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Trump, China trade war: Joann stores CEO on tariffs as tax, damage

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  • President Donald Trump is considering tariffs on
    another $200 billion of Chinese goods.
  • Many US companies are worried about the increased costs
    from the tariffs.
  • One of those businesses is Joann, a leading fabric and
    crafting retailer.
  • Joann CEO Jill Soltau spoke with Business Insider about
    the tariffs’ downsides for small businesses and how her company
    is responding to the possibility of more.

President Donald Trump could be about to take the trade
war with China
to a new level, and one US CEO is worried.

The
Trump administration is considering
either a 10% or
25% tariff
on
$200 billion worth of Chinese goods
, causing alarm for many
businesses that rely on goods from China. Hearings on the new
tariffs, which are being pursued under Section 301 of
the Trade Act of 1974, took place in Washington, DC.
Tariffs could be imposed as soon as next month.

One of those businesses is Joann, a fabric and craft retailer
that boasts more than 850 stores around the country and over
22,000 US employees. In an interview, Joann CEO Jill Soltau told
Business Insider that the next round of tariffs posed a real
threat to not only her company, but also many other US businesses
that rely on Joann.

Many of the textiles, yarns, and fabrics sold at Joann stores
that are sourced in China are on
the proposed list of goods
that could get hit by the next
wave of tariffs. These goods, Soltau said, are used by many small
US businesses and crafters to create final products.

Increasing the cost of these materials would put the squeeze not
only on Joann, Soltau said, but also on the small businesses that
rely on those items for their products.

The company says that if the
tariffs go through, 42% of all of the goods sold at Joann stores
will be subject to tariffs.

Soltau has been on a media blitz
to try and raise awareness about the possible downsides of the
tariffs including speaking at the Section 301 hearing in
Washington, DC and creating the
Made in America Tax website
to highlight the dangers of
Trump’s tariffs.

The Joann CEO spoke with Business
Insider on Thursday to talk about the tariffs, how Joann is
responding, and how small businesses may get the short end of the
stick.


This interview has been
edited for length and clarity.

Bob Bryan: When
you looked at the list of items that were on the Section 301 list
and saw some of the goods that you use in your stores, what was
your initial reaction?

Jill Soltau: We
looked at it and as we digested it the conclusion we came to is
that these tariffs would unintentionally create a tax on raw
materials that are imported into the United States so that our
customers can create projects and products that are made in
America.

It’s small business owners that
represent over 20% of our customer base that we first thought of
because of the amounts that these tariffs are implying — anywhere
from a 10% to 25% increase in cost — we will have to share in the
cost with our customer.

And that’s what really causes us
the greatest concern is that people like Heather and Diane who
have this great business out of Hector, Minnesota. They design,
sew, and sell these fabric kitchen appliance covers that their
customers then buy. With their costs then going up, they’ll have
to raise their prices to their customers and then their customers
will really have the option to really walk away and buy something
that’s foreign-made out of largely the same materials but at a
cheapest prices because those finished products won’t have a
tariff on them.

So that was our first response:
“Wow, this is really unintentionally creating a made in America
tax.”

Bryan: What percentage of you goods do you
expect to get hit by the tariffs.

Soltau: About 70% of
what we import is made in China. [Editor’s
note:
A Joann spokesperson clarified that while 70% of
the company’s total goods come from China, only 60% of those
Chinese imports would be subject to the tariffs
.] We
carry about 40,000 products every single day in a typical store
and much of those products come from China, and it’s how we as a
craft and fabric retailer have been able to supply such an
incredible assortment to our readers and be the strong, growing,
profitable retailer that we are today.

It was really in the 1970s when
China emerged as a manufacturing country and we became part of a
global economy.

For instance, our fleece fabrics,
we sell over 40 million yards per year, and it has always been
manufactured in China especially at the quality standards we
require and the quantity that we need.

Bryan: So it’s not a case where you shift your
sourcing or supply chain elsewhere to work around the
tariffs? 

Soltau: It
would be very difficult. In that example, the capital
requirements are very intensive for an aspiring business person
to want to set up a fleece manufacturing plant somewhere
else.

Even if that reach that first
hurdle, it would probably be 18 months before they could be up
and running, probably three to four years before they could
actually get any kind of scale. I don’t think we would see full
production requirements inside of a decade. So a lot of hurdles
there for someone to scale.

Even after the couple of years it
could potentially take if someone had the money, there would be a
lot of challenges for out customers.

Bryan: Have y’all estimated the exact cost
increase for your company if a 10% or a 25% tariff goes through?

Soltau: Just the sheer
fact that the 10% to 25% increase would be what it is if these
tariffs pass. I do not believe that Joann could singularly absorb
this, nor could our customers, so we would have to share in that
effort.

We are looking at every
possibility on how we can manage through this if these come to
fruition, but our biggest focus right now is creating the
awareness with our administration. 

We support the administration’s efforts to
level the playing field with China and have a strong trade
agreement between China and the US.

We know their intentions are good
and we support that. But, we don’t understand how fabric and yarn
and scrap-booking supplies have made it on to a list that’s
really been more of a high-tech debate in relation to Made in
China 2025.

Bryan: A number of Trump administration
officials have
compared the tariffs to a “diet,”
where the US needs to
withstand short-term pain to get the long-term gain of better
trade deals. What are your thoughts on that analogy?

Soltau: The
third component is that it’s making a made in America tax. We
sell the raw materials and the products that are being developed
through these materials are in fact made in America. That’s the
critical aspect for us and our customers and our
employees.

We are supporting manufacturing
in America with the small businesses with the organization, that
are creating for donations.

Over 22% of our customers are
seniors, they live on a fixed income, and they are doing this as
part of their livelihood. They’ve earned the right to do what
they enjoy in their retirement and for them to pay for these
things, that’s really what we’re focused on is spreading the
awareness.

Bryan: A lot of other US companies have said
that they may have to deal with the increased costs by cutting
costs in other areas like labor,
so laying off employees
, is this something you all have
considered?


Soltau: 

We
are looking at every opportunity we can so that we don’t have to
go there. Again, the sharing of the cost between our customers
and ourselves. In terms of how we can work smarter, how we can
negotiate costs with the makers we are engaged with.

That’s really the areas and
options that we’re looking at and that’s really where our focus
is before we would reduce our workforce.

Bryan: Another response that businesses have had
is to
put major investments
, such an expansions, on hold. Is this
something you all are considering?

Soltau: We
are evaluating all of that. As I mentioned we are a growing,
thriving, profitable company. We’ve opened over 120 stores over
the last five years and added over 2,600 jobs into the US
economy. We’d like to continue at that cadence, but at this point
everything is on the table and we’re just being smart.

We’re watching it, but as I
mentioned our focus is bringing to the attention that we don’t
want to place a tax on good that are made in America.

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