SF bougie coffee startup held hostage by Trump’s trade war

Jake Miller knew it was bad when his company was forced to sign up for Truth Social.

The CEO and founder of Fellow, a locally grown business that makes high-end coffee products (think: sleek gooseneck kettles and precision scales), had mercifully been able to stay out of social media trolling and focus on building his company. 

But then came Liberation Day, an escalating trade war between the world’s two biggest economies, and crushing tariffs that left a warehouse worth of Fellow’s products languishing in China. More so than any Bloomberg Terminal, the president’s Truth Social posts provided the most up-to-date information on the Trump administration’s shifting policies and the intelligence necessary to make decisions.

“These [policies] are announced on Truth Social and then, three days later, they go live,” Miller said. “I thought maybe 50% was the absolute ceiling. I’m just in shock it escalated the way it did.” 

The economic uncertainty has left Miller reading the tea leaves as he juggles his company’s biggest product rollout, an espresso machine that was two years and nearly $6 million in the making. Tariffs threw a last-minute snag that scrambled a meticulously planned launch strategy, resulting in a price that still leaves Fellow making less profit per unit. 

Fellow’s team was prepared to deal with known unknowns; for example, uncertainty around how long it would take to design and execute its patented quick-heating boosted boiler system. However, the escalation of import taxes, just as the product was nearing the finish line, was a different matter.

“You make all these decisions based on the rules of the game at the time, like pricing, components, and country of origin,” Miller said. “Then, all of a sudden, the rules change.”

Fellow designs its products in San Francisco and works with contract manufacturers in China to produce them. The U.S. has imposed a 145% levy on most goods from China, which has responded with a sky-high retaliatory tax. Although there have been carve-outs for specific products, it amounts to a full-scale trade embargo between the two countries.

“Since the company was started in 2013, this has been the most disruptive thing that has ever happened to us,” said Miller, who’s just one of thousands of business owners furiously trying to stay afloat amid an unprecedented geopolitical faceoff.

In just a few weeks, the tax on imports has jumped 70-fold for some of Fellow’s products. That means an item that previously cost $10 to bring into the country now costs $25, solely due to the tariffs. Make no mistake, Miller said: It’s not China but businesses like his that are paying the price.

Those numbers have brought a key part of Fellow’s U.S. business to a screeching halt. Production lines in China have been stopped, and completed products remain stacked in a warehouse. Overall cargo traffic from China to the U.S. fell 60% in April, according to San Francisco logistics company Flexport.

Fellow’s China-based team reports that piles of containers are parked along the road in port towns as companies try to wait out a trade war that could intensify or end at any minute. The company employs around 75 people in San Francisco and 25 in overseas offices.

“Since these tariffs, we have not brought a single item into the U.S. We’re just sitting on our hands,” Miller said.  “Christmas is gonna be very different this year both in terms of what’s available to purchase and — if there are not big changes — the price.”

Miller said he has roughly four months of inventory stateside to weather the immediate storm. But, he notes, that won’t be enough to get through the holiday shopping season, which generates a major portion of Fellow’s sales volume.

“People in the U.S. do not want to manufacture coffee makers and grinders. They just don’t,” Miller said. “So you’re in the position where now you’re hurting an American-based business, and you’re hurting the U.S. consumer.”

He pointed to one of Fellow’s new espresso machines during a tour of the company’s Mission headquarters. “If we built this in the U.S., it would be $5,000,” Miller said, adding that such a price point would negate the premise of the product as a professional-level machine a barista can actually afford.  

As part of its belt-tightening, Fellow has stopped hiring and pulled back its investment in research and innovation. The snack budget has also been paused. Layoffs are not planned, but if the trade war continues, they may be unavoidable. 

Fellow has ramped up use of bonded warehouses, where items can be stored temporarily without paying the tariff, but that’s only a delay tactic. To get Fellow’s Espresso Series 1 to customers before the holidays, the company will eventually need to increase production in China and pay the import fees. 

“All our focus now needs to be on survival and expediting the diversification of our supply chain,” Miller said. Plans to set up production in Mexico, Vietnam, or Indonesia were already in the works, but will take months and millions to achieve. 

“We can move as fast as we can and throw money at it, but nine women can’t have a baby in one month,” Miller said. Hanging overhead is the capriciousness of current trade policy.

“I’m terrified that I could spend six months moving to Vietnam, and President Trump gets into a fight with their leader, and we see 100% tariffs on that country,” Miller said. 

He’s remaining optimistic, but not everyone will be so lucky. In the last few weeks, Miller said, he’s received calls from smaller competitors offering to sell off their businesses for pennies on the dollar.

“Thank God I’m 13 years into this. Thank God we’ve got a strong brand, balance sheet, and a team to weather it,” Miller said. “There’s going to be a very large graveyard of hardware startups and early-stage companies that just can’t deal.”