto parts includes heavy dutyand normal automotive.
But the love, the level from2018 is flat 100.
(29:50):
You'll see a dip in China, butit regrew back to normal, but
they're only back to where theywere um six years ago.
The rest of the world, on theother hand, is growing with us,
so it's just a trade-off.
We're moving where we'resourcing parts from to other
regions like India and Turkey,and Europe.
Jamie Irvine (30:08):
We haven't seen this kind of inflation since
early 1980s.
So, scott, I also want to talka little bit about inflation,
because tariffs are part of that, or maybe they're not.
I don't know.
You can answer that questionbetter than I can, but when it
comes to inflation versustaxation, we're seeing inflation
right now greater than we'veseen it in 40 years, or at least
(30:32):
not this high since 40 yearsago, which actually went much
higher.
What's the situation when itcomes to tariffs?
Is this inflation?
Is this taxation?
What is it?
Scott Boltz (30:43):
Exactly, and so it's common for people to
conceptualize an increase inpricing at the market level and
attribute it all to inflation.
At least in my understanding ofit, it's not the case.
Inflation, according to MiltonFriedman, is strictly related to
monetary policy of the US Fed.
(31:03):
So the more money that we printand put into the market through
the banking system, we devaluethe dollar, and so when there is
more dollars chasing less goods, you experience inflation.
And the current inflation thatwe experienced through the COVID
time was the infusement ofmoney from governments, canada
(31:24):
included, into their populace,as well as the United States, to
stem any negative effect fromthe shutdown of the economy, and
that was the inflation weexperienced.
So there was too many dollarschasing too few goods, and now
your cost of bacon and eggs andgasoline and houses and
everything else goes up.
That is in my I need, in in myconception, you need to break
(31:47):
away the increase in cost ofgoods created by taxation.
Jamie Irvine (31:51):
Okay.
Scott Boltz (31:51):
And so tariff is attacked and it affects the cost
of goods, but it is solely atthe whim of the executive branch
of the government.
So I don't want to conflatewhat is inflation, which is a
monetary net effect, and thenmatch that to how the
governments of our countries caninstitute an increase in
(32:13):
pricing without inflation.
Jamie Irvine (32:16):
Okay, that makes sense.
So what tool did you discoverto help heavy duty parts people
understand and keep up with thefast moving world of tariffs?
Scott Boltz (32:26):
So you can go to the this website, which is the
Office of the United StatesTrade Representative.
It's part of the executivebranch ofS government and they
have extensive, deep resourceson how you can go back to your
HTS codes and pull them in tolook things up.
So you need the codes to workin this site.
(32:46):
But all the information aboutany given tariff is updated
relatively recently.
Some of them go back to like2016, but most of it is 23, 24.
And there's so much informationhere.
Like I said, if this wasprinted into a book it'd be 10
and a half inches.
Jamie Irvine (33:03):
So let me ask you something Is this something that
heavy duty parts peopleespecially those that are
involved in strategic planningfor their company, that are
involved in purchasing likeshould they be rushing out and
looking up every code andspending an enormous amount of
time on this?
Or is there some information wecould share with them about
trade wars that might help themto see what's coming?
Scott Boltz (33:28):
So we have a unique situation in our at least in
the US electoral process, wherewe have one party who's been in
power, we have another party whois in power and they both are
operating, with regard to importtariffs, in the exact same
fashion.
Jamie Irvine (33:44):
Okay, explain that .
Scott Boltz (33:45):
Explain that more to me If you look at the graph
on the screen, um, in thesection that is under the Trump
administration, and you'll seehow the trade war begins and
they get to a certain level andthen the presidency changes,
biden comes into office andthere's zero change.
So both administrations areoperating with an acceptable
(34:05):
level within their political andeconomic policies at this level
.
So the idea that if Trump comesback in, or if the Harris
administration, which is theBiden administration, comes back
in, that we should expect anychanges, no, so Trump brought it
up to that level under hisadministration.
Jamie Irvine (34:24):
Biden has kept it at that level.
Would we expect Trump to raiseit again, or why do we say that
it'll just stay at this levelnow?
Scott Boltz (34:32):
Well, personally speaking, I don't know what
Trump's ever going to do, but Iwould.
Who does?
But I would, I would.
I would say that if he was toraise them anymore, it would
have negative effects on theeconomy in which he's trying to
resurrect.
Right, the probability ofraising them is small.
The probability of loweringthem is I don't know the answer
to that, because he does want to.
(34:53):
He does want to maintainpressure on these foreign
entities that we're trying tofight for reasons other than
what's listed in the standarddefinition of tariffs.
Jamie Irvine (35:08):
I believe the Harris administration would do
the same thing probability thatthe situation with tariffs is
going to remain relativelyconsistent with what it's been
over the last few years, whichkind of negates the inflammatory
media coverage that suggestedthat we might see huge increases
in tariffs.
Scott Boltz (35:28):
Yeah, I don't know if you could take them much
higher without crashing certainsectors of the economy.
Jamie Irvine (35:35):
Okay.
So if we're going to see moreof the same um, that means
pricing is going to remain high.
So, like, what advice do youhave for heavy duty parts?
People Like I said.
They're involved in strategicbusiness planning, they're
involved in purchasing.
Um, if we're going to be in anenvironment where prices remain
high, what?
(35:55):
What strategic advice do youhave for them?
Scott Boltz (35:58):
I think the biggest takeaway is that you should
eliminate any expectation forsome return to a normal.
This is the normal for theforeseeable future, and so if
we're all purchasing productsthat are imported at the same
price level with varying degrees, then you need to take pricing
out of your value proposition.
You have to find other ways toadd value, whether it be through
(36:26):
availability or speed or otherthings like that quality, but we
have to find ways todifferentiate ourselves, our
individual companies, in such away that takes price off the
board.
Jamie Irvine (36:33):
Yeah, and when we work with our clients and we
talk about their valueproposition, we talk about that
in terms of five to sevencommercial covenants that really
make you differentiated in themarketplace, and one of the
things I always emphasize isthat you have to remove the
barriers to entry.
Those can't be really part ofyour value proposition, because
we all need to know what we'redoing and have years of
(36:55):
experience.
We should all be striving tohave quality products at
competitive prices relative towhere prices are, and we want to
be able to provide a wide rangeof products with good service
levels.
This is not your valueproposition.
This is the barriers to entryinto the parts business.
So if you're going to movebeyond that, what would that
(37:15):
look like?
How do we help clients do thatevery day?
Scott Boltz (37:18):
So we have a tried and true process that we walk
through and we first establishthe core values, the value
proposition, the reason whythey're in business, and that
informs a process that we applyto those businesses, where we
establish an executive summaryof, basically in one page page,
what it is that we want to do,and then we spend a really
(37:41):
in-depth analysis on how we getthere.
We do an analysis on thecurrent state and the future
state, and then we develop abridge between the two, and then
what that is is it's a documentthat aligns your team, it
aligns your customers, it alignsyour marketing, it aligns your
leadership in such a way thatwe're all on the same page.
We know what we're doing andall we have to do is execute.
Jamie Irvine (38:03):
So I'll tell you this If you want a disciplined
approach and if you're willingto put the work in and you want
to do this right, this is theprocess for you.
If you want and or if you thinkthat getting into the parts
business is just a matter ofbeing connected with some
suppliers, buying some stuff andselling it out the door, this
program is not for you, and Iwould highly encourage you to
(38:42):
reach out to us, because we'dlike the opportunity to talk to
you and work with you Absolutely.
Scott, thank you so much forsharing this.
First of all, you did atremendous amount of research.
This deck is available.
We've got it now.
So if people want to review itwith us, if they want more
in-depth information, or if theywant to work with us to help
them with their business, headover to heavydutyconsultingcom.
(39:05):
Or if you're already on thepodcast website,
heavydutypartsreportcom, you canalways click the consulting
button.
It's in the top menu.
It'll take you right throughwhere you can book an
appointment with us.
Scott, once again, thank you somuch for being on the show
again.
Really appreciate it.
Thank you, jimmy.
(39:27):
Thank you again for listening tothis extended conversation
about tariffs today andsupporting the Heavy-Duty Parts
Report.
If you haven't already, headover to heavydutypartsreportcom,
hit the follow button andsubscribe to our weekly email so
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