The Elephant in the Room: A Conversation Between a CEO and a CFO

By Michael C. Dennis

Bob: Have a seat, Ann. We’ve been buying widgets from our supplier in China for about 11 years, right?

Ann: That sounds about right.

Bob: With the new 100% tariff on imported widgets, I’m wondering if it makes sense to reopen our U.S. manufacturing facility and bring those jobs back.

Ann: I can look into it.

Bob: Before you spend time on it, give me your first impressions.

Ann: Well, we still have the building, but we sold off the equipment years ago. Retooling and hiring and reopening could take a couple of years and would cost millions.? And even if we can match our Chinese supplier in quality, I’m not sure customers will want to pay twice as much.

Bob: I don’t think prices would necessarily double.

Ann: I thought the goal was to manufacture competitively, leveraging the 100% tariff, which effectively doubles the cost of imports. Are you saying we could produce them domestically for less than double, especially given the higher labor and operational costs here?

Bob: That’s what I’m trying to figure out. Do you think we can?

Ann: I don’t know the exact costs, but I’m convinced it will be significantly higher than what we pay now—otherwise, we wouldn’t have closed the plant in the first place.

Bob: ??There may be tax credits, grants, or subsidies that could offset some of the costs of reopening a U.S. facility. ?And some of our customers may be willing to pay more for American-made products, creating a niche advantage.

Ann:? I will look into that as well.

Bob:? Anything else?

Ann: Yes, the elephant in the room—which is what I would call tariff uncertainty, meaning this: If tariffs disappear in the future for whatever reason under whatever Administration is in power in Washington, the financial advantage of domestic production vanishes, but all of the expenses we incur in connection with reopening the plant remain on us.