Another Serious Problem With the Tariff War – Supply Chain Shortages?

Yes, prices will increase from the very large tariff increases as most foreign companies will have little choice unless their countries' governments support them or if those in the chain reduce profits, if they can. And yes, it means that U.S. manufacturing companies will hopefully have incentives to increase capacity in the U.S.

First question is—will they? First, they have to get the money themselves, as well as the raw materials and the specialized labor. Second, they will only be able to count on selling to U.S. customers because our goods including labor costs, etc., will be priced out of foreign markets.

The immediate inflation may or may not be temporary. Most scary to me is that what really shot up inflation during Covid was serious SUPPLY SHORTAGES of all kinds of goods, because our supply chains were so effective at just-in-time cost optimization. Yes, our government was too generous with business and consumer giveaways, extending the inflation issue.

Now think of how complicated it is to redesign U.S. plants where products go back and forth between countries. Engineers and construction workers are needed, etc., etc.

How will that affect our c-store industry? It will certainly slow down new construction, perhaps eventually prompting new materials and more pre-fab in time. Even more important is whether our products and product supplies will also be impacted again. At least this time, any shutdowns will be from the market impacts as opposed to pandemic-related worries.

Arguably, the industry most hurt over the years of rising prices from our prosperity has been the auto industry, led by wages which are now higher than many competing countries by many multiples.

Unfortunately for our petroleum-based industry, the cheapest cars with the least labor are EVs, and the only company here that can add capacity cheaply, relatively easily, and quickly is Tesla, plus a few other much smaller companies, many of which have a limited line. So, what will GM, Ford, Stellantis, VW, and Toyota do here? Steel and aluminum tariffs will also hurt EVs, but not as much as all the much larger number of parts for internal combustion (ICE) cars. Hybrid cars are great solutions for air quality, but internal combustion plants take longer and the end cars will be much more expensive. So far, EVs have lacked scale and chargers. Chargers are improving rapidly and could be available if they really are needed--certainly not yet today. Yes, EVs require more electricity, but small compared to AI data centers and related AI execution.

The markets’ reactions today are scary. Equally scary to me is that oil prices are also down sharply, back well under $70/barrel. I think oil prices are more a test of supply/demand balances, and as such are a good economic indicator. So, even though these tariffs could be inflationary, oil prices are saying that world economic demand, i.e., economic growth, will be adversely impacted. Furthermore, even if U.S. taxes are reduced because of hoped-for tariff collections, the impacts are long-term, and if no strings are attached to capital expenditures, there is no guarantee that the impacted companies won't just buy back stock or pay dividends rather than spend the money on plant and equipment.

The net impact on our c-store industry over time is quite unclear at this point. First, earnings and net free cash flows are unclear both short-term and long-term, as there are good and bad impacts from inflation, which are very dependent again on supply chain issues. Luckily, “ya gotta eat and ya gotta fuel” as we were reminded as an 'essential industry' during Covid.

The second factor impacting c-store M&A selling prices is selling multiples, which are normally a reflection of interest rates, money availability, and business confidence. Right now, interest rates are down based upon lower inflation currently and recession worries, AI and all. We'll see what's next, although we do know that most economists hate tariff wars.

The last impact on M&A selling prices is real estate and construction costs, both of which are very economically sensitive.

It will take a long time to negotiate tariffs with 80 different countries. At least as of right now, April 3, 2025, NRC's recent market assessment is that the number of buyers continues to greatly exceed the number of sellers. So, stay tuned to this incredibly impactful change of government policy, which reminds me to mention, we still have a huge Federal debt, and we need foreign money to continue to help fund it and keep our interest rates relatively low.