The ratification of the United States Constitution came in 1788 with the approval of the ninth state, New Hampshire, which followed in the footsteps of Delaware, Pennsylvania, New Jersey, Georgia, Connecticut, Massachusetts, Maryland and South Carolina. By 1790 New York, Virginia, North Carolina and Rhode Island followed suit but, before doing so, the newly formed Congress passed their first major piece of legislation in 1789 called The Tariff Act. This act was passed by Congress and signed into law by President George Washington.
This Tariff Act came about because after the American Revolution the newly formed nation was unable to contain the economic damage being done to domestic manufacturing by the European flow of goods coming into the country. By 1789 the country was about to follow England’s expansion into the industrial revolution, and while Northern manufacturers looked at high tariffs as protection of industry, the agrarian Southern states wanted inexpensive consumer goods and a competitive way to sell their harvests.
Tariffs = Import Taxes
Plain and simple, tariffs are a tax. In 1789 there was no income tax, and the way federal government was able to stay solvent was by issuing bonds for public investment, borrowing money, and duties on foreign goods, i.e. tariffs. These tariffs of 1789 were used to promote American manufacturing and to fund the federal government while paying off the debt incurred during the Revolutionary War. It is important to understand that in 1789 there was no personal income tax. The first income tax in America was imposed in 1862 by Abraham Lincoln and was appropriated from the wealthier Americans to pay for the costs incurred during the Civil War. In lieu of an income tax, the1789 tariffs were used to support government, to protect developing manufacturing industries, and to raise revenue for the federal debt.
It is interesting to note that the flat income tax, created in 1862 by Lincoln, was repealed in 1872. From that time on, until 1913, there was no income tax levied against the American people until the ratification of the 16th Amendment which “grants Congress the power to levy and collect income taxes without apportionment among the states or regard to any census or enumeration.” As an aside, the Federal Reserve was founded that same year and the income tax imposed on the country was 1% for anyone earning $3,000 and above per year. That number in today’s market and adjusted for inflation is 30% for anyone making above $93,263.94. At the time, only about 3% of the nation fell into this taxable bracket.
Another notable factor is that America, in 1919, was on the hook for $27 billion of WW1 debt which, at the time, was approximately 40% of the GNP, but I digress. Back in pre-1862, tariffs were a good source of income for the federal government and a way to protect the fledgling manufacturing industry of the newly formed country. I bring up the income tax because, as previously mentioned, tariffs are an import tax that gets handed down to the consumer and funds the government.
Tariffs are typically a percentage of the value of imported goods which are collected at points of entry into the country. They are collected by the U.S. Customs and Border Protection and paid to the government by the importing company. If a $100 item has a 25% tariff, then that item costs the importer $125. If the importer marks up the item 50% to make a profit, then the price to the consumer might be anywhere from $175-$187.50 depending if the mark up is on the initial $100 or the tariffed $125. This markup is not a huge deal until we translate it into thousands, millions, or billions of dollars of imported goods.
It is also interesting to note that while the tariffs of 1861 were not the cause of the Civil War, they did play a role in the secession of the States owing to the North favoring higher tariffs to protect manufacturing and the South favoring lower tariffs and free trade due to their reliance on cotton exports. While intended to boost domestic hiring and manufacturing, it is widely considered that The Smoot-Hawley Tariff Act of 1930 exacerbated the Great Depression by setting off a global trade war. The subject of tariffs in the USA is compelling, and if interested, one can get a much more in-depth picture of how tariffs have affected the country by reading any number of books, such as The Tariff History of the United States by F.W. Taussig, to name one of many.
Here and Now
The question for those of us in the world of audio is how will these new tariffs affect us? Most major mix consoles, speaker systems, microphones and other pro audio hardware products and components are arriving from outside the U.S., even if the company maintains its headquarters and/or design facilities here in the USA. In recent years, for example, Allen & Heath consoles have been designed in the UK, with production there and in China. Midas, now owned by Music Tribe, which also owns Behringer, is now made in China along with gear from Turbosound, TC Electronic, TC-Helicon, Tannoy, Lab Gruppen, Lake and Klark Teknik. Mackie products have also been primarily made in China. Yamaha consoles, meanwhile, have been manufactured in Japan, while DiGiCo has been doing its manufacturing in Scotland. U.S.-based Avid, meanwhile, which expects to absorb the hikes, has country-of-origin labeling on its S6 and S6L consoles. For both, the console surfaces and stage racks are made in Mexico and console engines are built in Taiwan.
While JBL is Los Angeles-based, their products have been arriving from China, Hungary and Mexico. Sennheiser has maintained some manufacturing in New Mexico, but many of their products are manufactured in Germany, Ireland and Romania. QSC also has some manufacturing in the states, with many products also arriving from China. d&b audiotechnik has been making their speakers and amps in Germany, and L-Acoustics has manufacturing facilities in France. EAW has some manufacturing operations in Massachusetts, although RCF, its parent company, is based in Italy and has made some drivers for EAW enclosures. Shure sources products from Mexico and China, while Audix products have been coming from Oregon. Other American-based companies source components and parts from outside of the U.S. For example, most semiconductor manufacturing is based in Taiwan, South Korea, and China, with Taiwan leading the way. Items such as Apple iPhones and computers that also play a big part in our world of audio are also made in China.
I may be writing with my hair on fire but, it remains to be seen how these new tariffs will affect our industry and how much the bottom line will be going up. The concern is not only in pricing, but in the supply chain as well. Post-Covid, I recently waited nine months to have an L-Acoustics 108 speaker repaired, and it seems that it was merely an issue with getting a part. I also waited for six weeks to get some replacement caps for our DiGiCo Optocore cables, and while there was no immediate rush for either, it was an inconvenience which remains a concern. Also, after a few months from the time I ordered, I am still waiting for Shure to deliver four Axient PSM 1000 transmitters. These orders were placed well before the new tariffs were introduced, but the apprehension is especially acute now that a trade war has been instituted with many of the countries from which the tools of our trade are manufactured.
Contact Baker Lee at [email protected].
