Tariffs=Pandemic 2.0? (For Cycling)

Last night, Donald Trump held a rally celebrating his first 100 days in office.  As he is wont to do, he made exaggerated or simply false claims about the positive effects of his actions (or inactions) during that time.

Of course, since he was in Warren County, Michigan--literally next door to the automotive industry capital--he talked up the tariffs he's imposed.  All along, he's claimed they would bring manufacturing back to the US.  During his speech, he defended his steep tariffs on cars and auto parts--just hours after the White House announced it was reducing them.

A bicycle company might provide one of the best examples of why he backpedaled (this will seem like a bad pun in a moment) on his earlier actions.  Most of you, I imagine, are not riding Kent bicycles, but you may have had--or your kid might be riding--one.  You may have assumed, as I did, that they are made in China or some other low-wage country.

In 2014, however, the Bicycle Company of America--Kent's parent, which has also made and sold bicycles under the BCA brand--has produced bikes in its Manning, South Carolina facility.  Notice that I used the word "produced:"  Although the machines produced in Manning bear "Made in USA" labels ("with domestic and imported parts" appears in smaller type), almost everything on the bikes--including the frames--comes from someplace else.  For example, the rims, hubs and spokes come from Asia but are assembled into wheels in the South Carolina plant.  And because the headsets and crank bearing races are pressed into the frames--and those frames are painted--in the same facility, they qualify for the label.

That scenario puts Kent and other bicycles made by BCA in a bind:  They have to pay higher prices for all of those parts, but they can't pass those costs on to customers unless bike prices are increased outright to "levels consumers may not want to pay" said Kent chairman Arnold Kamler. 

According to Kamler, the tariffs and duties total around 175 percent of pre-tariff prices.  As a result, he said, the company stopped importing parts--and bicycles--from China on 18 April.  Unless those tariffs are reduced, as they were for auto parts, in the next 30 days, Kamler says "we will need to suspend production later this year."

Since very few bicycle frames--save for custom and extremely high-end models--and virtually no parts--save for small-batch varieties of hubs, bottom brackets, headsets and pedals from the likes of Phil Wood, Chris King, White Industries and other small companies--are made in the US, it's easy to imagine that shops, distributors and online retailers could experience a run on current inventories.  And, when those are exhausted, bikes, parts and accessories could become very difficult to find and expensive.  In other words, we might see a re-run of what the cycling world experienced during the worst days of the COVID pandemic in 2020-21.

Tariffs Against China, Via Norway

 The other day, I recounted some of the ways Trump’s tariffs, particularly the ones levied against China, could affect the US bicycle industry and community.  Some retailers, distributors, importers and even manufacturers have said the new taxes could “devastate” or even “destroy” the industry. Whether or not those predictions are too dire, there will be ripples or even tidal waves no one will have predicted.

Case in point:  On Tuesday Norwegian company Bike Finder announced it is pausing exports of its devices to the US.  According to the company, the decision was made “not out of necessity, but strategy.”

So why is a Norwegian company essentially boycotting the US over its trade war with China?  You guessed it: While the bike tracking devices, which fit into the handlebars, and the software in them, are designed and developed in Norway, they are manufactured in China.

Other bicycle accessories (especially electronics)—and bicycles—have similar stories behind them: they are created and marketed by companies in North America and Europe but fabricated in China.

Does Trump Believe “Tariff” Is A Beautiful Word Because He Hates Bikes?

You know the world is not the one in which you grew up when beliefs that might’ve been dismissed as conspiracy theories only a few years ago actually seem like reasonable explanations of what’s going on.

To wit:  I can’t help but to think that Trump’s tariffs are intended, at least in part, to induce a worldwide economic depression so that he, Elon Musk and their cohorts can buy (through proxies in the case of Trump and other elected officials) stocks, real estate and other commodities at a fraction of their previous costs.  Some very wealthy people did exactly that in response to the market crashes of 1929, 1987 and 2008.

Also, Trump’s claim that he’s imposing tariffs to bring manufacturing back to the United States is, at best, a partial truth.  For one thing, it will take years, or even decades, to re-shore the fabrication of goods.  And, when (or if) industry “returns,” it won’t be in shuttered Detroit auto plants or Pittsburgh steel mills—if indeed they’re still standing.  Instead, new facilities—whether in those industries or others—will open up in the so-called “right to work” states, where unions are weak or nonexistent.  So, the jobs, which will be fewer In number because of automation, won’t offer the standard of living, health and other benefits or protections (in case, say, a worker is disabled because is working conditions) that workers enjoyed until about the 1970s.

In other words, the tariffs that are supposed to “Make America Great Again” will only make the wealthy wealthier and fewer in number but make everyone else poorer—and many of them more fearful and therefore willing to submit to onerous demands.

Oh, and nobody involved in the US bicycle industry thinks any good will come of those tariffs. The vast majority of bikes, e-bikes and anything related to them come from China and other countries that have been slapped with the largest tariffs. Of the 10 million or so bikes sold annually in the US, fewer than 500,000 (five percent) are even assembled in the US; virtually none are made entirely in the US. 

I recall that about thirty years ago, one of the mountain bike magazines tried to build an all-American bike. It was, of course, wildly expensive, as most of the parts were after-market items made by small companies (or even in someone’s garage). Even with a no-limit budget, an all-American mountain bike could not be built because, as I recall, no tires or inner tubes were (or are) made here. I imagine that at least some makers of the parts that went on that bike are no longer in business or were bought by bigger companies that are making the parts in—you guessed it—China or one of the other countries Trump is bullying.

On top of the situation I’ve described, many shops and distributors are sitting in inventory they bought after the COVID boom cleared out shelves and warehouses. Many consumers who wanted to buy during the pandemic, but couldn’t, waited. But when inventory finally arrived, they were no longer interested. So, in a cruel irony, after shops closed a few months into the pandemic because they couldn’t get inventory, others are now closing because they can’t get rid of it—or had to sell for less than what they paid.

The tariffs probably won’t affect the prices of what dealers already have. But it will most likely deter some from bringing in new bikes, helmets and the like, as consumers will be less interested in buying.

So..in keeping with the original premise of this post:  I don’t think I’m being a conspiracy theorist when I say, given his anti-bike rhetoric, Donald Trump had the bike industry in mind when he imposed tariffs—which he called “the most beautiful word in the dictionary “—that could potentially double the prices of bicycles, e-bikes and anything related to them. And he probably believes that by punishing cyclists, he’s rewarding the fossil fuel-related industries.

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.