Business owner used 1.8 million credit card points to pay tariff costs

Small businesses facing higher import costs because of steeper U.S. tariffs are having to find different ways of handling the added expense.

Facing hefty tariffs on parts shipped from China, one small business owner took the hit by redeeming over 1.8 million reward points on his American Express card. Robert Keeley, owner of Keeley Electronics, a roughly 33-person guitar pedal company in Oklahoma City, Oklahoma, told CBS MoneyWatch he used the points, rather than cash, to cover the tariffs.

That unusual approach, first reported by Bloomberg, highlights the challenges many smaller enterprises are facing in coping with higher import duties.

Keeley's operation makes pedals used to create effects for electric and some acoustic guitars in a 17,000 square-foot warehouse in Oklahoma. But he's been unable to source one of the pedals' key components, a so-called potentiometer from anywhere other than China, leading to ballooning tariff charges.

"We manufacture and build nearly every part of the pedals in our factory, including the aluminum enclosures and all the circuit boards," Keeley told CBS MoneyWatch. "I really love manufacturing and giving someone a job."

Keeley said his team has tried to find a provider of potentiometers, which control voltages, outside of China, but to no avail.

"We can't find a source outside of China for our potentiometer, which is critical for our designs," Keeley said. "Even when we call companies in Taiwan, they say they get theirs from China."

Tariffs on the key component have surged since the start of President Trump's second term in January, according to Keeley. His business was on the hook for tariffs of 25% until March, when the duties temporarily shot up to more than 100%. Now the company pays a rate of 55% for potentiometers, he said.

A 90-day freeze on country-based tariffs, including those in place on China, expires on July 9. Keeley is hoping the current rate will come down, but uncertainty lingers. Trade experts also say Mr. Trump could again extend the tariff pause if trade deals are not reached by the deadline.

Keeley's most recent credit card bill, which included shipping and tariff fees, totaled nearly $11,000, according to a copy of the statement viewed by CBS MoneyWatch. Instead of paying cash, Keeley used the credit card points he'd accrued by paying previous tariff charges with plastic.

"I decided to use my points because I wasn't redeeming them for other things like gift cards. So I thought it would be clever to apply them to my bills for tariffs," Keeley said, noting that the charge is only a sliver of his tariff-related cost. "It sounds like a lot of points, and that gives you a sense of how much I am paying in tariffs."

Keeley emphasized he doesn't like depending on China for manufacturing his company's wares, saying that amounts to what he described as a "single point of failure." Although he hasn't yet raised prices for customers to offset the higher costs, the business may have no choice but to do so if stiff tariffs on Chinese imports remain in place, he told CBS MoneyWatch.

"I want to make sure I am releasing exciting products that the world wants to buy," he told CBS MoneyWatch. "If I don't pay attention to what I'm trying to sell and what people want, then I will go out of business. But for now, I am in a stable place."

• Small Business
• Tariffs
• China