How Will Brooklyn Pay For A Tax Against China?

About three weeks ago, I wrote about ways in which the recently-imposed tariffs on Chinese goods could affect the bicycle industry.

I presented as clear a picture as I could, not being a bicycle industry insider or an economist who specializes in trade policy (or any kind of economist at all).  So, today, I am going to share part an Inc. article Norman Brodsky wrote based on his conversation with such an industry insider.

Brodsky's friend Ryan Zagata is the founder and owner of Brooklyn Bicycle Company.  I've never ridden any of their machines, but they are praised for being very good at what new urban cyclists--particularly commuters and utility cyclists--want.  From all accounts, their bikes are comfortable and practical.  What I know is that they are stylish enough that one of their models is sold at the Museum of Modern Art's gift shop.

Plus, I must say, Brooklyn's prices are actually quite reasonable.  That could change, although Zagata doesn't want that.

He told Brodsky that a typical model from his company costs about $200 to make.  Right now, he pays $11 on import duties for such a bike, but the new tariffs could hike that to $61.

That leaves him with a dilemma:  Does he absorb the increase or pass it on to customers?  Of course, he could also "split the difference" and increase consumer prices, but by a smaller amount.

None of those options is particularly appealing because, as anyone who has worked in the industry knows, it's a low profit-margin business.  The retail markup on bicycles, percentage-wise, is not nearly as high as it is for such items as clothing and luggage.  Every shop in which I worked made a much greater proportion of its income from repairs or the sales of accessories and parts than it did from selling new bikes.  As I understand, that is the case in just about all bike shops. That's why you don't see year-end half-price or 75 percent off sales on bikes. 

Brooklyn Bicycle Company's Driggs 3

Brodsky asked whether Zagata could have his bikes and parts manufactured in another country like Vietnam.  It wouldn't be worthwhile, Zagata says, unless the move would shave $50 or more off the cost of producing the bike. More to the point, though, are the difficulties that come with such a move: among them,  the research and development--and travel-- costs of sourcing a new factory and having samples made and tested.  Also, he points out, every new model from a new supplier has to be sent to the Consumer Product Safety Commission for testing.  

In addition, moving production would mean losing the relationships they have with suppliers, who understand what Brooklyn Bicycle wants and needs.  "Will a new manufacturer understand what we're looking for and give us the same level of quality?" Zagata wonders.

He might have been thinking of Fuji's experience around the turn of the millennium.  They were one of the last major Japanese bicycle manufacturers to shift their production to Taiwan.  As a result, they didn't have the sorts of relationships enjoyed by other companies who shifted their production earlier.  Fuji's once-stellar reputation fell; it has recovered only during the last few years.

Finally, Brodsky inquired as to whether Zagata could manufacture his bikes in the US. Even if he made the frames, and assembled the bikes, in the US, he'd still have the same problem with tariffs.  "There's nobody in the United States making rims, hubs, spokes, saddles, chains, drivetrains--all the things we'd need, in the quantities we'd need them."  He still would have to import those components, he said, and they would be subject to the same tariffis as bicycles.

(He is right about the lack of American component-making  capacity.  Hubs are made here, but they are all high-end items like Phil Wood and Chris King:  a set would cost nearly as much as most of the bikes Brooklyn offers.  The other components, to my knowledge, are no longer made here:  even Sun Rims, designed in the USA, are made in Taiwan or China.)

At the moment, Zagata says he can't do much more than "watch my competitors."  Without a doubt, many other small- to medium- size business owners (BBCo., at $2 million a year, is considered in the latter category) could say the same. 

What's He Protecting?

The moment anyone with power uses the word "protect", I reach for my trusty frame pump.  Not only does it get my tires up to pressure in a pinch, it's great for swatting away stray dogs and other threats and nuisances.

You see, I've come to realize that any powerful person who thinks he or she can "protect" anyone or anything he or she hasn't met is delusional or lying.

And so it is with El Cheeto Grande.   He's passed another round of tariffs because he's, once again, got his knickers in a twist over China.  

Of course, the tariffs will not "protect" American industries because...well, they don't exist anymore, if indeed they ever did.  

(Besides, all you have to do is look at Smoot-Hawley to realize that tariffs almost never have their intended consequences.  But that would be the subject of, not just another post, but another blog--or a book!)

To wit:  Back in the Clinton administration, I tried to put together an all-American bike.  Of course, I did it on paper.  Frames and forks weren't hard to find, though they were almost always more expensive than imports.  Ditto for the Chris King headset, as great as it is. Yankee-made handlebars, stems and seatposts were available, but they were mainly "boutique" items.  

The other components, on the other hand, were a lot more difficult to find.  Sun was making its rims, and Wheelsmith its spokes, in the USA.  And there were a number of small companies fabricating hubs here in the USA, such as Phil Wood and Chris King.  They, of course, cost far more than even Dura Ace or Record stuff, but at least they kept my exercise going.

That is, until I tried to find tires.  To my knowledge, none have been made here since Carlisle ceased production, apparently some time in the early '80's.  Goodyear, Firestone and other rubber companies had exited the non-motorized trade long before that.

OK, I thought:  The tires are just one part (or two components, depending on how you look at it.). Surely, I could make the rest of the bike into a Yankee Doodle Dandy.

Then I tried to put together a drivetrain.  Mind you, this was during the days when it seemed every 25-year-old in California or Colorado who had access to a lathe was turning out lightweight (and very expensive) cranksets and derailleurs in a rainbow of colors.  I thought cassettes would be my next hurdle but, as it turned out, some company--in Massachusetts, I think--was making titanium bits--including cassettes.  

Eight speeds were the standard at that time.  If you remember anything about Shimano's 8-speed equipment, you knew that not everything was interchangeable between gruppos.  Namely, a Dura Ace hub would take only Dura Ace cassettes--not Ultegra, 105 or any other.  Turned out, the titanium cassette was made only for Dura Ace--which, I supposed, made sense, given what Dura Ace and titanium equipment cost.

(Aside:  Shimano's 9-speed stuff was interchangeable.  So Dura Ace hubs could take Ultegra cassettes, which weighed a bit more but cost about half as much.  And the standard 9-speed Dura Ace cassette was made of titanium, which pre-empted aftermarket stuff.)

But there were no chains made stateside.  Back in the day, the baloon-tired coaster brake bikes had American chains; however, as far as I know, no derailleur-compatible chain has ever been made here.  Nor were any pedals, save for the rubber-block variety found on said wide-tire "bombers".

Oh--and there were no American-made saddles.

Today it would be even more difficult to put together an all- (or even mostly-) American machine.  And almost very few bike accessories are made here.  Yet they are all subject to tariffs.

And it's all but impossible to find some items made anywhere besides China.  Almost anything electronic--lights, computers and the like--come from Cathay.  

So do helmets.  Interestingly, they have been exempted from tariffs.  It's ironic when you realize that one of the rationales for the tariffs is to protect against intellectual property theft--and nearly all helmets are designed in the US!

Of course, bicycles are far from the only things to be affected by the tariffs.  I'm not sure I'd want to be a farmer who raises corn, soybeans or hogs right about now.  But I have yet to hear anyone explain how any job or industry will be "protected" in this country.