A Guitar Pedal Maker's Clever Way to Beat Tariff Trouble

In the world of small businesses, finding creative solutions to big problems is key. One such business, Keeley Electronics, has been hit hard by U.S. tariffs on imports from China. The company, which makes guitar pedals, relies on a specific component called a potentiometer, which can only be sourced from China. This has led to a significant increase in costs for the business.

The Tariff Challenge

The owner, Robert Keeley, has been facing steep tariffs on these components. Initially, the tariffs were at 25%, but they temporarily spiked to over 100% in March. Now, the company is paying a 55% tariff rate.

An Unusual Strategy

To manage these costs, Keeley came up with an unusual strategy. He used over 1.8 million reward points from his American Express card to cover the tariff expenses.

Manufacturing In-House

Keeley's company manufactures nearly every part of their pedals in-house, including the aluminum enclosures and circuit boards. However, the potentiometer, a critical component for their designs, remains a hurdle.

Uncertainty Around Tariffs

The uncertainty around tariffs adds to the challenge. A 90-day freeze on country-based tariffs, including those on China, is set to expire soon. Keeley hopes the current rate will decrease, but there's no guarantee. Trade experts suggest that the tariff pause could be extended if trade deals aren't reached by the deadline.

Financial Impact

Keeley's recent credit card bill, which included shipping and tariff fees, totaled nearly $11,000. Instead of paying cash, he used the credit card points he had accumulated from previous tariff charges. He mentioned that this charge is just a small part of his overall tariff-related costs.

Future Considerations

Keeley is not keen on depending solely on China for manufacturing. He sees it as a "single point of failure." Although he hasn't raised prices for customers yet, he might have to if the high tariffs on Chinese imports continue. His focus remains on creating products that the market wants, ensuring the business stays stable.