Mark Sanchez: For the last two months, whole conversation on tariffs has been kind of like, you know, well, the Midwest Great Lakes weather, if you don't like it, give it a couple of minutes, it'll change. But here they are, the tariffs are supposed to go into effect today on the auto industry, a 25% import duty levied by the U.S. on all foreign vehicles. Effective April 2nd, and this comes from the president. And you know, over the last couple of months, we've done a number of stories about tariffs here at Crain's Grand Rapids Business, well as our other sister publications in the other cities, especially Detroit and how it affects the auto industry. In what this has done, this conversation and threat of tariffs, the imposition of tariffs has created just a whole bunch of economic uncertainty in the U.S. economy. Look at what Wall Street's been doing in reaction. We're seeing some data that's beginning to worry people. We're not going to get as many interest rate hike cuts as anticipated this year. So the tariffs are coming and it's created that uncertainty and over the last, especially the last two to three weeks and just general reporting, talking to folks out there for what we write, there's a lot of uncertainty that has creeped in. I sense that some folks are kind of falling into a pause mode that we want to sit back, maybe not proceed with a big capital project or maybe start conserving some cash or maybe if we're going to do a deal, do a smaller deal. But I sense this kind of wait and see thinking that's beginning to enter into the thinking of folks out there that are running businesses. And that's going to have consequences for the broader U.S. economy. We've been warned, hey, there's sacrifice to come because of these tariffs. And we could see the beginning of those sacrifices because a lot of folks I've talked to in the last month or so, they're a little cautious. They're a little uncertain about what the future holds, especially here in 2025. And when business leaders, CEOs get uncertain, they start pulling back their spending.
Patrick Center: A number of the tariffs impact raw materials. And when you look at raw materials, you think of West Michigan's office furniture companies and the impact that will have.
Mark Sanchez: Yeah, this was both Steelcase and MillerKnoll, Inc. reported their latest quarterly earnings reports, sales and earnings last week for their most recent quarters. And both indicated there's a cost to these tariffs. MillerKnoll over in Zealand, they're going to get hit by about a $5 to $7 million to their earnings in a three-month period. And this has got some real consequences here. That's $5 to $7 million from MillerKnoll. Steelcase is looking at about a $9 million cost hit to the tariffs. And they both have implemented price increases that go into effect June 1. Not all of that is from the tariffs. They say they've got higher costs. So that goes into that price increase equation, but tariffs are part of it. They're increasing prices June 1 and tariffs are involved in that equation. So, here's a local example of how tariffs are going to raise the cost for a significant iconic industry here in West Michigan.
Patrick Center: So, as you're pointing out, the price goes up on the product. There's this idea that tariffs are generating revenue for federal coffers. You've spoken with economists, what are they telling you?
Mark Sanchez: It’s basically tariffs are basically a tax. That's more tax revenue for the federal government. But tariffs are also a pass-through. You build a product in Ontario, the whole idea of U.S.-made autos, even if they're finally assembled in this country as the end product, they're carrying components that are produced elsewhere, Ontario, Mexico, or wherever. And sometimes those components, those parts are passing over the border two, three, four times before the final assembly of that vehicle. So, tariffs, again, are a pass-through that get added on to the price. We've seen estimates that tariffs could add several thousand dollars to the cost of a new vehicle here in America. If you're a consumer, you're thinking about buying a new car this year, all of a sudden you're going to pay six, seven, eight, nine, $10,000 for that vehicle are you making that purchase? Economists generally that we've talked to in the last month or two said, yeah, probably not. A lot of consumers are just simply going to back away from that purchase because of the higher cost. That's going to affect sales and that's going to affect the industry. That's going to affect jobs. That's going to affect the economy.
Patrick Center: That impacts entry level buyers.
Mark Sanchez: Absolutely. If you're a first-time new car buyer and you're looking at several thousand dollars more in the cost of buying your first vehicle, how's that going to affect your thinking? There's the view that most people are going to give it a second thought and boy, can I get by with what I'm doing, or do I want to go into even further debt? A bigger car payment, a bigger loan than I was anticipating to buy that new vehicle. Or do I go to the used car market, which higher demand there is going to drive up those costs again.
Patrick Center: And you've mentioned interest rates most likely are not coming down this year.
Mark Sanchez: Yeah, there's still some of the outlooks I see, there's still projections for maybe two quarter point cuts this year. You know, toward the end of last year, last fall, there was anticipation of three or four cuts in interest rates by the Fed (Federal Reserve) this year. Now we saw the last Fed meeting in March kind of hold the line on interest rates. And the general view that's been breaking out is maybe a couple more this year but we're not going to see a rapid decline in interest rates anytime soon.
Patrick Center: We're talking with Crain's Grand Rapids Business staff writer Mark Sanchez. We're beginning to see signs of West Michigan's alcoholic beverage makers struggling.
Mark Sanchez: Yeah, this is an industry beginning to have a hard time, beginning to have a difficult time here. There's so much written over the last decade about the growth in the craft brewers, the wineries, the craft distillers, and they've really built pretty nice industry, a pretty nice presence here in the state. Now we're seeing some of them have a little difficulty in the business. This really came out at the Michigan Craft Beverage Summit in March at Lansing Brewing Company over in Lansing, and a lot of the folks there, the owners of craft distillers, craft brewers talked about this. Just an example, again, go back to tariffs. Tariffs on aluminum. That's going to increase the cost of that raw material that they use for their canned cocktails and cans of beer. That adds to the cost. You have other issues that have been driving up costs. And there's also, you know, perhaps the industry's sorting itself out a little bit. There were some major investments by a lot of folks made over the last decade. So, it's running into, running into the wall a little bit. And just to throw some numbers in there, there's a report from the Bank of America in February that noted spending at liquor, beer and wine stores declined 5% year-over-year in January. Spending on alcohol for at home consumption has gone up 1% year-over-year but fell nearly 4% over the past two years. So, you've got the investments have been made for this capacity and now capacity is waning a little bit. So, you've got that cost. You've got that fixed cost and now the revenue is not keeping up with that. So, you've got a lot of issues there. The cost of the products you need. Consumers are also facing higher costs for their groceries. You know, milk, eggs, bread, basic stuff, staples. So perhaps maybe I won’t pick up that six pack of that craft beer or that bottle of wine or that distilled liquor that I enjoy on a weekend. Consumers are going to make those decisions based on their costs at home. And right now, the data and the evidence is saying that perhaps they're pulling back a little bit.
Patrick Center: You talk about that consumer, there are trends also in the mix in this story.
Mark Sanchez: We've seen, again, for many years, folks moving from kind of those legacy brewers to these craft brewers. You know, the whole experience of that tasting room or that tap room and then buying that for home consumption. So. Yeah, there has been that movement, that migration, and you've seen some of the legacy brewers the last couple of years fighting back with their promotion and marketing.
Patrick Center: There are generational considerations.
Mark Sanchez: Absolutely. Yeah. Especially among members of a Gen Z that they purchase based on their values, which is where the smaller distiller, cideries and winemakers tend to play. And you're seeing that Gen Z just kind of change a little bit. Perhaps they're not consuming as much or their flavors or their appetite and tastes are changing. So that's all something else that the, you know, the craft brewers, the craft distillers and wineries need to adjust to as well. Making those adjustments, that's cost and investment. So, there's a lot of issues right now facing the industry.
Patrick Center: Crain's Grand Rapids Business staff writer, Mark Sanchez. Thank you so much.
Mark Sanchez: Thank you, Patrick.