Page 69 - INC Magazine-November 2018

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The Toll of a he Toll of a
Tariff Warariff Warariff War
T T

It’s not just giant companies that are being hurt
by Trump’s tariffs on Chinese goods.

by a smaller amount—say, $10 or $15—and absorbing the rest.
Or maybe he should move production to another country,
O O O
such as Vietnam? “That’s not as easy as it sounds,” he said.
“To begin with, it’s not worth doing unless the cost savings
is going to be more than $50 per bicycle. Not to mention the
R&D and travel costs of sourcing a new factory, and having
samples made and tested. Every bike model we bring into this
country from a new supplier we have to send to the Consumer
Product Safety Commission for testing. So moving production
ptimism, we’re told, is to another country would be a big effort with a lot of costs
at an all-time high in the we would never recover. There’s also a risk if you’ve built your
world of small to mid- reputation, as we have, working with one or two suppliers.
size companies, thanks Will a new manufacturer understand what we’re looking for
in no small measure to and give us the same level of quality?”
President Trump’s tax What about manufacturing domestically? “For us, it’s the
cuts and deregulation, but same problem,” he said. “There’s nobody in the United States
his trade policies are already making rims, hubs, spokes, saddles, chains, drivetrains—all
threatening to put a damper on the things we’d need in the quantities we’d need them. We’d
the good mood. His China tariffs, have to import the components, and they’re subject to the
especially, are jacking up the costs of the thousands of U.S. same tariff as the bicycles themselves.”
businesses with Chinese suppliers. One such business is Ryan could see no simple solution to the problems he’d
owned by my friend Ryan Zagata, founder and president of face if the 25 percent tariff was imposed, and I couldn’t either.
Brooklyn Bicycle Co. We hadn’t talked in more than a year I asked what he planned to do. “I’ll watch my competitors,”
when he called me out of the blue this fall and asked if we he said. Meanwhile, he was taking a closer look at each of the
could have lunch. I readily agreed. possible options, “making sure we’re dotting all the i’s and
Brooklyn Bicycle, with slightly less than $2 million in crossing all the t’s,” as he put it, so that he would have all the
annual sales, is known for the innovative designs and information he would need if he did have to make a decision.
crafts manship of its bikes, one of which was selected by the No doubt thousands of small to midsize companies are
Museum of Modern Art to be sold through its gift shop. They struggling with similar issues because of Trump’s trade wars.
are manufactured in China using parts from five or six coun- I’m glad to see that the major business organizations have
tries, mostly in Asia. Over lunch, Ryan told me that, although finally begun to raise a stink about them. Let’s just hope they
the business was doing well, he had questions about what to do can get him to end the tariff war sooner rather than later.
if Trump carried through on his threat to add $200 billion in
new tariffs on Chinese imports, which would include an addi-
tional duty of up to 25 percent on bicycles and bicycle parts. Norm Brodsky is a
He was already paying a duty of 5.5 percent. An increase to veteran entrepreneur.
30.5 percent would force him to make some tough decisions. He is the co-author
One possibility would be to simply absorb the additional of Street Smarts:
cost. On a typical bicycle costing him $200 to manufacture, An All-Purpose Tool Kit
he would have to pay an import duty of $61, as opposed for Entrepreneurs.
Follow him on Twitter:
to the $11 he was paying currently. That would be a $50 @normbrodsky.
increase in the bicycle’s cost of goods sold and an equivalent
decrease in the gross profit it generated.
Alternatively, he could ask his customers to cover the
increase and raise the bike’s price by $50. But the bicycle
market is very competitive. Ryan couldn’t be sure what effect
the price increase would have on his sales. So maybe, I told Shayan aSgharnia
him, he should do some combination of the two, raising prices

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