- Chris Church
- The Chief Product Officer of MacroFab
- Founded MacroFab along with Parker
- Recent article Decoding Tariff Impacts on US Electronics Manufacturing
- What kind of items in the Tariff list will impact US Electronics Manufacturing?
- Passives, actives excluding ICs and diodes, mechanical components like switches, connectors, etc
- Assembled PCBs from China
- Biggest impact on pricing will come from the mechanical components, and specialty actives like high-current FETs
- Shouldn’t see a huge impact from LEDs, while China has grown from 10% of the market of production in 2010, to over 65% now, the majority of their production — 95% — is used internally in assembling LED lighting for sale
- Beware of counterfeit parts.
- Short Term Impacts on the Market
- Pricing on most things won’t increase until existing stock gets depleted from inventory at US warehouses
- Initial impacts will be slightly increasing prices, potentially rapidly moving stock as buyers look to lock in current pricing
- Overall, we’re predicting from about 2%-10% increase in COGS for most electronics produced in the US until all ICs are included, at which point the impact to COGS will increase dramatically
- Long Term Impacts on the Market
- We’ll see more assembly shifting away from US to places like Mexico which have lower tariffs on components between China and them, and little to no tariffs on final goods coming into the US
- Flex has been downsizing their high margin/mid volume segment, laying off 10% of their workforce as demand for telecom and datacom equipment has dropped, and focusing on higher volume and lower margin builds in the US
- NAFTA is not going anywhere anytime soon
- Tariffs this is a boon for NAFTA, but not necessarily for US manufacturing
- Impacts of Tariffs on the current Component Shortages
- Expect the bidding to get hotter on high-volumes of short-supply passives, esp. w/ automotive ratings, and you’ll need to get closer to the manufacturers and other consumers in the supply chain to keep costs from ballooning on these line items
- We are already seeing parts having gone up from half a cent to 10 cents on some high-demand capacitors at volume, this is before tariffs kick in
- Overall, it’s not going to affect the availability of passives right now, as passives aren’t discretionary purchases, the increasing price won’t necessarily increase the supply in the short-term
- Consumer goods?
- No Tariffs on complete consumer goods yet
- Will this hurt hobbyist/makers?
- Those that are sourcing their goods from China, not really – de minimus for customs is $800, so if you’re importing less than $800 a time from an overseas vendor, these tax rates won’t impact you
- Big issue is going to be around vendors who sell made-in-china boards (not final products), these companies are going to have a harder time covering the spread
- Companies that make a lot of their goods in the US, like sparkfun, adafruit, etc. will have lower overall price increases, which will vary from product to product
- Tariff list
- Madell Pick and Place
Visit our Slack Channel and join the conversation in between episodes and please review us, wherever you listen (PodcastAddict, iTunes). It helps this show stay visible and helps new listeners find us.
Special thanks to whixr over at Tymkrs for the intro and outro!
About The Hosts
Parker Dillmann is MacroFab's Co-Founder, and Lead ECE with backgrounds in Embedded System Design, and Digital Signal Processing. He got his start in 2005 by hacking Nintendo consoles into portable gaming units. He also runs the blog, longhornengineer.com, where he posts his personal projects, technical guides, and appnotes about board layout design and components. Parker graduated with a BS in Electrical and Computer Engineering from the University of Texas.
Stephen Kraig began his electronics career by building musical oriented circuits in 2003. Stephen is an avid guitar player and, in his down time, manufactures audio electronics including guitar amplifiers, pedals, and pro audio gear. Stephen graduated with a BS in Electrical Engineering from Texas A&M University.
Host 1 00:10
Welcome to the macro fat engineering podcast. I'm your guest Chris church.
Host 2 00:15
And we're your hosts, Parker, Dolman.
Host 3 00:18
And Steven Craig.
Host 2 00:19
This is episode 127. So church is our Chief Product Officer of macro fab. And I have one question for you. Why have you not been on the podcast sooner? By doing 220?
Host 1 00:36
That was the rule, right? If we were gonna do a podcast, I couldn't be on here pitching the business. You know, me, I'm always selling. So it was kind of impossible, you know, conditioned to be in. So yeah.
Host 3 00:51
He's just waiting for the podcast number to be represented by seven bits. Right. That's the minimum requirement there.
Host 1 00:58
You're right. Yeah.
Host 1 01:00
Host 2 01:02
So, church had a article that came out on Monday this week. What's the title of that article?
Host 1 01:09
I think it was decoding tariff impacts on us electronics manufacturing.
Host 2 01:14
Yeah. So those tariffs go in Act. I pretty sure most people who are not living on Iraq know about these new tariffs from that will be going into place from China. And that, I think it's July 6. Yeah, that's right. Yeah. Yeah. So I guess we should just jump right into because we have a lot to talk about. So I guess, let's cover like, what's the what are these tear? Like? What's on this list that impacts us, our company, macro fab. And I guess as a US electronics manufacturing,
Host 1 01:50
Scope, right? Yeah. So there, you know, the tariff list, there really, there are two lists, there's the list that's going in effect on Friday, which is going to cover most of the stuff out there, although typically will have the least cost impact on us. Now, it's the second list that they're still reviewing and getting public comment on, that really is going to start driving up the price for assemblies here in the US. So that first list what it covers, you know, I talked about this in the article, we tend to look at it from an electronics perspective. But really, the bulk of what's in that list are capital goods. These are things that businesses are buying regularly, to expand their operations, build new buildings, you know, long term investments, we see a lot of that in there. And that really seems to be the focus first is to impact business costs, you know, impact how they're thinking about their investments over the next several months to years, and about who they're going to buy that from. But when we look at the things that impact us, and that first list, they're really the passives, those are your resistors, and capacitors, your actives. Those are things like transistors, LEDs, etc, but excluding the ICS and diodes. And I don't know why diodes are specifically called out there, right, light emitting diodes are are under tariffs, but regular diets aren't. I'm assuming there is some manufacturer here in the US that, you know, had a comment about how that was going to greatly impact their business and we're able to get exception carved out. But then other things like mechanical components, your switches, your connectors, etc. Those are the really the primary things that are going to impact assemblies here. You know, we've talked as well about the assemble PCBs, things that are not a final good, but a interim component of a good say, like if you had your PCBs built in China, and then you were assembling them into enclosures here in the US, those are impacted as well.
Host 2 04:03
And you were talking about LEDs. So why, why are LEDs not really a huge impact? Yes,
Host 1 04:11
LEDs are a really interesting thing. Traditionally, China has not made a lot of LEDs, they were they were not a big player. If we look back like 2010 I think they were 10% of the market then. Not not a big player really. And since then, since 2010. Over the past eight years, they've grown to about 65% of the world's production of LEDs, which you would think would greatly impact us. However 95% of what they produce nearly all of it is used internally within China and manufactured into products like solid state lighting, flashlights, consumer goods, etc, which are then exported,
Host 2 04:49
Those LEDs are going on consumer goods are on to PCB assembly. Right, right. Yeah, okay.
Host 1 04:54
They're not they're not most of those are not being exported
Host 2 04:58
Much of the world Where do we get most of our LEDs land for? Like Taiwan? Yeah,
Host 1 05:03
Taiwan is the powerhouse, right? They have traditionally been where most of that led technologies, not even not just built, but where the innovation tends to happen there, you know, in making the dyes and everything, but Taiwan is one of the biggest Korea, Malaysia are still pretty, pretty large. And surprisingly, you know, if you're buying CRI LEDs you may be getting from Japan or the US. Just kind of depends on how much you're spending on those LEDs and how high the quality is.
Host 2 05:33
How fancy of one. Yeah. I think what's also on this list is like machinery. Right? Yeah. That using electronic manufacturing. Yeah, there there is. I can only think of one manufacturer though of machines, a muddle that builds picking places over in China. I haven't seen any Chinese picking places. Yeah,
Host 1 05:59
Actually, I think Panasonic does now. Okay, you know, but most of your high end stuff is still going to be European, European, Japan, Japanese Taiwan. Overall, let's be honest, you know, companies aren't buying pick and place machines every day. Right? This is something they're thinking about for a long time. It is again, it's a capital good. You know, they're they're
Host 2 06:26
What's that term? But the what's the term for buying what they say on NPR all the time. When I talked about companies buying machines and stuff as an indicator of the economy, I can't remember what that was,
Host 1 06:40
Oh, they call that they call that? Oh, what's the word I'm looking for? It's not this. It's the opposite of disposable. It's a
Host 2 06:50
Yeah, you're right. You're right. It's not disposable. It's the non
Host 3 06:59
Loser. And I like I like NVR was like, were you
Host 2 07:03
Durable goods? Goods? That's what Yes. And that machines and stuff fall under that? Yeah.
Host 1 07:09
Well, it's actually good because it's a signal of long term faith in the economy, right, that companies are willing to invest and equipment that, you know, may take them, you know, 810 plus years to recoup that investment on. It shows confidence for us is not an impact. I'll be honest, our you know, all of the really expensive equipment on our floor either comes from the US or Sweden, or, you know, it's not something we're buying from China. You know, there are a lot of manufacturers of this kind of equipment in China. I don't know that most of the US companies out there are buying that least none of the big ones really.
Host 2 07:51
The only one I know of is is Mattel and they basically make really low volume, low run styles done their stuff is our first picking our first pick and place Yeah,
Host 1 08:02
It was it was it was a very tiny one. Do we get that delivered to my house? No, we the first facility that
Host 2 08:14
Didn't we? We had the, like 1000 square foot? Yeah. How heavy was that thing? I
Host 3 08:24
Should tell you about Okay. It's like It's like it's like a tabletop pick and place. Yeah.
Host 1 08:27
It tells you about
Host 2 08:28
That. There's actually some videos on YouTube that took him in to put that in the podcast description. It can do a whopping 300 placements in our
Host 1 08:37
Yeah, I was gonna say the you can usually decipher the speed of the machine from its weight.
Host 1 08:43
Oh, yeah. Yeah,
Host 1 08:45
The faster it moves, the more it has to damp all those vibrations and snom that
Host 2 08:51
Yeah, it's like like the page Jack machine we have is like cut out like the front of chassis is actually cut out of stone.
Host 1 09:00
And that thing still wants to walk sometimes it seems like it right? It's like it's vibrating the whole thing. And that
Host 3 09:05
Thing gets moving pretty fast.
Host 2 09:08
So I guess we'll just move on to like what what's gonna be the short term impacts on the market for this for these tariffs? Yeah. So
Host 1 09:15
You know the key thing you know, we're gonna look at here is this tariffs come into effect Friday, right. And
Host 2 09:23
What you said there's two lists is it's the first list only this Friday and then the second list is still
Host 1 09:28
Up. The second list is up to debate and that includes the the ICS and the diodes. The ICs are where I'm really concerned about pricing. You know, what we? Well,
Host 2 09:39
China doesn't really make a ton of semiconductor. Not a lot,
Host 1 09:43
Not a lot. So the key thing we look at like the fabs out there, you know TSMC has been expanding in China pretty heavily. But most of those fabs are still coming online. Your most of our high dollar ICs are still coming from Taiwan. Malaysia, us, there's actually here in Texas, there's plenty of IC production, especially in Austin. And so most of the high dollar stuff isn't coming from there yet, but there are a lot of like mid price stuff that's already starting to be produced. These fabs like a TSMC. And there are some vendors coming in that are producing a lot more, a lot more ICS out there. So over time, we'll see that as being a pretty negative thing for us. We simply can produce much, if you think about like the, the mid volume on ICS, the mid priced ICs. Those aren't gonna be made here in the US for the most part, your stuff that's going to cost, you know, from 15 to 45 cents a unit. That's us trying to move to China right now. Right. You know, we're trying to make Xilinx here. Right. The interesting side point, I was reading the thing from the era, which is the electronic representative representatives Association. And they were saying the most counterfeit brand out there is Xilinx.
Host 3 11:09
That seems like something that's pretty difficult to counterfeit.
Host 1 11:12
What's not a good product? Right? They're not they're not offering you a form fit function replacement. They're just marking something as hyperlinks and selling you garbage, right?
Host 3 11:22
Well, sure, but even to fake it seems kind of hard.
Host 2 11:25
Oh, Steven, did you see that a PDF? I was floating around on Slack, about fit parts? No,
Host 3 11:33
I didn't. What was there like a list of them? There's
Host 2 11:35
No, um, yeah, take a look at I'll post it in the pike description too. But it's like, you look at that. You'd be like, Oh, that's how they counterfeited these silence parts.
Host 3 11:43
Okay. Yeah, I'll
Host 1 11:44
Take a look at that sounds good saying I think so Chris gamble. I posted that somewhere to write well, there, like literally washing parts in the river.
Host 2 11:51
So he posted it after he saw it on our Slack channel.
Host 1 11:59
Where we're all there. The link sources are coming from
Host 2 12:04
Not all this thing is it's Chris and I have talked about this a lot. And we'd like because gamble that church, we we will steal each other's sources all the time. Like, I'll go to like the the amp hour subreddit on Reddit and like, steal links off the top and use them and then he doesn't say anything nice. Oh, yeah.
Host 3 12:28
So earlier today, earlier today, I was actually I got the chance to actually have a chat with a lawyer at a very large semiconductor company that you guys would both be well aware of. But we were we were discussing things of this. Basically, they're where they get everything manufactured. And it's interesting, because they actually do 65% of their manufacturing overseas, and that spread across. And so only a portion of that actually happens in China 35% of it is actually here on US soil. The thing is, it's exactly what you're saying, Chris, where that 35% is, either their experimental stuff, they're really low volume stuff, or they're really like crazy, expensive stuff.
Host 1 13:15
And that's been I think China's contention is their their frustration, if you look at it like that made in China 2025 thing, which is in itself generating a lot of this friction between the US and China, their their their frustration, is that they've been the assembler for the world, but they're taking all this high value IP and highlighting products from other people and selling low value labor on top of that, and their plan has been really to move development of that IP into China so they can start generating that high value part of the proposition there. And I think that's, you know, obviously that's part of the thing that's driving these recent activities. Because traditionally, if you look at you know, especially with the semiconductors ICS what has been done as the fab will be done in somewhere like the US or Japan or China and Korea, and then they have the packaging and the testing the real low value part of that done in China, Malaysia, etc. And I could imagine from an economy right that would be kind of frustrating that you've just seen as a low cost labor source.
Host 1 14:24
Oh, yeah, totally. So yeah, I know, I was really good.
Host 1 14:35
Jumping on you guys.
Host 2 14:38
That's so yeah, what's gonna be the short actually it was my fault actually. I think I was derailed this
Host 3 14:46
Will derail us? Oh, yeah.
Host 1 14:48
Short term impact. So let's go So over on pricing, you know, this isn't gasoline right? Distributors don't price the materials based on the cost to replace it. They price it based on what they paid for They're their target margins. And they don't want to raise prices if they don't have to. That's the key thing. Because every time they raise prices, they're they're now in a less competitive situation to their peers. So what we're going to see is, I'm actually going to contradict myself here in a second. But just generally, what we would see in this kind of market is prices are not going to rise immediately, what's going to happen is they're going to deplete stock in that's currently in the US warehouses. And as they have to replace that as they have to import new stock to replace it, that's when the prices will start to increase. So on items, which are, you know, well stocked in the US already, they're going to have the longest time to start seeing price increases. But here is my here's my contradiction here. Right? If you
Host 2 15:52
Bought, if it's an OC, oh, 3.1, microfarad. Cap? That will be
Host 1 15:58
It's actually already gone up?
Host 3 16:02
Yeah, if you can find it, if you could find
Host 1 16:05
It go into that. Literally brought in a sales rep from being distributed. Today, we'll talk about that specific subject, when are you going to find that part for us. But really, what we're also going to see is, you know, we got buyers out there, right. And if you look at the buyer for you know, a fairly large company, they're measured in their ability to beat target prices. So if the target prices on those products are going up in a couple of weeks, they're going to start buying now, right to show their bosses, hey, look, you know, I was able to save us 25% On this, this part of my bomb. So there are going to be some items you're going to see basically, we're already seeing rushes on them. That stock is going down on certain items. They're typically used in higher volume production here in the US. So we'll see those already. Kind of kind of starting to deplete on those shelves and the price is going up.
Host 2 17:05
Yeah, so that's the current passive components sorted? Oh, yeah. Short term, at least
Host 3 17:12
Well, and you know, I don't think we actually mentioned or maybe I didn't catch it, but that 25% is the result of the tariff, the tariff is at 25%. Basically, tax on these electronics.
Host 1 17:24
You know, one thing, I get a little frustrated, I'll be honest, when I when I read articles, and they say, well, price of electronics is going to go up 25%? Well, what electronic device is going to go up by 25%. That's like saying, you know, it's bigger than a loaf of, you know, a loaf of bread or something, right, there's no reference point for the thing itself, that kind of captures what's driving the cost of that. And that's what they tried to cover.
Host 3 17:51
The iPhone 11 is going to be 1250. Now, right? Maybe
Host 1 17:56
Assemblies, right, every product has a different mix, it's bill of materials. And most of the stuff that's being impacted unless you have a very specialized device with like some, you know, expensive FETs or something like that in there. So a lot of connectors, you're really going to see what I'm looking at right now, when I look across our customers in particular, a lot of them are seeing two to 10% increases in price based on projecting the tariff impacts on them. So there's, you know, it's not
Host 2 18:30
And that's derived from basically just looking at how they're built materials are what
Host 1 18:35
Drives the primary cost in the bill of materials, right? If you look at a high tech device, you know, depending on what its purposes, most of the value may be in the ICS Correct? Yeah. And since as we've already discussed, most of the high value ICs are not shipped in from China. They're not going to see a huge impact there. Where I do have some concern of those those connector heavy devices, especially, you know, we see them in more industrial products, you know, a lot of connectors is going to equate a higher price. That's where we see the higher end of the increases there. And connectors are cheap to begin with. So
Host 2 19:15
Exactly. I was about to say connectors are usually the if you have a project, the most expensive
Host 1 19:23
Host 3 19:25
Well, and the thing is this, this tariff, this is not sort of like a big omen or anything like that. But the the topics or the specific components that it covers are kind of guaranteed to be on every board so every board will see an increase. It's just how much
Host 1 19:41
Yeah, I mean, if you're if you've got a handful of you know, Jelly Bean passes on there, a couple good icees a few connectors, you're gonna see maybe 3% of your total cost of goods. So, right. It's not going to be a huge impact for a lot of people. But for some products is going to be painful. You know, be honest, there are I know of a few products in our customers mix that will see a 25% increase. And there's just not much we can do about that today.
Host 3 20:12
Well, it also applies to pcbas. From China, if the if it's actually assembled in China, then that received the entire 25%. Yeah,
Host 1 20:22
I think I gave an example in the blog post of like, you know, the was it the ESP room device, the ESP 32. You know, I mean, if you can assemble that in the US, for less than 25% premium over what you buy it today, you would do better to assemble it in the US,
Host 2 20:46
You know, if it's cheaper to design on your board, but then you also have to add your FCC testing for 2.4 gigahertz, which I actually don't know what the price on that is.
Host 1 20:58
Yeah, there is that. But to be honest, you're mixing two different things there. Right? You've got sunk cost versus cost of goods. Yeah, you would amortize that sunk, sunk costs across the life of that product, right? And if you've got five years, and you're gonna produce 50,000, and that five years, the $15,000 for that testing doesn't really impact the whole lot. Yep. In the final price.
Host 2 21:21
I'm thinking like, 1000 units.
Host 1 21:24
Oh, well, at that point. 1000 units, every bit of costs really adds up. To get on what they paid for the right all that firmware.
Host 1 21:34
Oh, that's true, too. Yeah.
Host 1 21:37
Yeah. Yeah. We're not going to Yeah, I don't want to get too deep into, you know, misunderstanding the, the the way we calculate costs? Because that's, you know, I don't I don't worry about things like testing costs. Sure. They're the real money you have to pay. But so our developers, so our engineers, you know, I've never, you know, I've heard people complain about the cost to pay a third party for like a DFM test, you know, DFM review. But they don't complain about the fact that they're, they're spending $200,000 a year for a software developer in Silicon Valley. Right. They're both the same class of costs.
Host 2 22:17
Yep. I call that's a, you know, instead of going into long term impacts is skipped over to right now that the current components shortage, because that's short term. Yeah, I know. We already talked about it a little bit. But let's expand that a little bit.
Host 1 22:30
Yeah. So I guess for those that aren't familiar, right, if they haven't already heard, we are in a passive shortage.
Host 2 22:37
You don't want to use what two years ago, we were in a ice storm.
Host 1 22:42
Yeah. And that's, I mean, this is this is a weird thing. This is this is, you know, a great example of Miss, I guess, misplaced behavior in the market, creating huge issues. You know, I mean, exactly, yeah, I'm as guilty as anyone else about arguing over the price of passives over the past 10 years. You know, I can think of many times I started demanding that you give me those resistors for cheaper unfortunately, now we're all paying the price for that because you know, the the price got so low on passives that nobody bothered to add any capacity. Because what's the point you're not going to make any money?
Host 2 23:22
Well, I was the same thing happened with with IC manufacturers. Two years ago, is the margins got so slim, no one was adding capacity. Right. Right. And then ti just gobbled everything up.
Host 1 23:37
Competition out there, right. I think literally, you know, we were looking at I was looking at a part, you know, we're talking behind a little bit of this part. And it was buying a couple 100,000 of these. And it went from, you know, a year year and a half ago, that part was half a cent apiece. And now we're getting quotes at 10 cents apiece on those Wow, that's just insane. That's a 20x increase in a year and a half. Right.
Host 2 24:03
But the big one I found is well I guess it's not big. It's just interesting is I think we talked about on previous podcasts but like manufacturers are discontinuing part numbers and bringing in new lines basically kind of like the refresh their libraries Yeah, or more catalogs is the right word for it. 50 ohm resistors are gone. Oh 603 50 Ohm is just doesn't exist anymore.
Host 1 24:32
Well, no one but you ever use those Parker?
Host 2 24:37
Lock customers? Um, that's actually one of the things is like, I'm like, huh, we're going to have to deprecate that house. Because we gave that part just doesn't exist anymore.
Host 1 24:46
I think we might have a year or two more of guaranteed availability on that line. Might have to check. We have
Host 1 24:54
A lot of reels.
Host 3 24:56
But by noon is going to be tough. I
Host 1 24:59
Can't I can't promise how they'll cost us but I know we have guaranteed availability and they never said anything about guaranteed price though so but yeah, what you know, this is a huge problem. I gotta say, you know, I'm looking at tier one and tier two manufacturers. For those who don't know the tearing, what's
Host 1 25:22
The tier one tier two
Host 1 25:24
Or tier one or your big your big namesake manufacturer? Is there anyone who's making a billion dollars at up in contract electronics manufacturing. So that'd be Flextronics flex Foxconn, you can po J. Bill, San Mina, etc. Which is an interesting fact that Foxconn, if you look at like the entire contract electronics manufacturing market is about $460 billion dollars a year. Fox Khan's revenues are $230 billion a year they're almost 230 They're almost half the entire market now.
Host 1 26:03
That's crazy. No wonder they sell their own computer components. Right.
Host 1 26:06
I mean, there's there is no manufacturing company in the history of man that has ever been that large.
Host 1 26:14
That's, that's crazy. Yeah.
Host 1 26:16
Making 5% margins.
Host 1 26:20
Mac probably number two, yeah.
Host 1 26:23
Next week, right, next week?
Host 2 26:25
Yeah, get right on that next week. And four more years.
Host 1 26:28
Yeah. But we look at this, this this the short supply issue. drive us back to the subject. matter who the tier twos were right there there. Yeah, you know, 100 million enough. And then tier three is everybody else. So I don't even know why we were talking about tier fetchers. I completely lost my train of thought.
Host 1 26:53
But you're thinking, Oh, buying parts, I
Host 1 26:55
Think Yeah. So we're talking about passive shortage. So I'll just talk about what what's really happened is, you know, if you look at a car right now, you've got what think 50 printed circuit boards on average in the new car, I think, am I correct on that, Parker?
Host 2 27:14
I think so. And that's what's wrong with modern cars.
Host 1 27:18
They can all have carburetors, but nothing more than having to adjust my carburetor when the temperature changed.
Host 2 27:28
I'm actually ripping the carburetor off my new wagon. For rebuild. I'm actually apart this way. I'm a fan of fuel injection. I love fuel injection. But
Host 1 27:38
By the way, how's the air conditioning that
Host 2 27:42
I'm in the morning? And the afternoon? It makes it so you don't sweat? Okay.
Host 1 27:47
It's marginally functional. Right?
Host 2 27:51
Marginally professional. It's actually for the fact that it's all original equipment in it. I'm pretty happy with
Host 3 27:57
It. It's a tier three AC right.
Host 2 28:03
Exact opposite might in the Prop in my jeep wrangler. It's like a freakin icebox. Yeah. So right back,
Host 1 28:12
Let's get back. 50 PCBs in a car? I'll just keep talking about Jeeps
Host 1 28:17
For sweet. Yeah. You know, when it comes to passes, it's a nightmare out there. I know, there's, there's no way to sugarcoat it. Right? The, you know, we're literally in some cases for our high volume customers having to go out there and negotiate with other manufacturers, literally trading capacity trading parts. This is not going to get any better. I mean, the key thing you have to think about a passive, right? It's not a discretionary? No, you know, you need them to build your product, right. If you don't build your product, you're not selling it, you're not making any money. So you know, a lot of the the traditional market forces, we see the price goes up, the consumption goes down. That's not actually the case here. It's actually you know, even worse, because now we're seeing people we already saw people in the market over buying. So if you were, you know, a purchasing manager at a, you know, say a tier one or tier two manufacturer, and you knew that if you can't get these resistors next year, you're not going to be able to make any money because you can't build this product. You would take the opportunity now to buy everything you can get. And so that's what we're seeing a lot of recently is over buying by consumers in the chain, they normally would buy, you know, one to three months worth and now they're buying 12 to 24 months worth, which is making the market shortage even worse, and now we had that a big price hike or 25% price hike for US consumers. And what we've noticed is for whatever remains here in high volumes, it's flying off the shelf prices are going up on it. And people are taking full advantage of these tariffs to go ahead and charge a lot more.
Host 3 30:10
Hmm. I'm wondering how much this is going to drive gray market passives you know, a whole bunch of like eBay deals and things like that.
Host 1 30:18
Things that got washed in the river and
Host 2 30:25
What's funny is I have a friend that built some boards. Oh, he had stuffed them about three years ago, but he ordered all his parts from like, Alice Express gray market stuff. And yes, his reels of Oh, four 2.1 microfarads
Host 1 30:45
Work short. Oh, man.
Host 2 30:49
Like, it's not like they didn't work or anything. They were just straight up short. To ask
Host 1 30:53
How much cheaper is that to produce?
Host 2 30:58
The fact he had the repackaging just me and someone spent the time to repackage Oh, four. Yeah. And thought that was a good use of their time,
Host 1 31:07
Host 3 31:08
Somebody made money on it. Right?
Host 2 31:11
I guess so. I guess. So let's move on to the long term impact. Yeah. So so this is something that no one ever thinks about? Because we're all short term.
Host 1 31:21
Long term. That's our short term.
Host 3 31:23
Host 1 31:26
So you're you This is like, you're asking me to think of a year from now holy cow. Somebody asked me that.
Host 3 31:35
Yeah, tell tell us what parts we should buy in bulk right now.
Host 1 31:39
Nothing if you can avoid it. You know, my key thing is like, if everything's in if, you know, if these tariffs stay in place, if if these things you know, if new tariffs don't come in, if consumer you know in in goods, tariffs don't don't take their place, you know, then we're gonna start seeing some some real stuff happening here. And I don't think it's what we were expecting, right? So let's imagine a world where a year from now, these are the only tariffs that have been put in place and they remain in place. Okay, at that point in time, a year from now, assembly is going to have shifted away from the US to places like Mexico. I mean, okay, so Mexico's ratifying a new free trade deal with China. Right now, we have NAFTA, which is setting those in goods tariffs for many cases at zero, right? So we can import products to Mexico, at a very low tariff rate, or even none the components, we can assemble them in Mexico at a lower cost, then we can do that here in the US. And then we can import them to the US with zero tariffs. That's kind of obvious that our businesses, you know, everyone's business will move that way. Right? Because, you know, why would you pay 25% more on the materials just to manufacture it here? So there's a there's a lot of that's going to happen. But overall, I think any uncertainty on tariffs is going to drive people to look for more localized manufacturing. That doesn't mean necessarily the, you know, all EU customers are going to manufacture in EU are all US customers are going to manufacture in the US. But they're going to look for excuse me, near places with better tariff profiles. So I'll give an example with us. It's Mexico, right? We've got a great deal with Mexico. And I think it's overall it's good for both countries. If you look at the EU, we've got you've got Eastern Europe. And then you've got places like North Africa, like Tunisia, which are part of the European Economic Zone. So you're not looking at any tariffs to move product from Tunisia, into Europe. Right at that point, you pay your duties, so your taxes your bad at sale time. So we're gonna start seeing more manufacturing shifting locally. When is it gonna get locally as regional right, versus, you know, everything's gonna be made in China, or everything's gonna be made in Mexico. We've already seen this going on in Mexico, by the way, you know, I was down there a couple years ago. You know, a lot of people don't realize a lot of our televisions we buy now are made in Mexico. One of the biggest products coming out of Tijuana, for example, today is a television. And originally, you know, a lot of that was driven. The move there was partly a deal with the Mexican government and the Chinese government to kind of create this investment zone in Baja. But another key part of it was the transport fees. Right. It turns out Mexican labor is for electronics is cheaper than key labor centers in China. So they took advantage of it. Lower shipping costs by shipping the components rather than the assembled in box TVs over to Mexico, having them assembled by cheaper later labor, and then importing them via NAFTA to the US with no tariffs. What had happened about two years ago, the cost started shifting in such a way that a lot of these Chinese companies were making plans to move that production back to China. And in fact, I knew of at least I know of at least three factories that were looking at losing their business entirely in that move. Well, in the past, you know, eight to 12 months, we've seen that completely reverse. And not only have they not move that production away from Tijuana, they've actually increased that production. Everyone I talked to down there as far far busier than they've been in years. So we're gonna see a lot more that those products, that they're worried they're going to have these these high, high tariffs coming from China, they're just going to sell the materials or import the components and materials into Mexico, build them there, and then ship them in here. They're already doing it, they're gonna continue doing that.
Host 2 36:12
Gotcha. And you touched a little bit on NAFTA. So what's what's NAFTA gonna
Host 1 36:16
Have to be? No, I don't I don't see it really going here. Let's be honest, like here in Texas alone, NAFTA drives like $8 billion in jobs. That's a pretty huge political clout. You don't you don't tear up an agreement like that overnight. And, you know, and not to eat. Yeah.
Host 1 36:43
That's, that's for guys.
Host 1 36:48
There's so much money involved, so much economic activity, that these things are way far, far further reaching than people realize, and with a lot heavier impacts. So maybe, you know, some some foul words are gonna put that whole thing in question, but I don't see it going anywhere right away. Now, don't quote me on this, because unpredictability is the name of the game right now. And, you know, I don't want to prognosticate up here. But I, I'm, I'm long on NAFTA right now. So I'll keep I'll keep betting on it. And being here in Texas, right, that's easy for us to do given the amount of trade that feels here. And giving?
Host 3 37:38
Well, okay, so quick question on that, does it because of the NAFTA capability, doesn't that just feel like somewhat of a backdoor, or a way of funneling money in a different way? Or potentially even funneling money to Mexico?
Host 1 37:53
It could it could, you know, people talk about NAFTA backdoors all the time. Right. And again, it's not where's the value coming from here? Right. And in fact, that is a key critical question, that all of these trade agreements touch on, when they talk about where something can be labeled as made in is where is the value being applied? And what generates the most value in that product. So if we think for a second, right, you know, a television, right, that television has a display made in China, it has a plastic component made in Mexico, it has ICS that are made in us or Taiwan, or Korea or Japan, all running on IP that's generated and licensed primarily from American companies, or Japanese companies, or Taiwanese companies. And then some labor is being applied to it in Mexico. So when that thing then comes into America, where is all that value gone? Right? We tend to assume the values and the final sale price of that. But that sell price represents a bunch of people getting paid in the process. And if we don't make that product in Mexico, say at a low price, we don't assemble it there. Do we sell as many of those as the this the chip manufacturer, the company that's licensed that IP on there, get as much money if we sell half as many TVs or a quarter as many TVs? These things are far more interconnected. And it's not this sort of, in my mind, it's not this black and white, whoever does the labor gets all the value, but there's a whole chain of subsidiary services that don't exist. If you can't sell that product at a price the consumer can afford. So sure, do I think it's good for us? Do we maintain value is it the back door the back door is really just just preferencing who does the cheapest part in that process? And my thing is, look, you know, is Having Mexico do the labor means that TI and Xilinx and all these other US, IP producers can sell more licenses, that it's probably a benefit to us in general, it only becomes a problem if, like the issue with made in China. By that there's some, you know, some sense of IP being stolen and relicense somewhere else. And now we're getting nothing out of that value chain. That's where we need to be worried. Yeah,
Host 2 40:30
You know, I want to touch a bit more on Main China, and a little bit, because I actually don't know a lot about it. It sounds like the church does. But one more, one more question for long term impacts is from the outside, this is actually from a one of our listeners on the Slack channel. He says these tariffs encourage us manufacturing of components to bring manufacturing back to us from at least from an outside perspective. willens is the question and the prospect that come like if these tariffs go into effect? And will this actually bring the new manufacturing because let's say in two or whatever years, these tariffs go away, those new factories that got spun up to build new components now are added?
Host 1 41:21
There's two parts of that really, right. Like, if we take a commodity item, and we raise its price, if it comes from outside the country, does that automatically make it worth producing here in the country? I don't think these tariffs are structured in such a way presently to do that. Because when those components get too expensive here in the US, you just assemble the whole product somewhere else. Now you have no additional tariffs Eubacteria original 1.7%. So really, all it means is you're going to shift the final assembly of the product to somewhere else, if the tariffs stay the way they are. Overall, you know, you're looking at a couple years and a lot of money in capital investment to start building. Say, for example, resistor, fabs here, and
Host 2 42:15
That's my example, I'll use, like, Let's build some thick film resistors.
Host 1 42:18
So the first thing we have to understand is we're not going to use labor to do that. Because the labor rates are too high in the US. So we're gonna want a robotic resistor factory. When's the last time we built a resistor factory here in the US? I don't know the answer to this. But probably while it's rhetorical question, do you know?
Host 2 42:39
Yeah, I think you can buy USA made by him.
Host 3 42:45
Yeah. And there's actually some some resistor places in Houston. But they are very, very small quantity and very special, I
Host 1 42:53
Got upset that I'm now having to pay 10 cents apiece for a half a cent resistor, a resistor, or capacitor that was half a cent a year and a half ago, right? So how do I make them in the US without them being 10 cents apiece, right? I need a fully automated factory. Well, if I haven't built a fully automated factory in the US in years, that means I'm probably not building robots that automate that process here. And the other problem with these tariffs are they impact capital goods, ie machines to automate the building of things? So we can't actually afford the factory here right now. So I don't see that happening. Well,
Host 3 43:36
And that actually, that's something that that confused me from the the first time I heard about these tariffs, is it the concept of implementing these tariffs such that we can, I don't want to go too far into it, but bring jobs home kind of thing. But but that that kind of concept? You take it and take it or leave it if you like that or not, we're not ready right now to spin up. It's not like we have these fabs such that we could just increase capacity right now
Host 1 44:06
On our soil that we can move on. Mm hmm. Right. Yeah,
Host 3 44:10
Exactly. Exactly. So it seems kind of odd. It's confusing at that point. So it just seems like a shift as opposed to like a rebuild.
Host 1 44:17
I mean, there's nothing about the current tariffs going in that really enable us to start producing electronics components here in the US and in fact, with the with the tariffs on capital goods, let's be honest, a 25% tariff on a quarter cent resistor, excuse me, doesn't have the same impact as a 25% tariff on a $4 million automated piece of production equipment. You know, that can shift the economics pretty far away from from actually making that a feasible thing to do. But I don't think the intent there. I'll be honest with you, I don't know I don't see anything in the intent that says someone wanted us to build resistors here in the US when they restructuring that, I, you know, and I see a lot of things that really impact more traditional capital goods that we have produced here for a while, like think like, you know, Ken, are they putting up barriers to competition with Caterpillar? Yeah, that's definitely happening. Right? Are they putting up a, you know, barriers to competitions with a Midwest producer of transformers? Absolutely. Right?
Host 3 45:37
Well, actually, you know, go look at the terrorist list. In fact, we should, we should put a link to that in the show notes. There's 1300 line items. And if you kind of just dig through them, a lot of them are very broad sweeping a lot of them are, are wide terms, but but there's a handful in there that if you really pay attention to them, it seems like it's very targeted towards a very specific industry, or very specific even product within certain it's like, for example,
Host 1 46:03
That target automobiles. How many automobiles do we actually import from China? Very few.
Host 2 46:09
It's right, I actually can't think of a single brand that we import here.
Host 1 46:19
Host 1 46:20
We import Fords from China?
Host 1 46:23
Yeah, it's amazing. Right, the the number one importer of Chinese cars into the US as a US company.
Host 3 46:31
Mm hmm. Here's a good one. Look, I actually have the tariff list pulled up right now. And and this, this one, I think is really interesting. It's 850 1.5 1.50, if you're so interested in actually going and checking out, but but listen to the description here. AC motors multi-phase have an output exceeding 735 Watts, but under 746 watts. So there's like this window, this very tiny window, and there must be some American manufacturer that has a, you know, some product that fits right in that window. That is that has competition in China.
Host 1 47:10
Maybe Maybe I think you're probably right, I would say from a from a guarantee that you know, just law of averages. That's right. I almost wonder if that comes from when they're originally taxing things. Right? They come in, they say AC motors, right? They say Okay, that's great. You know, we're going to tax all AC motors coming in. And then someone says, But you know, I can make this really cool washing machine here in the US If only my tax rates are lower on this AC motor. And they say, Okay, well, we're gonna split AC motors into three groups. And this one group, we're going to lower the tariffs on. And then they keep doing that over and over again, to preference, you know, some specific industry. And then when they come back, and they do this, they're like, there's 75 line items. Let's get them all.
Host 3 48:03
Yeah, yeah. But that's just some of the the line items seem like, like one of them was sandblasting equipment. And, and that's it. It doesn't say anything specific. It just says sandblasting equipment, whereas that other one is like, very specific.
Host 2 48:18
I bought I bought my Harbor Freight sandblaster last year.
Host 1 48:24
Oh, yeah. You bought it at Harbor Freight here in the US?
Host 1 48:27
Yeah. Would have been 25% More than this
Host 3 48:29
Friday. So would have gone from 100 to 125 $50.
Host 1 48:33
To like, $60.
Host 1 48:40
Yeah, no, I mean, that's that's kind of the end of the world there. Parker. I don't know if you could, you could keep that hobby going with those kinds of price hikes.
Host 3 48:48
No, no, no. Yeah, we need to have Harbor Freight on as a guest and see how it affects them.
Host 1 48:54
Host 1 48:55
But there's Yeah, I mean, there's some interesting stuff out there, right. You know, I was thinking about this, because, you know, I was looking, you know, if we go back and we look at like, just let's like flex, for example, right, for those who are unaware of Flex is laid off 10% of their workforce in the past six months. 3800 out of 38,000 people, all of them in the US. They've been shutting down factories. What they were not shutting down though. Or high mix low margin factories, or excuse me, high volume, low margin factories. They were shutting down high mix high margin factories. So, you know, we tend to think that traditionally here in the US, we produce a lot of high value goods and you know, those low value goods shipped overseas. You know, it's interesting that they were taking it looks like they were taking a response to, you know, this impending idea of tariffs coming in. I'm not going to put ideas in their mind or anything But if you if you look at what they were doing, we see a drop in telecom production and data comps and things like Cisco, CIS CIO, Houston, non Houstonians one understand why I have to differentiate those two names.
Host 3 50:18
Not lunch buffet, right?
Host 1 50:19
So that stuff that's going into restaurants, stuff that's going into data centers. Cisco is a huge manufacturer here in the US. A lot of your high end computers and networking equipment, stuff like that will be made here in the US because it's high margin, if you're buying a $75,000, but that'd be a cheap one, I imagine a middle tier switch from Cisco. They don't have $60,000 in bomb costs. So they can afford to spend more to have them manufactured here in the US protect their IP, etc. But the weird thing is, is that's not the growth we're seeing at companies like flex, flex is looking at building Xboxes. And, you know, laptops and computers and stuff. And they're reinvesting there, which is, which I thought was kind of interesting, right, that the question is whether they'll continue to go in that direction, if tariffs stay the way they are, right? You know, are they going to continue to pay a higher component cost and a higher labor cost to build them here? Unless those consumer goods as in product tariffs kick in? And so I think, you know, anyone who looks at this says the betting person is betting on these tariffs being followed by either, you know, finished goods, tariffs, or the tariffs going away.
Host 2 51:43
Yeah, I was actually gonna bring up is because right now, consumer goods are in the tariffs, which are well, finished consumer goods. Yeah. So like if they assemble the TV all in China, and then ship the TV over? I personally expect those to follow later this year. I'm going to guess after September after November.
Host 1 52:07
Host 3 52:12
Yeah, it would be pretty bad if it was September. That's where I went again.
Host 1 52:17
Yeah, yeah. So I think I think you're probably right. You know, a betting person would not take that bet against you there. But you never know. I mean, look, we live in an uncertain time. It could happen tomorrow, for all we know.
Host 2 52:37
You know, I think if something does happen in November, we'll have to have another one of these. Talking about the new things that are in our interview. Yeah.
Host 1 52:47
You know, so, look, uncertainty. Uncertainty is just bad in general. I don't like it. I don't know anyone else in business, who likes it? You know, when things get uncertain, you know, what do we do we stop investing. Right? You know, I? We're like many other businesses, right? We, you know, we make investments in technology and equipment, etc. Through, you know, people investing in us either or through debt, etc. Will all of those things become harder when no one can predict what the future is? Right? All of this uncertainty, all of this? Well, are these tariffs going to come in? Are they not our prices going to go up? Are things gonna go down? They're really just going to impact the flow of capital here in the US, right? People are going to be asking the question, should I be building a new factory? I don't know. I don't know where that's gonna go, right? Should I develop this new product and then manufactured here in the US? Or should I make it in China? I really don't know. Why don't we sit back and wait a little while and see what happens? You know, we saw that during the downturn, even as things started to pick back up. After the 2008 crash, even as things started to pick back up, it took a long time for companies to start making major capital investments,
Host 2 54:09
Or it took consumers long time to do that.
Host 1 54:11
Well, they couldn't get most of our consumers. Let's be honest, this is the US they buy on credit. And on debt, they couldn't get that credit terms they could afford.
Host 3 54:20
Yeah, there's a lot of trust issues.
Host 1 54:22
So we saw like, if we'll use the MPR term, durable goods purchasing went down. Phrasing for you know, companies found other ways to make money. And what we found what we find during times of uncertainty, is you see things like stock buybacks. You see things like big dividend payouts, because companies don't aren't looking to make long term investments. They're looking to take advantage of the uncertainty in that market, to to buy, you know, assets and capacity to borrow money and The future. So, you know, I don't see, overall this being a good thing right now. I don't think, you know, kind of go back to your question earlier, right? You know, not just are we gonna make resistors here, but are people going to start moving manufacturing here, I don't know that what's going to happen right now, there's just too much uncertainty out there. So we're going to need to see much more certainty in the market, before we, you know, can go in with international policy is going to be before we start seeing major moves by companies to shift all their production one place or another. You know, we're gonna see a lot of little individualized activities I moved in Harley Davidson and all these guys, we're gonna see that kind of in the short term, individual companies whose whose economics have now gone out of whack, we're gonna see that but as a large general movement,
Host 2 55:55
Or have been out of whack, what's that? That's it have been out of whack? Because you brought a party? Right? Well, that's they have bigger problems,
Host 1 56:01
But I don't think even the president can help them with their, their their challenges.
Host 3 56:09
I heard one of their biggest problems is that millennials just don't buy Harley's. They just don't think they're cool.
Host 2 56:14
I think it's actually just younger people just don't buy vehicles, and then even less a percentage of people buy motorcycles. So you're just shrinking the market?
Host 1 56:25
Well, you know, I mean, let's look at the Brady's out there, right? How many movies have a young cool hipster riding on a Harley?
Host 2 56:34
I can't even think of one actually driving cars, either.
Host 3 56:38
So what you're telling us is that we need a terminator two of our generation.
Host 1 56:43
More like Cool Hand Luke or something. But it's been a long time since it was since it was cool for a young kid, right? young person to ride a Harley, right? Sure. Yeah. How many of our parents on them? Right, you know, I'm in my 40s. And, you know, that's like the thing your parents do.
Host 3 57:04
Host 1 57:07
Yeah, so, I mean, I mean, overall, we need to get a lot more certainty in the market. And what we're just gonna see is more and more, you know, point in time, individual reactions to changes. But not a lot of huge market moves, except to compensate for that uncertainty by saying, well, things are still good in Mexico. Let's move it there. Things are still good in Tunisia. Let's move it there. The EU while they've got Eastern Europe, they can produce at a low cost. And so I don't think they're that impacted. And plus, let's be honest, I don't think they're going to get into a trade war with China. So
Host 3 57:46
Yeah, I'm not sure I'm not sure anyone wants to. I'm not sure there's any trade wars that this is not intended to create any of those. Although I'm not the thing is I'm just confused. I'm not I'm confused about the end goal of our government imposing these I'm just not sure. It couldn't, it just doesn't seem clear.
Host 1 58:05
I have long since given up trying to make sense on that.
Host 1 58:09
I am with you church.
Host 1 58:13
It's it's a it's like watching a Yoda AUSkey movie or something. You just kind of have to enjoy it for the visuals or
Host 3 58:21
Something. It just go along with the ride.
Host 1 58:24
You're just gonna get confused. Yep.
Host 3 58:27
Yeah. Well, that's certainly
Host 2 58:29
One one last major topic. And this is a was a pretty popular one in Slack channel is will this hurt hobbyist slash makers? Because all you hear about in like on Hackaday and other various sources, like make mags? Actually, I don't know if Make Magazine reported on this yet. But yeah, what do you think?
Host 1 58:51
Yeah. So you know, I like the guys at Hackaday. They're all great people. I'm not sure it's as bad as they've made it out to be. If you're sourcing your goods from Alibaba, China, say you're buying your your your dev boards from AliExpress. The de minimis right, that's that specific term from the from ice. The de minimis for customs is $800. So if you're buying something worth less than $800, there are no tariffs on that. Then you look at like the next 1000 on that or so I think it's a flat 3%. And then over that the normal Harmonized Tariff codes kick in. So you have to think if you're a maker and you're buying directly from overseas, you have to spend $1,800 in one order before these tariff rates start to impact. Where I think it becomes a challenge for the makers. The big issue there is around vendors who sell made in China boards, that is not final products right but development boards etc. that they're having made in China shipped to the US and then sold here, because they're going to be bringing in 1000s of dollars worth at a time having to pay those 25% duties. Those are the ones that are gonna have a hard time covering this spread, you're gonna have to increase their price, or sell them from another country, to the end user here in the US, increasing their shipping costs, for example, but you know, companies that make a lot of their goods in the US like SparkFun and Adafruit, etc, they're going to have lower overall price increases, you
Host 2 1:00:32
Know, it's gonna vary, it's gonna be similar to like that two to 10%. earlier.
Host 1 1:00:37
Yeah, yeah, you're not gonna see this blanket. 25%. Right.
Host 3 1:00:41
And that's what everyone's losing their mind over. Right. Right.
Host 1 1:00:43
And again, this is where I go back to that, like, it's not all 25% If you're in the US, right, you know, what's the makeup of your bill of materials? Right, is
Host 2 1:00:55
Actually look at your country of origin. Right? On your parts?
Host 3 1:01:00
Well, and it's 25% of the cheapest stuff.
Host 1 1:01:04
Right today, except for separate connectors. Right. Right. Right. Maybe, but I don't look where our high end. That's me.
Host 1 1:01:12
I'm going to keep talking. I'm going to search.
Host 3 1:01:16
Yeah, I don't I don't off the top my head. I don't know. One
Host 1 1:01:19
That we use all the time pinball.
Host 1 1:01:21
Right. Because because we've got you know, we've got a lot of customers that are in like, the audio and DIY audio. Yeah, that's, that's pretty big business for us. And, you know, a lot of their costs are in these high end FETs and high end resistors and stuff. And I don't know, I don't remember those are made, right and
Host 3 1:01:37
Discrete. The transistors? Yes, yeah. Yeah. Yeah.
Host 1 1:01:41
Right. And I was looking at, like, audio board forums, right. And people were like, Oh, my gosh, my pedals are gonna go up by 25%, and so on, and other people like, no, they're not. Yes, they are. And it's all this argument. You know, I believe in math. I believe you can model anything. And, you know, the exercise of modeling the price increase on your product? is, I think, an exercise that every person should go through anyone who's produced Sure,
Host 3 1:02:08
Absolutely. Yeah. You know, you kind of covered it earlier. You know, it all depends on what your end product is, of course, and what your bill of materials contains. But but a lot, a lot of the the audio kind of guys, they they design their entire world around a unique characteristic of a particular IC. And a lot of the magic comes from the switches, the the connectors and the passives that connect to that magic, I see. Therefore, they might potentially be more effective, even though it's still 25% on the cheapest parts of their brain.
Host 1 1:02:46
So that, yeah, you know, I mean, I think, but it gets different that speaks to a larger issue. Right, you know, how much value are you adding? As a product maker?
Host 3 1:02:57
Sure. Yeah. Right.
Host 2 1:02:59
You know, it's really hard. Most data sheets do not state the country of origin. Yeah,
Host 1 1:03:05
You gotta check with the actual retailer. Yeah, but
Host 2 1:03:09
Like, Mouser rarely has it on, like, if you go to the part, it doesn't have it. So you have to order the part in to contact the sales team, I guess.
Host 1 1:03:20
But I want to kind of touch on that point, because that's the thing that bothers me a lot. When I talk to people, you know, I, I talked to a lot of startups, you know, I do programs here in Houston with some of the the different, you know, companies that are getting started out there, and they're founders and so forth. And the biggest problem I see is everyone says my product has to be cheaper than what's out there. And I think that's a lot of ways that's a distortion, right? Your product has to be cheaper when it really adds no value. Right?
Host 3 1:03:54
It's at what at that point, its value would be just its price. Right? Right. That's the thing. Like,
Host 1 1:04:01
If you're giving people more value than they have today, why do you have to sell it for less than the things with less value? It just never understood that? It's Yes. I mean, come on up. You know, I've created a product with four times as many features that I want to sell for half the price. Oh, why not sell it for twice the price, right? If it's four times as good, it should be worth twice as much. Right? So and
Host 2 1:04:25
Pocket, the extra margin? Right?
Host 1 1:04:28
You know, and I think, and I think going through your product, right, looking at how things like this impact your specific product and where value comes from and how much value you're adding to it really is a great exercise, right? If you if the only value in your product is a fairly non unique connect connection of existing off the shelf components. You might want to look at that and say how can I add more value to that right, because that means someone else can just come in and undercut you right and offer the same same functionality. Yeah,
Host 2 1:04:59
I mean, Yeah, I mean, a good example I always uses Arduino boards. Like you can buy one from that's made in Italy for $30 or you can buy one in China for I think the cheapest I've seen is like $4 and some odd cents
Host 1 1:05:16
Right? And to be clear their values in a community Correct? Not in the board itself, right. So and many users can get that value without ever having bought a board for them. I know I've brought some plenty of clothes in my days I've never bought an official arduino board. You know we little story here Parker and I used to be one of the biggest consumers of Arduino the was put scorch module on mobile or whatever it was doing before doing you know, yeah, or the,
Host 3 1:05:50
The old one do em and for now, it's called the D Yeah, that's it. But then they made a
Host 1 1:05:56
Dewey veto. They kept factoring those for us for like two years after they were discontinued. Yep. Because we bought like something like what? 3000 A year 4000 A year of those.
Host 2 1:06:10
Yeah, something like that. Yeah. And because it was because the big problem was the UNO which would worked in the product uses that 80 Mega eight for the USB bridge. And we didn't want that. We wanted the ft 232 RL that was on the old board. Right
Host 1 1:06:28
Right. Because it worked with native drivers. Yeah, right right. Yeah, don't ever base a product on someone else's actually redesigned it but it was interesting. We had a lot of fallout on those two I remember we used to go to TX RX and we take them to like a whole box of broken are some things that failed test. It'd be like 400 Here you go. Have fun harvest parts.
Host 3 1:06:56
Oh, they must love that.
Host 1 1:06:57
They actually did. I'm like you guys go good. Gabi Massey TX.
Host 3 1:07:01
RX is a TX RX is the local Houston makerspace. Yep. The second largest in the country.
Host 2 1:07:10
Yeah, I think that New York was the largest and then that's the second largest.
Host 1 1:07:14
Largest by what measure?
Host 1 1:07:17
Square footage, I think I think
Host 3 1:07:19
It's largest by square feet x
Host 1 1:07:20
Or x is largest by square feet. They just got another 30,000 square foot building. Yeah, three or four of those now, someone told me they had a they had hired interns from TX RX. And I'm like, Wait, you mean, you convince people who were taking a class there to work for you? They have interns? What is this?
Host 3 1:07:43
They're gonna they're gonna start offering degrees here soon.
Host 2 1:07:46
Yeah. So Okay, one more question. And this is more like a general newsy kind of thing. So here in the States, we only see and hear about the ramifications on this tariff, that have that are on the US and China. But, you know, I think we're not the only two countries in this world. So what other players are gonna be affected by this? And the example that I have here is, if you're in Canada, Canada doesn't have a lot of distributors for electronic parts. So do you normally buy from Digi key or mouser? Well, those consumers of those parts be hit by these tariffs as well.
Host 1 1:08:25
Yes. Because did you keep the mouse or pay the tariffs first?
Host 2 1:08:28
So right, it's not a Yeah, actually, you're right. You're right.
Host 3 1:08:32
It's it's not an end destination.
Host 1 1:08:34
It's not a bat.
Host 1 1:08:36
Right. Right. Right. So well. It's kind of like a VAT in some ways that taxes are tax it's a tariff is a number another word for a tax right? Value Added Tax like in Europe, you pay an import if you're bringing in product from outside of the the EU EC we're not the EU it's like the economic zone. Okay, in there, right. It's bigger than the EU includes things like Tunisia and not other non EU countries like
Host 2 1:09:10
Austria, etc. So convenient places to manufacture things but it's not
Host 1 1:09:14
Austria is see other ones Switzerland, though, sorry, that's not a not an EU country. They have an economic zone, but I mean, tax is a tax. Right. So a tariff is a tax on import. And, you know, he and mouse are going to pay those taxes on import. And if they sell to someone in Canada, they're going to pass that cost on and then of course, Canada has their own taxes, import. So you're gonna get you're gonna get hit a couple times on that. In general, you know, I love Canada, they're a great place. They're basically like a state of the EU. When we think about the overall market size, and you know, don't tell them I said that because you You know, right now, um, you know from Canada, I love you guys Ellie, great independent nation
Host 2 1:10:12
In the top 10 listeners,
Host 1 1:10:15
Okay, so absolutely support you guys go Canada.
Host 3 1:10:20
Yeah, hockey is is one of the greatest sports and take a candidate off
Host 1 1:10:23
Canada Day Off with you. cuckoo's nest of let's do it right is that by the way? What's that? What is that? It's a holiday? When? Oh, I have no idea.
Host 3 1:10:36
Yeah, you shouldn't call them out on that. Yeah. July 1, oh, it was two days ago, it was two days.
Host 1 1:10:46
But let's be honest, our tariffs are not really going to impact a lot of other countries, what are gonna, you know, our tariffs between China us, right? You know, they're going to impact the cost of some goods, right? They're going to change where we're manufacturing stuff, where we're buying stuff from, what more impacts those other countries are tariffs against them. So, you know,
Host 3 1:11:08
It's, and that's the way they're designed to work. Yeah.
Host 1 1:11:11
And, and I'm gonna say, us having these tariffs with China, probably do nothing, but help them because they're gonna go out, and they're gonna strike their own trade deals, right, we're not working with them anymore. We're not working against them. So they're gonna go out and strike their own deals. In the short term, it'll probably be better for those countries. I think in the long term, it'll be worse for everybody. Because, you know, if, if we have one player in the game, who we feel is this is my personal opinion about the companies or anything like that. But, you know, if we have one player in the game, who we feel is not playing by the same rules as everyone else, the best thing to do is for us all to work together to coerce them into playing by the rules. But if we start fighting with each other, aren't they just going to do more of that? Are they going to take advantage of that chaos, to you know, create new conditions for their own success? So that's what I worry about there. But, you know, at the end of the day, short term impact is probably not going to be that great on anybody. It's the question of, you know, what it does to trade in the overall world order over the next decade or so, which is much harder to
Host 2 1:12:29
See when you got any more questions about tariffs. So I have another random question at the end here.
Host 3 1:12:35
I think that that we covered a lot of territory there. And I'm sure there's a lot more to unpack, but I think we're just gonna have to watch it unfold, and kind of see how it goes.
Host 2 1:12:45
Exactly. Yeah. So eating pizza with a knife and fork as crazy as it sounds.
Host 1 1:12:51
Okay. So my rule is, if I pick up the piece of pizza, and it's so floppy, that all of my toppings fall off. I have to eat the first half of that piece of pizza with a knife and a
Host 1 1:13:02
Fork. You got to fold the pizza.
Host 1 1:13:07
I don't like starting out with a full you know, I'm just
Host 3 1:13:10
You know, the thing is, I think at that point, the the issue is that the pizza was too thin to begin with. Or too greasy. Yeah. Yeah. Yeah,
Host 2 1:13:18
That's true. So I got it. So if you have to fold the pizza, it's not a pizza. It's just a pizza taco.
Host 1 1:13:24
There you go. There you go. Yeah, my rule is I will cut the pizza until it's self sustaining when I pick it up.
Host 2 1:13:33
I'm a pizza folder. Or I turn pizzas into tacos. And I use a knife and fork don't want to eat the deep dish. Yeah, yeah. Cuz it's called a pie and you don't eat pie with your fingers.
Host 1 1:13:47
You might not become pie man. Just digging in.
Host 3 1:13:57
Pecan pies. Game over.
Host 2 1:13:59
I want to ask Stephen is do they have pecan pies in Colorado?
Host 3 1:14:03
You know, I, I'm not a huge pie connoisseur. So I'm not like looking at where pies are everywhere around here. The thing? Here's one thing that I can tell you. I mean, I've only been here for a little over a month now. And the word spicy means something completely different here than it does at home. And and I've gotten to the point that if I order something and I and I order a spicy meal, I look the person in the eye and is like, make it spicy. Like when you think you've made it spicy, go like 2x and then we'll be alright, you know,
Host 1 1:14:36
The spicy they're mean they're gonna add some black pepper to it or
Host 3 1:14:41
Actually, you know what, you know what's funny is green chilies are a real big thing here and that's that's a northern New Mexico thing. They have like green chili fish. So spicy. A lot of times just means they added green chilies. It doesn't mean that they put something like Texas spicy and that's what I'm looking for. I want like, I want a spicy burger.
Host 1 1:15:00
Are all your cayenne pepper? Yeah.
Host 3 1:15:03
I don't think you heard me I said bring all of your
Host 1 1:15:08
That's the thing like you don't think about it here in Houston like, spicy is potentially dangerous here because you don't just have to worry about Mexican spicy. You've got Thai spicy, you've got Sichuan spicy and they all mean something different.
Host 3 1:15:22
Yeah, yeah. And they can all kick your butt. And I like that.
Host 1 1:15:25
And like here when you ask for something spicy, someone looks at you kind of sideways. They're trying to measure you up. And then you have to like specify what spicy you mean. But like they're just any spicy. Some flavor. So
Host 3 1:15:40
Yeah, no And seriously, like, I tried to order something spicy the other day and the lady like had to think about it for a while. She was like, I guess I could chop up some jalapenos and give them to you. Okay, sure.
Host 2 1:15:56
So with that spicy ending of this podcast, you want to sign us out church?
Host 1 1:16:01
Absolutely. So this was the macro fab engineering podcast. I was your guest Chris church. And we were
Host 1 1:16:08
Your hosts Parker Dolman
Host 3 1:16:10
And Steven Greg. Later everyone take it easy tonight
Host 2 1:16:21
Thank you. Yes, you our listener for downloading our show. If you have a cool idea, project or topic or tariff you want Steven Knight to discuss Tweet us at macro fab or email us at podcasts at Mark feb.com. Also check out our Slack channel where we have continuing discussions about the podcast. If you're not subscribed to the podcast yet, click that subscribe button. That way you get the latest episode right when it releases and please review us wherever you listen as it helps the show stay visible and helps new listeners find us
Transcribed by https://otter.ai