Where Your Next Bike Might Come From

In a couple of earlier posts (See here and here, I examined some of the ways in which the new tariffs on Chinese goods could affect cyclists and the bike business here in the US.

Some American bike firms, like Brooklyn Bicycle Company, are deciding whether to absorb the price increases or pass them on to customers.  Others, like Detroit Bikes and BCA, are calling for even higher tariffs and extending them to all imported bikes.  

Trek and Kent--two bike companies rarely mentioned in the same breath, let alone the same blog post!--are contemplating yet another strategy which, really, shouldn't come as much of a surprise.

Trek is, arguably, the most prestigious mass-market American bike brand.  (Specialized and Cannondale are probably Trek's chief competitors for this title.)  Their highest-priced bikes are still made here, albeit with imported components.  The rest of their bikes are made by sub-contractors that include Giant, which also sells its bikes under its own name.

Kent's offerings, in contrast, are at the bottom of the market and found, not in bike shops, but in big-box stores like Walmart and internet retailers.  Some are sold, under license, bearing the Jeep, Cadillac and GMC brands.  Although some of its bikes are assembled in South Carolina, their frames are made in China and Taiwan and assembled with components made in those countries.

So...Is Trek returning to its roots by returning its manufacturing to the US?  Well...no.  You're not going to see a revival of those nice lugged steel frames they made in Wisconsin during the '70's and '80's.

Likewise, Kent isn't going to build a factory in Parsippany, New Jersey (the location of its headquarters), or anywhere else in the good ol' You-Ess-Of-Ay!

No, they are not going to do what El Cheeto Grande told all of those laid-off blue-collar workers in Ohio and Michigan and Pennsylvania companies would do in the face of tariffs.  Instead of making their wares in the country Trump thinks he can Make Great Again, they are talking about shifting their production to a country that isn't getting a tariff wall built around it.

If you are European, what I am about to say next will come as no surprise:  That country is Cambodia.  

The Southeast Asian kingdom is already the biggest supplier of bicycles to European Union countries.  Most of the country's bike factories are in the north, near Vietnam--which some have called "the EU's China." If you buy, say, a backpack or jacket in Europe, it's more likely than not to have been made in Vietnam, just as the new bike is likely to be from Cambodia.

It will be interesting to see whether other American bike companies make similar moves.  If anything, wages in Cambodia, Vietnam and other countries in the region are lower than they are in China. And some Cambodian bikes are already coming into the US--though, in far smaller numbers than bikes from China or Taiwan.

What--If Anything--Wii This Trade War Cost Us?

I passed the only economics course I took as an undergraduate by promising the professor that he would never, ever see me again if he gave me credit for the class.  If I were to fail, I warned him, I would be forced to take the class again and he might get stuck with me for another semester.

It worked.

Well, all right. It didn't quite go that way.  I passed the class, but I didn't make any such promises or threats.  I think the prof, though, realized that I had absolutely no talent for the subject to which he devoted his life and I wanted to return to school the following semester.  In short, he seemed to feel pity for me, and might've added, oh, a point or two to my final grade.

Anyway...The point of this is that I should not, under any circumstances, be mistaken for an economist.  And, no, I didn't play one on TV. (How does one play an economist on TV?)  So, take anything that resembles economic or business forecasting on this blog with a large bottle of frame prep solution.

As you all know, El Cheeto Grande is proposing tariffs on Chinese imports.  They are in retaliation for similar fees China imposed on imports from the US--which, in turn, were a reaction to earlier tariffs Trumpf slapped on Chinese goods.

The difference between the first and second round of Trump Tariff Punch is that the later round includes a greater number of products than the first, from which consumer goods were mainly absent and, instead, included farm products and basic materials such as steel.

Although details of the second round haven't been made public, some folks who know more than I know say that simply because the second round encompasses about twice as much of what the US imports from China (by monetary value), it's likely to include consumer goods.

As to which consumer goods might be affected:  No one has said outright that bicycles will be in the crosshairs, but it's hard to imagine that they won't be.  The tariffs might even include "bike-related imports", as more than one article put it.  

So, even if you don't buy a Chinese-made bike, there's a good chance that some of the accessories or parts you hang on it will have that tax levied on it.  For example, of my six bikes, four are British (Mercian), one American (Trek) and the other Japanese (Fuji).  I don't have any Chinese parts on them, and about the only accessories from China I use are the rack, lights and handlebar wrap on the Fuji. So, if I were to buy those things today, I wouldn't be affected much, if at all.  

But in spite of my efforts to buy from companies based and operating in countries where workers are paid decently and are guaranteed some basic human rights and protections, I find that I am not "innocent", if you will.  Turns out, my Giro helmets are made in the land of Leninist Capitalism.  So are my riding glasses, gloves and a few other things I use while riding.

What gets taxed, of course, will depend on how the categories of taxed goods are defined.  If there's a group called "bicycle-related goods", or something similar, watch out!  On the other hand, the law might specify certain categories of bicycles defined by price point or wheel size, as is done in places where there is a sales tax on new bicycle sales.  Naturally, none of us would like that tax, but at least you have a clearer idea of what will and won't be taxed.

Now, if this tariff were in the works during my youth, I would have scoffed:  "Well, I don't buy such crap bikes."  These days, though, it's hard to avoid buying Chinese unless you are shopping near the top of the price scale.  Some of those bikes and parts with familiar names you've long known may no longer be made in Europe or Japan or the USA--or even Taiwan.  They may be produced in Chinese factories.

My prediciton:  Some bikes and "bike-related products" will be affected.   But I think they will be a result of falling into larger categories of imports that are affected:  Somehow I don't think that the folks who are charged with turning El Huffy's Twitter storms into international trade law are thinking about bicycles in particular.  

Make American Bikes Again: Will Tariffs Make That Happen?

I've never been very good at predicting the future.  One thing I can tell you, though, is that come the first of January, bikes and anything related to them are going to be more expensive.  Way more expensive.

Currently, most imported bikes are subject to tariffs of 5 to 11 percent. (I learned that when I purchased my Mercian frames.  I was even charged import duties when I had two of my frames refinished by Mercian!)  An additional fee of 10 percent was added to bikes, and most parts, from China in August.  That extra fee will increase to 25 percent when the new year begins.

Given that most new bikes and parts are made in China, and very few are made in the US, most people who buy bikes or parts will notice the difference, if they haven't already.  Now a couple of manufacturers want even higher tariffs, and to expand them to cover more bikes.

Bicycle Corporation of America (BCA) and Detroit Bikes are about as different as any two companies in the bike business can be.  For one thing, the bikes they offer have little in common:  Detroit Bikes offers a full line of city bikes as well as "comfort bikes" assembled in the USA and, for next year, plans to offer a  line of USA-made bikes.  As near as I can tell, their products are aimed at the sorts of riders who might buy, say, a Linus:  folks who want stylish bikes without the price tag of a bike from another Detroit maker: Shinola.  On the other hand, BCA's offerings (some of which are sold under the "Concord" name) seem to consist of kid's bikes along with beach cruisers and inexpensive mountain bikes for adults.

City FC Limited Edition from Detroit Bikes

I laud both companies for their attempts to bring bike manufacturing jobs back--in Detroit's case, to a ravaged city and in that of BCA, to a part of South Carolina that has been economically stagnant for most of the past century.  But I have to chastise them (as if they're listening to me) for asking the Federal Trade Commission to increase tariffs on all imported bicycles to as much as 50 percent.  

BCA Bicycles

Not only that, they want to reduce the de minimis threshold for such duties.  Currently, any package of imported goods valued at less than $800 is not subject to import duties.  BCA and Detroit's petition calls for reducing the de minimis to $50 for at least four years.  That would include, of course, just about any imported bike but could also mean that, say, a package containing bicycle parts such as inner tubes (nearly all of which are made in China) could be subject to the charges.  

To be fair, the US industry as a whole has been lobbying for a reduction of the de minimis for all imports.  So have American companies in other industries.

While BCA, Detroit Bikes and other American bike companies believe that such tariffs will increase their business and bring jobs back to the US, at least one example from another industry shows that their move could backfire.  Last year, the US International Trade Commission recommended tariffs on some photovoltaic cells and large residential washing machines. Last January, the Trump administration approved 30 percent tariffs on the cells, which would decrease after the first year.  On the other hand, it approved a 20 percent tariff on the first 1.2 million washers imported, and 50 percent on any imported after that.

It won't surprise you to know which company initiated the petition for these tariffs:  Whirlpool.  Though the company celebrated its initial success, its profits have declined in recent months because the Trump administration's tariffs on steel and aluminum imports have driven manufacturing costs upward.

So, while Zak Pashak, the Canadian-born head of Detroit Bikes, is excited at the prospect of running three shifts "at full tilt" and thus bringing "hundreds of new jobs" in "an area where we really need jobs", one has to wonder whether his enterprise will be so profitable if he, like Whirlpool, has to pay more not only for raw materials, but also for the parts--almost none of which are made here--he hangs on his frames.