WASHINGTON (BRAIN) — It will take just a few short weeks before the U.S. bike market sees significant wholesale and retail price increases on bikes, parts and accessories due to the long-delayed 25% tariff on Chinese imports, which finally took effect Friday morning.
The tariff increase applies to products that left China after 12:01 a.m. Friday or that arrive in the U.S. after June 1. Goods in transit that arrive before June 1 will not be subject to the extra tariff.
A 10% tariff on the products took effect in September 2018; the increase to 25% was first scheduled for Jan. 1, 2019, but was delayed by the Trump adminstration several times as negotiations with China continued. The 25% is in addition to existing tariffs on Chinese products, which are generally 5-11% on bikes. The new tariff does not apply to helmets and lights.
The tariff applies to bike products that had imports last year totalling about $1 billion in the value at the ports. After being marked up by importers and retailers, the Chinese products might represent about half of the total U.S. bike market through all channels, which is estimated at $6 billion at retail.
The mass market channel is the most exposed to the increase, because many components and higher priced adult bikes sold in IBDs are sourced from Taiwan and other countries besides China.
But China supplies IBDs and mass merchants with most juvenile bikes, entry level adult bikes, and lower priced parts and accessories, including tires.
While U.S. importers continue to look for sources outside China, price increases are unavoidable, some said.
"We will have to raise prices, obviously," Nyle Nims, president of Cycle Force Group, told BRAIN on Friday. CFG sells an array of China-made bikes and parts & accessories through e-commerce and mass merchants; its North America Cycles business distributes to the IBD channel.
Nims said his company has been looking for sources outside China since last summer, but it's a slow process to set up bike manufacturing in a new country. Parts and accessories are even harder, he said.
"The infrastructure is there in China to do P&A, and unfortunately it's hard to get some things made anywhere else. So we're just going to have to bite the bullet and raise prices," he said.
Matt Nims, the president of NAC, said the tariff is going to "kill" entry-level bike sales. "Juvenile bike sales are going to be a bit of a disaster," he said. He said juvenile bikes that currently retail for $99 could go up to $129.
The price increases will take a few weeks to hit, depending on retailer and supplier inventory levels.
Arnold Kamler, CEO of Kent International, one of the largest bike suppliers to Walmart, also told BRAIN this week that he expected to increase prices if the tariff rate increased. Kent also sells the Univega USA line through IBDs (Kamler also appeared on CNN this weekend, see video below).
....completely avoided if you by from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs. Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!...
— Donald J. Trump (@realDonaldTrump) May 13, 2019
Many suppliers were able to absorb the 10% increase that took effect in the fall without passing on the cost to consumers; some said currency exchange rate shifts mitigated the tariff increase. But in dozens of conversations with suppliers since the tariffs were first imposed in September, BRAIN encountered none who said they could absorb a 25% tariff without price increases.
An executive with one major U.S. IBD brand said the tariffs will be "devastating for the USA and China bicycle businesses."
"We are facing tough market forces without suffering from serious non-market forces," the executive told BRAIN on Friday.
Some importers are hopeful the Trump administration will reach a trade deal with China before June 1 and reverse the increase before anyone pays the extra fees.
Talks are continuing, but President Trump has said he's comfortable leaving the extra tariff in place, saying that China is putting billions of dollars into the U.S. Treasury through the tariffs. The new tariffs on $200 billion in consumer goods have indeed contributed an additional $80 billion to the Treasury in the last year, but Trump's comments misstate the process: the tariffs are not paid by China. They are paid by U.S. importers and ultimately by U.S. consumers.
China responded Monday morning with new tariffs on $200 billion in U.S. exports to China. Those tariffs will take effect June 1, leaving both sides a few weeks to continue negotiations.
