Tariffs, for some reason

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Valued former and prospective US customers:

I was really hoping to avoid having to write this, but with the roller coaster of the last 5 years I guess I shouldn’t expect anything less from the next 5.

Fervent Astronomy is a small business based in Canada. Fornax Mounts, of which we are the North American distributor, is a small business based in Hungary, part of the European Union. The Lacerta MGEN-3 is also made in Hungary. Astronomik is out of Germany, also in the EU. Most of our other brands feature products largely or entirely made in China. Or Taiwan, in the case of William Optics. We sell astronomy gear, but it is all imported as there’s no widespread domestic manufacturing of astronomy equipment in Canada. A lot of our sales are to the US as it’s a bigger consumer market. What that means is that we import, and we export. We have a ton of experience in this area, it’s core to the business.

So:

Tariffs. You have them now. What does that mean for you? Much has been made about tariffs over the last few months, and it’s become clear that there are varying levels of understanding regarding tariffs, so I am compelled to provide this article for clarity.

Up until now, if you purchased something from Fervent and had it shipped to the US you would find that US Customs would not charge you import taxes if the total cost of the products you were importing was below USD $800. This is (was) the de minimus exemption. If you imported something more expensive than this, US Customs would levy at minimum a 6% tax on the import which you would have to pay. In most cases the delivery company (DHL, FedEx, UPS, USPS) would submit all the clearance paperwork to US Customs on your behalf, and they would charge you a nominal brokerage fee for doing so. The import taxes paid go to the US Government. It’s a sales tax. The same as many of you experience when you buy something from a store and are charged a federal and/or state sales tax. If you’ve never made a purchase from a vendor outside of the US, or you’ve never imported something valued in excess of USD $800, then it’s entirely possible that you’re unaware of this.

However, the US-based retailers that you make your domestic purchases from are keenly aware of this. Where you may only purchase one camera, telescope, or filter, they likely purchase dozens of units at once (well in excess of USD $800). So when their bulk order arrives in the US, they get sent a big bill for the import taxes from US Customs that they then have to pay. When you buy these imported products from these domestic retailers (virtually every major brand of astronomy equipment is made outside the US) the cost of these taxes are passed on to you either by being built into the product’s price or added at the end of the bill. There are a couple of different taxes that an importer might have to pay depending on what is being imported and its origin, and what state the importer is bringing goods into. You may have heard words such as Duty or Tariff. These are all import taxes, levied on the importer.

Depending on the day, the phase of the moon, and perhaps the temperature outside that morning, your government is now levying a 25% tariff on Canadian imports. Or 10%. Or sometimes 50%, before dropping back to 25%. Many things are not clear to me, including if this respects the USD $800 de-minimus exemption, or if it will apply on all purchases. It’s equally unclear whether it would be on top of the minimum of 6% discussed earlier, or if it replaces that tax. Finally, it’s unknown to me whether the manufacturing origin of the good will determine the import tax levied on it or whether the fact that it’s being shipped from Canada will be enough to earn it a 25% tax bill.

I want to touch on who ends up paying the tariffs: it’s you, the importer. A government has the authority to levy various sales taxes on those who sell goods from within its borders (like domestic retailers), or on its own residents when they import goods from abroad. If you are located in the states, the US government has the authority to tax you when you sell something within or from within the states, or when you import something into the US. Your government also has the authority to stop you from importing something, or stop you from exporting something. I’m located outside the US, you’re in the US. If you buy something from me then your government can tax you, or it can block the shipment from being let into the country. But a foreign government can’t tax me in Canada on account of you buying something from me. I'm not sure why exactly there's confusion on that point, but apparently there is.

So what’s that mean in a practical sense? Well, we’ve worked it out with Fornax that all their products will drop ship from their factory in Hungary. That sidesteps the tariff issue until such point that tariffs are also levied on Hungary or the EU. The MGEN3 is made in Hungary, but we ship it from Canada, so in the worst case you’ll have to pay 25% import taxes (although it could avoid tariffs for the time being given that it’s manufactured abroad, I’m not sure). Same with Astronomik filters. Pretty much everything else we sell is made in China or Taiwan (from components made in China). With a blanket 10% 20% tariff being levied on Chinese goods on top of whatever other tariffs existed previously you can assume that you’ll get taxed on these goods by some significant amount regardless. Your local domestic retailers will get charged these taxes when they import their stock (from QHY, ZWO, Celestron, Sky-watcher, Optolong, Antlia, etc). Since we live under capitalism they will almost assuredly have to pass the cost of those taxes on to you by raising their prices, in the interest of making enough profit to keep their lights on and employees paid. Just so you're aware, a 25% tax is enough to erase all the profit margin from most astronomy equipment in my experience. It's not something that consumers can expect retailers to absorb.

The whole exercise will also make the inputs - components and raw materials - that products are made from more expensive, which will further inflate prices and cause… you guessed it: inflation.

Consumers will buy less of these more expensive things which will reduce revenues for businesses, which if the lost revenues are great enough will lower wages or layoff workers to try and stay afloat, which will leave people with less money to buy things so they’ll spend less money, less money being spent will shut down businesses, which will lay off their staff, and the cycle reinforces itself until deflation and recession sets in. For a luxury hobby market like astronomy it’s a real wet blanket, and there’ll be more and more companies going under like Meade, Orion, OPT, etc. For the few well-off hobbyists left there’ll be fewer choices, less innovative products, higher prices, and perhaps lower overall quality. With the middle class crumbling, well, the less-well-off hobbyists won’t have time to worry about astronomy, since everything from food to fuel is going to take up greater and greater portions of whatever diminishing income they have available.

Welcome to the trade war, where we all lose.