WASHINGTON (BRAIN) — The U.S. bike industry has been drafted into the trade war between China and the U.S.
Chinese-made e-bikes, which include bikes sold by Trek, Giant, Raleigh Electric, Pedego and other brands, would be subject to a 25 percent tariff under a proposal released Friday. The tariff, which could take effect in a matter of months, would increase the retail price of the bikes by hundreds of dollars, perhaps enough to make them uncompetitive with e-bikes made elsewhere, and dampening interest in one of the bike industry's most promising sectors.
The electric bikes are included in a list of 284 product codes, representing $16 billion in imports, released by the Trump administration. The list will go through a public comment process, including public hearings, before the U.S. Trade Representative decides whether each product code should be subject to the tariff. The process is likely to take several months.
Also on Friday, the USTR released a list of 818 product codes, representing $34 billion in imports, that it has already determined will be hit with the 25 percent tariff starting in July. That list includes at least some bike GPS units (see separate article on the GPS tariff).
"It's going to be all hands on deck for the bike industry" — Katy Hartnett, PeopleForBikes
The bike industry is developing a strategy to participate in the public comment process, while also lobbying the administration and Congress in hopes of getting e-bikes removed from the list.
"It's certainly a significant cause for concern," said Katy Hartnett, director of government relations for PeopleForBikes. "It's going to be all hands on deck for the bike industry. We are going to need all the help we can get."
PeopleForBikes is working with the Bicycle Product Suppliers Association and other groups to develop a campaign to remove e-bikes from the list. The USTR announced details of the public comment process on Wednesday in the Federal Register. A public hearing is scheduled for July 24 in Washington, and the deadline for written comments is July 31.
E-bike brands are also looking at other options, including moving production and/or assembly from China to Taiwan, Europe or the U.S.
Impact on a developing market segment
E-bikes are one of the fastest growing segments of the U.S. bike industry, with some suppliers reporting double-digit — or even triple-digit — year-over-year sales increases the past few years. About 10 states have passed industry-proposed laws regulating the bikes, which has encouraged sales growth in those states.
Some bike brands say a 25 percent tariff on import cost would be multiplied roughly three times, in dollars, at retail price. So an e-bike valued at $1,000 at Customs would be slapped with a $250 tariff, resulting in a $750 increase on the sales floor. Brands with nontraditional distribution models would not increase retail prices as much.
"No one can just eat a 25 percent duty" — Larry Pizzi, Raleigh Electric
Not all e-bikes come from China, of course. But Trek, Giant, Accell, Pedego and some smaller brands all manufacture at least some e-bikes there. Most of the sub-$1,000 e-bikes sold in urban markets like New York City are made in China.
It's difficult to determine exactly how many e-bikes are imported from China, in part because there is not a specific Harmonized Tariff Schedule code for e-bikes. The codes included in the USTR list released Friday (8711.60.00 and 8711.90.01) also cover electric motorcycles.
The whole situation is "frustrating and distracting," said Matt Moore, who chairs the legislative committee for the Bicycle Product Suppliers Association and is general counsel for Quality Bicycle Products.
"The frustration is that we all deal with a long horizon on product planning and sourcing and it's not easy to just up and change your manufacturer or assembler at the drop of a hat. It just doesn’t work that way," Moore said. "You've been planning for a product that's not going to be available for nine months or a year, and now you don't know if it's going to have a price that's competitive."
Moore is working with the BPSA and PeopleForBikes on the subject. "This has the full attention of both organizations," he said.
"What I would tell retailers is to be attentive and we're going to have to wait and see how this plays out. And we are going to do our darndest to try to get e-bikes off that list," Moore said.
Larry Pizzi, the president of Raleigh Electric and chair of the BPSA's e-bike committee, said his company is looking at options to move e-bike assembly out of China. He said many companies were already looking to do that because of the EU's proposed anti-dumping duties on China-made e-bikes. Those duties could be as high as 189 percent.
"The good news from my perspective is that all the producers were already taking action because of what’s happening in Europe. They are scrambling to solve that problem so this (the proposed U.S. tariff) is just additive," Pizzi said. "No one can just eat a 25 percent duty."
Don DiCostanzo, the founder and CEO of Pedego, said a tariff on Chinese e-bikes might slow growth in the segment, but wouldn't be catastrophic. Pedego makes bikes in China and Taiwan.
"It would not price Chinese bikes out of the market, in my opinion," he said. "I don't think it will take effect, but if in the worst-case scenario it does, it is manageable from Pedego's perspective."
He said one option for the company would be to ship unassembled bikes from China to the U.S. to reduce the import value of the bikes.
Trek and Giant representatives did not respond to requests for comment on this article.
Strategy in the works
The USTR has shown that it's willing to remove some product codes from its lists. After the public comment period on the list released in April, it removed more than 500 HTS codes, representing $16 billion in products. The new proposed list that came out Friday is to replace those products, so there is still a total of $50 billion in goods getting the 25 percent tariff.
The industry is likely to argue that the tariff does not serve to protect any U.S. manufacturing, because there is little or no domestic e-bike manufacturing. It also could point out the wide-ranging negative effects of the tariff — to suppliers, retailers and the public. While public comments go to the administration via the USTR, the industry also can lobby members of Congress who might be receptive and able to influence the administration.
The lack of a specific HTS code for e-bikes may work against the bike industry, putting up in conflcit with none other than Harley-Davidson.
Harley is gearing up to introduce an electric hog in 2019, and several U.S. companies are already making electric motorcycles here. Harley has been getting the brunt of the trade war recently, being slapped by increased tariffs on imported steel and aluminum and by retaliatory tariffs from the EU, China and India. The company might favor the proposed tariff to protect its forthcoming electric motorcycles from any future Chinese competition.
If the tariff does remain on the list and takes effect in a few months, all is not lost. Individual companies may be able to then request exemptions, which could be a tidy way to separate e-bikes from electric motorcycles. It would be similar to how beer makers and other companies have requested exemptions from the 10 percent aluminum tariff the Trump administration imposed earlier this year (So far, none of those exemptions have been granted).
Meanwhile, the larger picture is that all the tariffs, proposed and enacted, are weapons wielded in the trade negotiations between the President Donald Trump and China.
The war has already escalated, with China retaliating with its list of $50 billion in U.S.-made goods (mostly agricultural) that will be hit with a 25 percent tariff. Trump followed up Monday with a proposal for a 10 percent tariff on $200 billion in Chinese goods (so far the administration has not released the list of products for that tariff). It's entirely unpredictable, but if and when peace is declared, all of the new tariffs could go away quickly, regardless of the bike industry's success or failure in its lobbying efforts.
DiCostanzo, for one, thinks the trade war will lead to a more balanced playing field in the long run. "It may be opening up Pandora's box now, but a year from now I think we'll all benefit. You have to take the long view."