A version of this article ran in the December issue of Bicycle Retailer & Industry News. This version has been updated with additional comments from Arnold Kamler.
(BRAIN) — Of the many expected changes when the new presidential administration takes over, the least speculative notion is increased tariffs on goods from China and perhaps from all other countries. For an industry that imports almost all its products, with more than 90% of bikes coming from China, that is guaranteed to have a major effect.
President-elect Donald Trump mentioned a lot of numbers on the campaign trail, but he generally has said he wants tariffs of up to 60% on Chinese goods and 10-20% on imports from other countries.
Where we are now
Long-standing protective tariffs on imported bikes from most countries are generally 5.5% and 11% depending on wheel size; there is no protective tariff on e-bikes. The punitive Section 301 tariffs imposed on Chinese imports during the first Trump administration added 25% to the existing tariffs.
Many bike products were excluded from the tariffs at various times during the Trump and Joe Biden administrations, but most exclusions ended last summer.
So bikes from China are now hit with a 36% tariff and Chinese e-bikes get a 25% tariff.
Short-term impact
Tariffs increase costs on the domestic industry. Importers pay them and as that cost gets passed through the system, it eventually gets to the retailer and the consumer.
"The impact of tariffs is more complex than it might appear in the news," said Don DiCostanzo, the founder of e-bike brand Pedego. "The cost of tariffs is often distributed in different ways: Some of it is absorbed by businesses in their profit margins, some is passed on to consumers, and some may be softened by a strong dollar, which can reduce the cost of imports."
Another industry executive, who asked not to be named so they could speak frankly, said, "Everybody is suffering today trying to sell the bikes in inventory at 2020 prices. ... Now if we have new product imported at higher import taxes, that's going to result in higher prices. I don't think anyone can cut margins to the degree to support a high-impact tariff. This (industry) is not Ford or Boeing — prices will have to increase."
Heather Mason, president of the National Bicycle Dealers Association, said existing tariffs and price increases have already squeezed retailers.
"The cost of all bikes is rising, putting pressure on our sales, and the tariffs had made it very challenging for brands, retailers, and consumers. I am worried about future increases and how the industry will handle (them). We can't keep pushing margin cuts on retailers as it impacts their ability to make enough revenue to cover operating expenses. However, increasing retail MSRP impacts the market and may make some bicycles unreachable for some," she said.
Mitigating factors
Most bikes in the IBD channel are not from China. In September, 86% of all bikes imported were from China, but most of those were very low-value kids' bikes headed to Walmart and Amazon. In dollars, only 42% of the imports were from China.
While many bike shoes and helmets, for example, come from China, many parts and accessories in the dealer channel are from outside China. (And helmets are a product category that has consistently earned tariff exclusions, on safety grounds). As an example, at BTI, a New Mexico-based distributor that focuses on higher-performance products, Chinese imports account for less than 10% of its inventory, BTI President Preston Martin told BRAIN.
Another thing to keep in mind: Despite what the arm-waving industry pundits on YouTube will tell you, a 60% tariff, as bad as that would be, does not equal a 60% increase in MSRP. Because: math.
A 60% tariff does not equal a 60% increase in MSRP. Because: math.
These numbers are very rough, but for example, a bike valued at $1,000 at port might normally retail for about $3,000 on the sales floor. A 60% tariff would add $600 to the importer's costs. By the time the importer, distributor and retailer add margin and shipping costs, the eventual price on the sales floor might go up to $3,500 or $4,000 — a huge increase in dollars, but in percentage terms, it's a 17-33% increase, not 60%.
China aside, a 20% tariff on imports from other countries could have less impact than the sometimes-wild price fluctuations seen in recent years due to shipping and other inflated costs. Changes in interest rates and currency exchange fluctuations could be larger factors than the tariff.
The new administration's openness to tariff exclusions could also be a major factor. Under Trump's first administration and until summer of 2024 during the Biden administration, many bike and e-bike products were excluded from the Section 301 tariffs. The administration-elect's openness to granting exclusions could depend on Jamieson Greer, Trump's appointee as U.S. Trade Representative. Robert Lighthizer, the Trade Representative in the first Trump administration, was expected to be "Trade Czar" in the second administration, but recent news reports say Lighthizer is unlikely to be appointed to a position in the new administration.
The sausage making
A lot depends on exactly how Trump achieves his tariff goals.
Punitive Section 301 tariffs are relatively easy for the President to impose without Congressional input. But general protective tariffs are supposed to be approved by Congress, starting in the House Ways and Means Committee.
Generally, punitive tariffs like Section 301 have stacked on top of existing protective tariffs, for example the current 25% tariff on Chinese bikes is added to the existing 11% protective tariff for a total of 36%.
But if Congress changes the protective tariff it would probably substitute for, not be in addition to, the current 11%. Probably.
Another thing: GSP. The Generalized System of Preferences program exempted some developing nations from tariffs, including Cambodia, Thailand, Philipines and Singapore. GSP expired in 2020 and the industry wants to see it renewed, but there is some question about whether GSP nations would become exempt from all Trump tariffs or only some pre-existing tariffs.
How these pieces fit together could swing the impact on the industry by millions of dollars.
What exactly is the goal here?
Tariffs can encourage domestic manufacturing. They can raise revenue for the federal government, perhaps replacing or lowering other kinds of taxation. They can be used as a bargaining tool/weapon in negotiating with China over everything from human rights to intellectual property policies to grain imports.
DiCostanzo, for one, thinks Trump is primarily interested in wielding tariffs as a bargaining tool. "You can quote me predicting we'll see 200% tariffs in the first quarter," DiCostanzo said.
"And then they might go away just as fast. It's going to get ugly for a while. The Chinese government has to agree to whatever the Trump administration decides is important. It could be a 200% tariff but it won't be forever; it will be until someone says uncle," he said.
"It's going to get ugly for a while" — Pedego's Don DiCostanzo
DiCostanzo retired as CEO of Pedego last year and remains on the board. On social media he is one of the industry's more vocal supporters of Trump. But even he is skeptical that Trump's trade war will bring bike-making back to the U.S.
"When I started Pedego, I wanted to make bikes in the U.S. Then I saw I had to pay 8-15% on parts (while complete e-bike imports paid 0%), and you add labor to it, especially in California where the minimum wage is $20, plus another $10 in benefits. You know what they pay in China an hour? $1.
"I'm in favor of using tariffs to right the wrongs with China stealing IP — which is still happening — and subsidizing companies that are there. But we can't overcome the low labor costs," he said.
Others are intrigued by domestic bike manufacturing or at least assembly.
"There are advantages to domestic manufacturing. It's no one's preferred situation to build product that is 45 days away from the East Coast," said Patrick Cunnane, an industry veteran who has worked for companies that built bikes domestically and for importers.
Cunnane saw mass-market bike manufacturers like Huffy, Murray, and Roadmaster close their U.S. factories in the 1990s after failing to persuade U.S. trade officials to impose anti-dumping duties on Chinese bike makers. "The result was we went from making nine million bikes a year here to pretty much 600,000 a year in a very short period of time," he said.
Industry sources say that protective or punitive tariffs could encourage U.S. manufacturing, but they would need to be tailored carefully — for example, parts and raw materials needed to assemble bikes would have to be exempt, especially if, as has been the case in recent years, complete bikes are exempt. But tax policies, monetary policy and even immigration policy would all have to be put into the mix in the right way. Retaliatory tariffs would have to be considered. And of course, the effect of all these things on the cost of living and the larger consumer economy is a major factor.
And it's unlikely some products will ever be made in the U.S. again because of environmental and worker safety regulations. Tires and helmets, for example, are unlikely to ever be made in the U.S. again.
Closing the de minimis loophole would also help. If Chinese products become subject to a higher tariff, but small orders (under $800 value) remain exempt because of de minimis, the entire exercise would be counterproductive, some say.
Delta blues
If the administration imposes a 60% tariff on China and 20% on the rest of the world, that 40% delta will cause manufacturers to accelerate their exits from China in favor of other low-labor cost nations like Cambodia and Vietnam (it's worth noting that in many cases, the new bike factories that have been built in Asia outside of China in recent years have been built by China-based companies).
Near-shoring to Mexico or Canada could also become more viable; it's not clear how recent developments between Trump and the leaders of those nations could affect that.
But industry analyst Jay Townley is skeptical that tariffs could be imposed large enough to return manufacturing to the U.S. on scale. Bike making requires a cluster of related companies, institutional knowledge and a pool of manufacturing engineers, he said.
"When there was domestic manufacturing, we had manufacturing engineers who knew how to design tools and machinery. Now we don't have that: The bike brands know how to design a bike, but they don't know how to make a bike," Townley said.
We asked another executive at a major brand if hypothetically, a certain level of tariff could restart domestic bike making. They were skeptical.
"Even if the tariff was 150%, I don't think there would be more manufacturing," they said. "Maybe for some high-value products, but not below $1,000, $1,500 bikes. People would just stop buying bikes. We're seeing that now already," the executive said, pointing to reduced unit sales and imports in recent years, a reduction that has been masked somewhat by increased average bike values at the import.
Like they do in Europe
Can punitive tariffs on China encourage domestic manufacturing? Sure. Just look at Europe, some say. In 2019 the European Union imposed anti-dumping duties on some Chinese e-bike makers of up to 80%. The result? More e-bike factories in Europe. Giant now has two factories in Hungary; China's Bafang opened an e-bike motor factory in Poland, where woom and DT Swiss also manufacture. Clusters of manufacturers are opening plants in Bulgaria, Czech Republic, and Portugal; Yamaha started e-bike motor production in France. Trek runs factories in Germany making Villiger-bikes, a brand it bought in 2003.
Could that happen in the U.S.? Maybe, but it's not as simple as imposing a huge tariff. Unlike the U.S., where exclusions for complete bikes discouraged assembly, the EU on a case-by-case basis excludes components that are not made in Europe. The EU determines a bike's country of origin by value, so factories can add a European motor and battery to a Chinese-made frame and not be subject to the anti-dumping duty.
In the U.S., the frame determines country of origin.
Changing the country of origin rule is an aim of Arnold Kamler, chairman of Kent International. Kent, which is partially owned by a Chinese company, imports bikes and parts from China and elsewhere and assembles some of its bikes at a factory in South Carolina. Because the bikes put together in South Carolina use frames welded in China, the bikes can't be labeled as Made in the USA and the parts Kent imports are subject to Section 301 and other tariffs.
Kamler is a supporter of legislation introduced earlier this year that would suspend tariffs on components, provide a tax credit to domestic e-bike makers, and offer low-interest loans to domestic manufacturers.
Kamler recently returned from China, where he said the industry appears "quiet."
"Literally thousands of factories are not running. Business is terrible in China right now," he said.
He said Chinese factories are encouraging U.S. brands to import bikes now, but he's not biting. "I had to explain to a lot of people that, number one, these tariffs aren't in place now and they aren't going into effect January first, either."
Kamler expects the new administration to be relatively cautious with new tariffs. "I don't expect tariffs to go away, but I don't think they will put tariffs on top of tariffs. And I don't think it will happen quickly," he said.
