Will tariff-related price increases effectively destroy the international ship model kit market?

[Bob Cleek]

What will the head of our Karistokracy do next ?

CONGRATULATIONS! You just won today's "Best of the Internet" prize for the best use of an obscure word! (You were given the benefit of the doubt that your mispelling was "AutoCorrect's" fault.)

A kakistocracy (/ˌkækɪˈstɒkrəsi/ KAK-ist-OK-rə-see) is a government run by the worst, least qualified, or most unscrupulous citizens. The word was coined as early as the 17th century, and is derived from two Greek words, kákistos (κάκιστος, 'worst') and krátos (κράτος, 'rule'), with a literal meaning of 'government by the worst people'.

 

[Smithy]

CONGRATULATIONS! You just won today's "Best of the Internet" prize for the best use of an obscure word! (You were given the benefit of the doubt that your mispelling was "AutoCorrect's" fault.)

A kakistocracy (/ˌkækɪˈstɒkrəsi/ KAK-ist-OK-rə-see) is a government run by the worst, least qualified, or most unscrupulous citizens. The word was coined as early as the 17th century, and is derived from two Greek words, kákistos (κάκιστος, 'worst') and krátos (κράτος, 'rule'), with a literal meaning of 'government by the worst people'.

Fascinating. The word kak means faeces over here. I did not realise it had a Greek etymology.

 

[Alex R]

In Spanish it is Caca..Shi....t) It all applies and adds a new layer of meaning. Word of the year!
A little off-topic, sorry couldn't help myself. Back to shipbuilding
AR

 

[Smithy]

In Spanish it is Caca..Shi....t) It all applies and adds a new layer of meaning. Word of the year!
AR

Ha! I shall certainly get a lot of use out of it.

 

[11320 Titanic]

We lived on a small farm in Pennsylvania, in the Allegheny Mountains. The only people in farming who make good profits are the large corporate farmers. There were 5 small farms in our area. One bought a combine, one bought a baler, one bought a seed drill planter, one bought a manure spreader...we split the cost of our implements, and shared with one another, two of us bought tractors...when spring plowing discing and furrowing time came, the farm with those implements plowed all the fields, the one with the grain drill planted all the fields, the one with the rakes and baler raked and baled the fields that needed it...so five farmers used one baler instead of 5, and so on. At times both tractors were in use.
Why wouldn't kit makers be able to do the same? This was possible because of a sense of care for others and as sense of togetherness.
One of ours died early in an accident, and the other four families kept her farm running for two years, allowing her to sell it for a fair price.
This isn't MY hobby, or YOUR hobby, it's OUR hobby.
The same goes for politics...no MINE versus YOURS, rather OURS!
May God's blessings shine on you all.

 

[Bob Cleek]

Why wouldn't kit makers be able to do the same?

Might it be that the kit makers are the "large corporate farmers" of the ship modeling game?

 

[Donnie]

Folks,
I am going to step in here and as far as I am concerned, this needs to pipe down quickly. We have already deleted some post that could be very offensive to some - now this forum is international may I remind you all.

I also do not like this bullish tone - Now, I do think that anyone's opinion is operated under free speech, but there is a cut-off and no way this can turn into a divisive subject or I will have to bring it to a close.

Tariffs have been discussed by all political sides for years and years. This is nothing new. If some of you are unhappy about the current political climate, you really need to keep this at home and not bring it here. When you start making "stabs" at corporations, and other comments based on what seems to be resentful or anger, then that has to go - there is no compromising here on this one.

 

[Bob Cleek]

If some of you are unhappy about the current political climate, you really need to keep this at home and not bring it here.

Too late, I'm afraid. Regardless of anyone's perspective or alliances, the "current political climate" has been "out of the house" and into the streets for at least a decade now and it sure isn't going back indoors in the foreseeable future. I think the posters whose posts survived did an admirable job of discussing what may well be an existential threat to our shared hobby without getting unduly "political." As for the others, I didn't see their posts, so I can't say one way or the other and will have to trust your judgment in that respect.

We have already deleted some post that could be very offensive to some - now this forum is international may I remind you all.

Whenever you do that, please don't say that you did. It just makes everybody annoyed that they missed reading it before you deleted it. I understand it's your job to prevent unpleasant realities from rearing their ugly heads, but whenever you start feeling uneasy because of something "political," just ask yourself, "Where would ship modeling be today if Nelson and Napoleon had gotten along?"

 

[tball4217]

Too late, I'm afraid. Regardless of anyone's perspective or alliances, the "current political climate" has been "out of the house" and into the streets for at least a decade now and it sure isn't going back indoors in the foreseeable future. I think the posters whose posts survived did an admirable job of discussing what may well be an existential threat to our shared hobby without getting unduly "political." As for the others, I didn't see their posts, so I can't say one way or the other and will have to trust your judgment in that respect.



Whenever you do that, please don't say that you did. It just makes everybody annoyed that they missed reading it before you deleted it. I understand it's your job to prevent unpleasant realities from rearing their ugly heads, but whenever you start feeling uneasy because of something "political," just ask yourself, "Where would ship modeling be today if Nelson and Napoleon had gotten along?"

my post was removed for being "political" because i pointed out that the liberal theories being espoused on this topic were really bringing down the quality of the site.

But its perfectly fine for someone to start claiming that tarriffs on china are some sort of KKK attempt against china.

There isnt anyone else making kits like those coming from china. NOTHING like the Hayling Hoy kit.. or the Bonhomme Richarde kit. NO ONE. All the kits are just current production of kits that were designed back in the 1970s. Never updated, never changed. Hell Model Expo is the only american kit company that has actually tried making newer style kits. The Confederacy. Their other kits like Fair American have not changed since the original introduction event. Not even the manuals.

But the thing is, in this current world people are idiots. I work with people who brag to eachother how they have 8 of the nintendo switches at home. 1 in each color. And then to getting one for their kid to use..

I work with people that are spending damn near 40 dollars a day on vending machine mountain dew/soda and the vending machine snacks. And making fun of me because i buy a twelve pack at walmart for 9 $ something...

I know people who buy a new 1,800$ cell phone every year... and then through the cell company actually pay them 2,500$ for each phone.

 

[Johnwb]

A great analysis but…. As I think only one person pointed out tariffs are paid by the importer not the exporting party. As such they are a tax just like any other sales tax. The original manufacturer may choose to drop their price to compensate but they will only do so if they think they will lose market to a domestic player. If they don’t see that risk they won’t

 

[Mwentling]

My gut is we will see some temporary rise in pricing related to recoupment of tariff cost, but as I said this will be temporary. The goal is not to have a tariff in the first place, but to force other nations to the negotiating table to reduce or eliminate the tariffs that they have placed on US goods for years. The end goal is reciprocal and fair trade. We see the beginnings of this with GMs announcement of moving all Chevy and GMC light truck manufacturing (1500/2500) from Mexico and Canada to Tennessee to eliminate the tariff on completed trucks, there will still be some cost increase on the discrete parts that are produced overseas, but my gut said those will return onshore in short order. This pain is temporary, and it will suck for a bit, but then I expect it to get better for both the consumer and the nation. Time will tell if I am correct .

 

[Dave @W]

Whatever that new price of a model will be, I'll buy it although I may need to dig lost change out of the sofa cushions. I'll never buy any model in the thousand dollar up range anyhow. I also compare it to a couple of my other hobbies as well as a weekend away with my wife. My other main hobby is hot rods. A new carburator is now close to $500, the same one that I bought for about $100 twenty five years ago. Then that weekend - the hotel room 25 or so years ago was less then $50/night, now is over $200. We used to do RV travels. A campground site was 10-20 dollars/night is now closing on 75-100 dollars/night. A six pack of beer was a couple dollars, now is 7-10 for the same thing. Yes, I am all too well aware that these are changing times and a dollar (or whatever currency you use) isn't what it used to be but even so, the buying power of a currency has not stayed the same due to many factor. As to a discussion of the possible cost increase of an item due to a tariff - tough to discuss without political implications is .... ..

 

[Hotspur]

Maybe the upside is that while prices are higher than normal (whatever that is) we'll all dust off those kit boxes on our shelves, under the bed, and stuffed in the closet and go to work. (You all know you have them.)

How can a hobby get too expensive when the average participant buys more kits than he'll build in his lifetime?

I'd be more concerned about the future of a hobby that doesn't attract people under the age of forty. If the hobby is doomed, it will die out from lack of interest as we all die off.

 

[Hotspur]

I see I've made it up to Seaman, but I was actually a Fireman. Any way to change my stripes red?

 

[glennb17]

The obvious thing we can do is encourage people to free themselves from the constraints of only assembling kits and get into scratch building which can be done for practically nothing.

Quality stock in the USA isn't nothing, especially if you realistically plan for a mistake or two. And you would be surprised how much of the rough cut stock model lumberyards come from abroad.
I think my "Planking on Frames" Vol I and Vol II by Underhill will be on my hobby table more, with his post-war England scrounging for materials and making stuff out of scraps we would otherwise throw away or recycle. But don't go too far, no one is going to want to see the HMS Popsicle Stick.

 

[Quint]

First off, for those who believe that denial is just a river in Egypt, please refrain from getting your panties all in a bunch over "political" discussions. Without "politics," there would never have been the rise of the great European sailing navies, nor the rise of piracy, nor much of interest even in international trade and maritime commerce. It's always "about the economy, Stupid!" We all ought to be able to dispassionately academically discuss the economy of the present moment no differently than we do the economies of the Seventeenth or Eighteenth Century. Every ship modeler is an historian who expresses their understanding of history in three dimensions.

So, let's focus on the economy without getting tangled up in the politics.

The U.S. President, claiming the authority to do so under self-declared "emergency powers," has imposed tariffs on just about every identifiable other nation in the world. By a similar administrative order, existing foreign duties and tariff exceptions for individual purchases of foreign goods valued at less than $900.00 (upon which the business models of such foreign mail order operations as Ali Baba and TEMU are dependent) have been terminated. Now that these tariffs have been announced, what might they mean for ship modeling, and the ship model kit industry in particular?

Ship model kits are imported into the United States primarily from China, England, and the European Union. The new blanket tariffs announced are expressed in percentages which reflect existing tariffs plus the new tariff increases. While there is apparently much more detail which remains to be clarified, for the purposes of ship modeling imports into the United States, it appears that the previous tariff on Chinese imports of 34% will be increased by 20% to a new total of 54%. European Union imports will also now be taxed at 20%, while imports from Great Britain will now be taxed at the rate of 10%.

A consumer product manufacturing company requires a profit margin to remain solvent. The gross profit margin is the percentage of revenue that a company retains after deducting the cost of goods sold (COGS). A higher gross profit margin indicates better operational efficiency. In order to remain at all reasonably viable, a company must realize a gross profit margin which exceeds the average market rate passive interest on investments. In other words, it needs to make more money operating than it would by investing the value of the business in some other passive investment if running the business is worth the bother. The immediate financial market instability notwithstanding, an average rate of return on passive investments over time tends to fluctuate around 10% per year. Thus, it would appear that a Chinese or European ship model kit manufacturer will have to be able to realize 20% more gross profit, and a UK modeler 10% more gross profit to maintain their previous level of profitability.

I don't know the profit margins of the various foreign kit manufacturers. It is apparent, that there is a significant mark-up on ship model kits, because we routinely see substantial reductions in retail prices to promote sales or, apparently, for the purpose of inventory reduction at inventory tax time. Inventory tax is a type of property tax that applies to the value of goods held for sale by a business. It is based on the state in which you store your inventory. Although inventory itself is not directly taxable, there are carrying costs associated with it, including handling, storage, and depreciation. Businesses often sell off inventory at marked price reductions immediately prior to the date upon which inventory taxes attach, frequently in many states on March 31. It makes sense to sell off merchandise, even at the manufacturer's cost without taking any profit, in order to escape the inventory tax liability on the inventory which can easily be replaced at that same cost following the inventory tax benchmark date. We recently saw Model Shipways hold a pre-inventory Tax Day liquidation sale with discounts of as much as 50%. It might be inferred from that discount rate that Model Shipways' gross profit margin is somewhere around 50%, which is rather high. (The average profit margin for supermarkets, for example, is somewhere around 7%.)

Now, Model Shipways is a United States ship model kit manufacturer, and they won't be affected directly by the new tariffs. They will, however, be affected by the tariffs applicable to any materials, such as imported wood, that they must buy to make their kits and they will be impacted by any retaliatory tariffs imposed by other countries, so they are to one degree or another affected in much the same way as their foreign competition.

Considering a 50% gross profit margin, it might be thought that a foreign kit manufacturer could weather a 10% and even 20% loss of gross profit to tariff taxes, but it isn't that simple. First off, given the overall impact of the tariffs on the U.S. economy and the discretionary nature of a purchase of a non-essential product in what is likely to be a depressed economy, and to some extent in a product market which is heavily comprised of older customers, many retired and living on fixed incomes, it has to be expected that there will be a marked drop in sales when customers "tighten their belts for the duration." Additionally, any increase in the retail price of the product will exacerbate such a decrease in sales. This factor is likely to cut into the ship model company's gross profit rather significantly. Another downside factor will be that even the U.S. kit manufacturer's costs of production may well increase due to the tariff taxes as well. If imported wood species are used, as is often the case, there will be average minimum tariffs in the range of 20% imposed on those components.

When we consider that over the long haul a foreign kit manufacturer, by nature a relatively small enterprise, can realize interest income of ten percent or more over the long haul just by passively investing it conservatively elsewhere, such as the stocks and bonds markets, I doubt these new tariffs are going to "leave enough meat on the bone" to sustain foreign kit manufacturers' and other ship modeling related retail businesses who previously relied heavily upon U.S. expert sales. Indeed, even U.S. domestic ship model kit manufacturers and other related retail businesses may not find it possible to weather a prolonged ecoomic downturn and will go out of business. This is quite likely, in fact, if reciprocal retaliatory tariffs are applied by other nations, rendering the U.S. kit manufacturers' products priced out of foreign markets as the foreign kit manufacturers will be priced out of the U.S. markets by the U.S. tariffs.

This analysis presumes, of course, that none of the kit manufacturers raise prices to pass the costs of the tariff's off onto the consumers. It should probably be presumed, though, that before the new tariffs were imposed, they had already priced their products at the level of whatever the free market determined they could bear, so any increase in the retail cost is bound to reflect a rather closely corresponding reduction in sales.

In many ways, small closely-held companies are the "canaries in the coal mines" of the economy. Their inherent fragility makes them the first to fail when the going gets rough. Nobody needs to buy a ship model kit in a recession. I seriously doubt that the ship model kit industry can long endure the burden of a 20% or even 10% tax increase on top of their present overhead.

The only theoretical scenario in which the ship model kit manufacturers and related retailers might survive, will be if the imposition of retaliatory tariffs, there is an equalization of market share that maintains some semblance of the previous balance of trade. In other words, since neither nation's ship modelers can afford the imported ship modeling products, they turn exclusively to purchase all their required products from their domestic market producers in equal measures so that what one lost on exports, they gained on an increase in domestic business. This may sound like a good outcome, but as most have encountered in one instance or another, the loss is in the diversity of product availability. For insance, even before the present tariffs, modelers in the U.S. couldn't obtain Russian micro-carving tools, nor could the Europeans justify the additional import duties on U.S. made Byrnes Model Machines.

As much as the ship model kit industry has served to attract and hold the attention of the current number of enthusiasts, ship modeling isn't now, nor has it ever been solely dependent upon a kit and materials market for its existence. The pursuit of ship modeling is certainly made possible for many, if not most, by the availability of kits designed by the few for the many, but I do believe ship models will always be in demand, however small that demand may be, and will therefore always be pursued, by scratch builders, if nothing else. Absent some radical change of direction from the present course, I see the future of any sort of ship model builders' market being in the publishing of instructional and reference books and other media directed to scratch building.

It's a fact of evolutionary science that any organism which cannot adapt to change necessarily will go extinct. As a kit ship modeler, do you think you can evolve to a scratch builder given the dim prospects for kit availability in the future?

Bob, thanks for the insight and comments. I thought your comments were objective and apolitical. Although, to put things in perspective, after looking at my financial portfolio the past several months, the impact of Tariffs on my hobby are the least of my concerns! Glad I kept that stash of kits.

 

[glennb17]

Maybe the upside is that while prices are higher than normal (whatever that is) we'll all dust off those kit boxes on our shelves, under the bed, and stuffed in the closet and go to work. (You all know you have them.)

How can a hobby get too expensive when the average participant buys more kits than he'll build in his lifetime?

I'd be more concerned about the future of a hobby that doesn't attract people under the age of forty. If the hobby is doomed, it will die out from lack of interest as we all die off.

Less unboxings, more final picts on this site. Plus more storage space at home. I can live with that.

 

[Hotspur]

Less unboxings, more final picts on this site. Plus more storage space at home. I can live with that.

Not to mention that the value of our personal inventories is about to take a jump.

 

[Ismaele]

For once I am happy to be Italian.... Not that we are better governed, but at least I can continue to buy the excellent kits available in Europe without worrying about Trump's duties!

 

[socalveteran]

I don't have a working crystal ball in my shipyard, so I cannot predict the outcome of the recent tariffs. Neither can I predict the trajectory of economic globalization, nor can I predict whether the Dodgers will win the World Series again. But as a history nerd, I know there is a record on these topics which suggests relying on parts of the past (can you hear me Smoot and Hawley?) is less likely to be helpful than embracing the uncertainties of the future and dealing with the consequences of those uncertainties with a look forward, not to the stern.
Many folks have written about the kits they have in storage, waiting for the moment when they can be taken from the closet and put together. For me, that kit is Old Ironsides. I remain hopeful that the Constitution will continue to sail forward.