In 1934, the Franklin D. Roosevelt administration set up intricate and complicated rules for small businesses in a misguided effort to fight the Great Depression. As a result, four Jewish brothers, the Schechters, who ran a kosher butcher shop in New York City, were arrested for not following these rules, set up under the first phase of the New Deal.
In short, new laws forbade them from letting customers select individual chickens from a coop for slaughter, which was what customers preferred. Instead, they had to select either a full coop or half a coop. Kosher rules governing the health of the birds were not allowed.
As the History Network explains, Roosevelt felt “too much competition was keeping prices too low, which was undermining incomes and purchasing power, and dragging the economy down.”
That may sound crazy to modern ears, but “crazy” can be a nebulous term in the realms of public policy.
The Schechters ended up winning at the Supreme Court. As the Foundation for Economic Education website explains it, this “ended the more radical provisions of what is often called the ‘First New Deal.’”
Small businesses vs. Washington
It also showed that small-business owners can take on a mighty and ambitious government and win.
And so, it’s fitting that small, privately owned toy sellers are today taking on the Trump administration and the president’s claim that he has unilateral power to impose tariffs on imported goods. The Supreme Court is expected to rule on cases challenging this claim any day now. The result could do to tariffs what the Schechters did to the early New Deal.
Trump argues he has the authority, under the International Emergency Economic Powers Act, or IEEPA, to regulate imports without Congress because, among other things, trade deficits are a national emergency.
National emergency?
Emergency? The United States has run trade deficits every year since 1976. That includes some of the most prosperous times in the nation’s history.
Back in May, the Trump administration temporarily imposed 145% tariffs on China. The spring months are when toy sellers typically order products from abroad. Those shipments often come by boat, which takes several months. The holidays, a roughly eight-week buying period beginning in November, are when, as Bloomberg recently reported, toy sellers earn about two-thirds of their yearly profits.
Rick Woldenberg, a plaintiff in one of the cases, is the CEO of Learning Resources, an educational toy company his mother started years ago near Chicago. While the company develops and assembles some products locally, much of what it sells is manufactured in China.
Tariff roller coaster
A cardinal rule of taxation is that businesses hate uncertainty. This offers a textbook case as to why.
Back in May, experts predicted the high tariffs wouldn’t last, but business owners were left wondering whether to bet their financial futures on that.
Learning Resources felt it had little choice but to sue the White House. “We’re the only private company that brought our own lawsuit,” company vice president of marketing and product development, Elana Woldenberg Ruffman, told Bloomberg’s Big Take Asia podcast. “We were kind of faced with the decision of die or do something.”
Reuters quoted David Levi, founder of the small toy company MicroKits, out of Charlottesville, Virginia, saying, “In a world where tariffs can go above 100% and then back down again, you’re just trying to guess what happens next and can’t plan ahead.”
Levi is a plaintiff in a separate, parallel lawsuit pending before the high court.
Woldenberg Ruffman told the podcast that Learning Resources has tried to find a new supply chain, but uncertainty gets in the way.
“We don’t know what the tariff rates are gonna be at any given time at any given day and so we’re proactively out here trying to diversify our supply chain so that we are able to ride the waves,” she said. “At the end of the day, we’re betting. It is highly likely that some products that we move, we will have to move again.”
Trade deficits
You may be wondering about the importance of those trade deficits. It’s a good question.
Cato Institute senior editor Michael Chapman said it well in an essay about a year ago: “If American consumers and businesses end up buying more goods from foreign manufacturers than they sell to foreign consumers, resulting in a trade deficit, so what?”
Those are private transactions, and both parties are satisfied.
Today’s toy makers have an advantage over the Schechters in the ‘30s. For one thing, they are not fighting alone. For another, they don’t have to overcome widespread prejudice against their religion and its rules.
It remains to be seen whether the little guys will prevail again. Either way, it may not be enough to save this Christmas for some beleaguered toymakers.