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Hi Guys,

I was just responding to their comments that they had moved their production from where it was to where it is. They offshored production from their former location to their present location, which is now severely affected by the tariffs. That was a decision that they made in a capitalist structure in order to lower costs, which is a smart move, but now they're paying the price for that decision of moving production into a protectionist environment since the imbalance of that structure is being addressed. They moved 100% of their production to one location, knowing retaliatory tariffs could happen since people have been discussing this for years, and now they need to consider what companies like Mattel, Apple, and Nike started doing years ago, and start to diversify their production to locations that are more economically friendly, albeit at probably higher production costs. I'm not saying it has to be the US, but it will have to be a location that isn't practicing protectionism.

Is the present structure in place retaliatory? More than likely it is. That being said, the existing structure prior to these tariffs, being so one sided on most products, probably demanded retaliatory tariffs to correct the imbalance. As you mention capitalism, another aspect of that is the fair and equal treatment of the environment for the participants. Zero tariffs is the ideal environment, since tariffs are an unnatural raising of cost within the structure, and that allows all participants to compete naturally based on the tenants you mention. However, doubling the cost of items going northeast while not having the same doubling going southwest creates an imbalance. Protectionism started by one side always causes the pendulum to swing back when retaliatory actions are taken.

One thing I've noticed about this entire discussion is the premise that this sort of production CAN'T be done anywhere else but where it is presently. Injection molding is done in all sorts of places, and in facilities large and small. For example, Oak Ridge Tool and Die does work for DOE in Oak Ridge, and makes some pretty complex injection molded products from designs they create themselves. The guys they have working there are just as skilled as any other designers, but they do get paid more. Chemical milling is another good example. There are plenty of companies here and elsewhere that can do the work, and all it takes to move production is to ship a sheet of mylar to that location. It'll cost more, but it can be done. There is the factor of production in scale, but that is just a matter of capital investment, not skill. These companies should own their existing tools (the molds), so moving production won't require any great redevelopment of existing products, but rather building the infrastructure to utilize their existing tools. Now, if they don't own their tools, that's a separate issue. As for raw materials, polystyrene can be made anywhere there is refining of petroleum, so all that would need is a refiner to decide to start making that material. I'm not saying this will be an easy process, but to assume it can't be done is just as flawed an assumption as assuming the world will collapse because of these tariffs.

I get it. Moving production sucks. I've done it four times. It changes your production costs, you have to find new facilities and sometimes have to create new infrastructure and processes. There are regulatory issues that have to be dealt with, as well as differences in taxation and compliance (other forms of a "tariff"). That's just the way business works. Change is usually an anathema to most people, but sometimes it has to happen. Being on my side of the model, there are things I will have to deal with just as Steve has mentioned Model Monkey will have to address. I'm not blindly optimistic about this issue, and where the results will take us, but at the same time people need to step back and see how this plays out. Right now, we're at the beginning of all of this, and nobody knows how these actions and reactions will affect the end result. Initial panic doesn't dictate the final outcome, it just reflects the resistance to change. You never know, it just might work.

Jon